Why Brands Banding Together Can Be Stronger Than Working Alone
Loyalty programs have been shown to significantly increase average basket size and repeat sales for brands. However, single-brand loyalty programs are not without their share of limitations. From a customer’s perspective, the most glaring one is the restraints around reward catalog and redemption opportunities. A coalition loyalty program solves this problem by offering a wider assortment of incentives built around low, medium, and high-frequency shopping partners. Furthermore, the lower cost structure of coalition programs compared to individual programs, allow businesses to pass those savings on to the customer as more attractive incentives.
What Is a Coalition Loyalty Program?
Often called “shared loyalty programs”, coalition loyalty is a unique concept in which multiple brands join together in a partnership and offer a joint loyalty program. Not to be confused with “umbrella loyalty” or “group loyalty” (where businesses with large brand portfolios offer a loyalty program across individual brands), Coalition Loyalty is in play when many unrelated brands band together to offer customers rewards that can be earned from a variety of participating brands, with options to redeem rewards at the brand of their choice.
Imagine a scenario where you frequently earn points every time you shop at your favorite grocery store, racking up even more points when you fuel your vehicle at a partnering station or while traveling with partner airlines, and finally being able to redeem your points on a new phone from an associated electronics outlet, or a gourmet meal at that restaurant you’ve been dying to try. Coalition Loyalty turns this into a reality.
From a consumer’s point of view, coalition loyalty is an uncomplicated way to collect points while shopping at more than one brand and avoiding the irritation of managing multiple apps on their phone or cards in their wallets.
Although the advantages for customers are straightforward, what are the potential advantages for brands?
How Brands Can Benefit From Coalition Loyalty
- Expanding Networks With Cross-Promotions
By their very nature, consumers always try to maximize their own benefits, and those belonging to a coalition loyalty program look to accumulate as many reward points as they can, as fast as they can. For this reason, they are more likely to alter previous shopping habits to make purchases with other brands in the same network. When brands within a coalition sell bundled products or promote other participating brands for complimentary services, it strengthens customer loyalty towards the coalition and encourages more frequent shopping across the coalition. As an example, the BLUE Loyalty program* (operating in the GCC and Egypt by Al Futtaim Group).
The program drives loyalty and sales for all participating brands (such as IKEA, Kate Spade, ACE Hardware, Guess, and more) with 2-for-1 offers that incentivizes their +200k loyalty members to earn greater cashback and rewards when they make purchases with two or more brands.
Promoting Brands With Longer Purchase Cycles
A coalition loyalty program can promote products with a longer purchasing cycle by supplementing them with short-purchase-cycle products and brands. For example, bundling a monthly phone connection with an annual cable connection can drive greater sales for both businesses. With a coalition loyalty program, consumers often collect a smaller number of points from regular operations and look forward to collecting a lot of points from bigger purchases. This ‘coalition network effect’ builds and maintains greater top-of-the-mind awareness that all the participating brands benefit from.
- Earn Rewards Faster
One of the main advantages of a coalition program for the consumer is that aspirational rewards can be earned within a reasonable time. Studies estimate that consumers can earn between three and ten times as much reward value from a coalition program than from a single operator loyalty program.
Lowering Costs And Risks
The costs for running a coalition loyalty program is usually shared between the multiple brands within the program, and any risks that arise will not fall solely on one company (when well executed!). Furthermore, because the costs are lower than with individual loyalty plans, businesses may be able to pass those savings on to the customer as more attractive incentives
- Building Up Smaller Businesses
Small and Medium-sized enterprises may not yet have established enough trust or the network reach to successfully execute their own individual loyalty programs. Coalition loyalty programs can provide a huge boost to small niche businesses because they can benefit from the network reach of the coalition. It can be a cost-effective way to offer their customers a variety of attractive benefits that they would not be able to provide without the support of other businesses. For example, VIG Group runs TAP TAP*, a coalition loyalty program with a mix of well-established brands as well as smaller and niche brands.
Through the 32 participating brands, the program has an estimated customer base of 13M, which all participating brands (especially those with smaller audiences) can benefit from.
Improving Customer Experience With Shared Data
Brands within a coalition can obtain richer insights about their customers by agreeing to share transactional information and customer data about preferences and purchases between brands participating in the coalition loyalty program. This can help individual brands fine-tune the experience they offer customers by being predictive and practical to a customer’s needs.
Cutting Out The Noise
An intelligent coalition loyalty program must take an omnichannel approach to communication, and ensure that customers are not bombarded with too many offers in one week, or the same message from multiple brands on different channels. A coalition loyalty program can leverage customer engagement data and can harmonize engagement to cut through the noise.
Growing Individual Brand Awareness
At its core, a coalition loyalty program aims to increase the number of people enrolled. The inclusion of complementary coalition partners reduces variety-seeking behavior as customers will favor a program that is offering them a one-stop destination for their point-earning activities.
*Capillary is a proud partner of VIG Group and Al Futtaim Group for these initiatives
Examples of Great Coalition Loyalty Programs
Around the world, prominent brands are adapting their proprietary programs to capture the value of multi-partner coalitions. As a result, coalition programs are thriving.
One of the largest coalition programs in the Middle East region is Air Miles ME, which operates throughout the UAE, Qatar, and Bahrain.
With a diverse range of partners such as HSBC, Sharaf DG, Careem, Booking.com, Damas, and more, the Air Miles ME program has enrolled over a million members and has delivered over 760,000 rewarding experiences to its members since launching in 2001. Members can collect and redeem Air Miles with partner brands both in-store and online (via the website and mobile app), also allowing them to access their Air Miles profiles whenever they need. The Air Miles program delivers a stellar customer experience, made possible with customer data, and understanding how their members want to be recognized and communicated with.
PAYBACK is another leading coalition loyalty program, launched in Germany in 2000, and currently claiming more than 600 online partners and 35 retail companies in Germany.
After immense localized popularity, the program has spread to multiple countries. In India, PAYBACK was launched in 2010 and is today one of India’s largest Multi-Brand loyalty programs with over 100 million members, and more than a hundred partner brands, such as Big Bazaar, Hindustan Petroleum (HPCL), ICICI Bank, BookmyShow.com, MobiKwik Wallet, and more.
The program offers members omnichannel loyalty linked to their mobile number or loyalty card number and targets members with personalized promotions to increase their point earnings. PAYBACK offers participating partners insights from a huge repository of customer data across all partners, allowing companies to tailor their offerings to customer requirements, and subsequently measure the success of their campaigns. Partners also benefit from an exclusivity agreement, which means that their competitors cannot use PAYBACK as a marketing platform.
Avoiding The Pitfalls
Although coalition programs offer multiple benefits, there are certain aspects and pitfalls that participating brands should watch out for.
- Brands joining a coalition program need to ensure the reliability of the program since customers often tend to regard the loyalty program as if it were owned by the partner. This means any disappointment in the program can spill over to participating brands.
- A major learning from successful coalition programs is that it is crucial to involve companies that offer ancillary or complementary products and services— not competitors.
- To be successful, a coalition program should launch with major brands in the respective verticals. This is to ensure the maximum share of consumer wallets. This also allows the data collected to be more representative of the target market.
It’s clear that there are multiple benefits for brands that are part of a coalition loyalty program. However, in order to strike success, brands need to set clear goals for building long-term consumer loyalty and strategize intelligently to ensure there’s no brand dilution by participating in the program.