The Indian market is witnessing the arrival of new Coalition Loyalty Programmes, promising rewards points and other benefits if you buy from this set of companies or that. The most prominent example is of course ICICI’s I-mint. And this is probably just the beginning!
What is a Coalition Loyalty Programme?
In a Coalition Loyalty Programme, a group of like-minded companies come together to offer loyalty points for their customers which they would have otherwise offered separately.
Why a Coalition instead of your own Loyalty Programme?
- Your customers earn points from purchases faster, and so can get decent rewards faster, than if they were earning from your company alone.
- “Card fatigue” is avoided since customers carry one card instead of many for multiple establishments
- Customers enjoy good bargains because of promotional offers from partners.
- Costs of a loyalty programme are ideally lower for coalition partners.
- You get additional footfalls from customers of your coalition partners.
Understanding how it works
Before considering a loyalty programme, it is essential to understand its inner dynamics. There are three critical players in a coalition game, who have their critical needs:
- Customers are attracted to the programme when they see increased accumulation of points, redeemable for exciting rewards.
- The Programme Manager is a separate entity who wants to deliver profits to coalition partners by achieving sales increases over and above the participation fee the partners pay.
- Sponsors or partners are the companies who participate in the programme, buying and issuing points to the customers. They finance the programme, and need to see increased sales and significant ROI.
It is important that each of these participants see tangible benefits for themselves for the coalition to succeed.
Four major benefits you can expect from joining a coalition loyalty programme:
- Lift: Customers enrolled into the programme are likely to purchase more from you, more frequently and perhaps spend more per transaction than before joining the programme
- Acquisition: Customers who are not collecting points from your company can be identified and incentivised to start using your products and services
- Retention: Customers who become members of the coalition programme are likely to churn at lower rates than non-members
- Up-Sell: Customers of the programme could be offered incentives to buy higher-margin products and services
Some major risks to avoid
It is equally important to be aware of the risks of joining such a programme – especially if any of your potential partners have their own loyalty programme – or is about to launch one.
- Control over customer base. Loyalty to a coalition is not loyalty to your brand. If a competitor takes your place in the programme, will he get your customer base on a platter?
- Failure of the coalition. If the exit strategy is not defined properly or if the coalition is not run professionally, a negative impact could rub off on your brand.
A survival checklist before joining a coalition programme:
Some of the essential issues you need to address before joining a coalition programme are:
- What is the coalition attempting to achieve?
- How many major or anchor partners are there? Is there synergy between their customer segments, providing a ‘critical mass’ of earning points for customers?
- How does the cost sharing pan out when one of the anchor partners withdraw?
- Who owns the customer data and what is the frequency at which the data is going to be provided to partners?
- What is the IT backbone? Is the software flexible in terms of providing bonus point opportunities?
- How is the balancing of costs between the high-margin specialty retailers and low margin grocery retailers going to be done?
- For the cost that you pay, what is the additional value you are getting by being in the coalition, that you would not have been able to get yourself if you spent the money in a proprietary loyalty programme?
- What are the exit costs, if you want to withdraw from the programme?
To deliver on their promise, Coalition Loyalty Programmes need focus and savvy planning. It is a difficult choice: should you join the coalition bandwagon? Or would you be better off having your own loyalty programme?
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