Can Coalition Reward Programs Curb Consumer Apathy?

Payments Leader

Posted on July 23, 2015

coalition loyalty programs

Countless retailers use reward programs to cultivate loyalty and generate repeat business.  Unfortunately, consumers and retailers alike have become fatigued by the overwhelming ubiquity of disconnected loyalty programs and the often limited value of redemption options. In response to this, we see a trend toward the socialization of commerce to attract broader consumer attention, as well as the formation of coalitions of retail entities to provide broader access to rewards. A prime example of this is American Express’ new Plenti Rewards program, which is generating buzz among retailers and consumers alike.

What is coalition loyalty?

Coalition loyalty programs allow customers to earn and redeem points across numerous participating businesses. In the case of Plenti, the players include major brands such as ExxonMobile, Macy’s, Rite-Aid, Hulu and others. Shoppers are able to acquire and redeem points across all participating brands regardless of payment method. So a customer could use Macy’s credits at Rite-Aid and vice-versa.

What Are the Benefits?

The obvious benefit to consumers is the ability to earn and redeem points for rewards at a broader and more diverse set of retail locations for a wider variety of goods and services. Currently, there are coalition loyalty programs consisting of hundreds of different online and brick-and-mortar retailers, all of whom have agreed to honor reward points acquired at other participating businesses. From a retailer’s point of view, these programs seek to make their loyalty points more valuable and compelling in order to solve the very real problem of dormant loyalty.

According to a 2014 study from Colloquy, while U.S. loyalty programs are growing faster than ever, fewer than 10% of memberships are actually active. By giving customers more options, coalition reward programs are hoping to change this.

Reason for Optimism

Although it’s creating a lot of buzz in the United States, coalition loyalty isn’t a new idea. Canada’s AirMiles program works across numerous stores and brands, allowing customers to redeem points in the form of airline tickets. Europe has a very successful coalition rewards program that allows consumers to redeem retail points in exchange for Air Baltic miles. American Express has seen considerable success with coalition loyalty outside the U.S. through Payback, a program that works with retailers in Italy, Mexico, India, Poland and Germany. Obviously with Plenti, AmEx is hoping to replicate their success in the U.S. (It’s important to keep in mind that Plenti is completely independent of American Express’s credit card business. Customers acquire and use their points based on their loyalty card number, no matter their chosen payment method.)

Despite the buzz, Plenti and other coalition loyalty programs are far from being a slam dunk.  Existing coalition programs have some glaring problems and usability gaps.  How broad and disconnected can the retailers in a given coalition be and still drive meaningful consumer loyalty? How tightly grouped around consumer demographics and lifestyle should coalition members be in order to attract meaningful, top-of-mind brand loyalty?   And then there are some big limitations to where consumers are able to spend their points. For example, with gas station and convenience store brands that operate by franchise, the “participating stores” can be few and far between.  And not all coalition partners have locations convenient to all consumers.

In our current payments environment characterized by real-time transaction processing and easy access to digital services, it still takes some coalitions up to 90 days for point distribution and settlement.  How likely is a consumer’s behavior going to be driven by a reward they won’t see for 90 days? What’s more, in many cases competing brands are not allowed within the coalition.  On the one hand this may make sense, but when those coalition members are a mélange of whomever joined the program first – instead of a group of retailers targeting the same market demographic – programs can lack the cohesion needed to actually drive loyalty. If I happen to already shop at the coalition’s department store, their gas station, their mobile phone service provider and their pharmacy, I may be good to go.  But if I don’t, are the rewards offered going to change my driving patterns and shopping habits?

With the heavy saturation of loyalty programs in the market today, the coalition model is a welcome consolidation of options, and it has high potential for revitalizing the loyalty industry and helping it evolve into a compelling future for retailers and FIs.  That said, in order for the model to be truly successful, coalition strategies need to step up their game in terms of targeting specific customer market segments and demographics not only with their messaging and compelling use of social media, but with their very DNA—the retailers who make up the coalition itself. They must know their audience and bring together retailers that are relevant to each other from the standpoint of both brand and market.

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Payments Leader

Payments Leader from FIS provides insights on credit, loyalty, fraud and emerging payments strategies through blog posts from our industry experienced authors.