Upside and Challenges of a National Coalition
How can loyalty marketers in the US learn from their neighbors when it comes to coalition-loyalty? Let me count the ways.
by Roger L. Brooks
I’m referring specifically to our neighbor to the north who has slightly more square miles of land, yet is ten-times our junior in population. The US capitalistic ideals have typically adopted a generalized philosophy toward our friendly neighbors; "Anything You Can Do, I Can Do Better" (lyrics from the song “Anything You Can Do” from the Broadway Annie Get Your Gun.) Canadians would argue however, that this egotistical philosophy falls short when it comes to their fancies like hockey, maple syrup and loyalty. Yes, I said “LOYALTY”.
Loyalty programs and coalition programs in particular have thrived in Canada. By coalition I’m referring to national retail partners (called sponsors) who have teamed up to issue a common loyalty program currency. The coalition-revolution began in Canada less than twenty years ago when AIR MILES opened their doors and launched a coalition program with anchor partners in virtually all major spending verticals. Today, more than half of Canadian households are active AIR MILES “collectors”. In addition, other long-standing loyalty programs such as Aeroplan have evolved and followed suit by developing coalition programs of their own.
So, just what is it about coalition programs in Canada and AIR MILES in particular that has the stars aligned perfectly? It comes down to one word – will.
AIR MILES had the will to:
- Issue a non-payment loyalty card which they call the “Blue” card.
- Open negotiations and partner with national merchants.
- Overcome point-of-sale and technical challenges.
- Offer category exclusivity.
- Defy the odds of issuing a common loyalty currency.
- Partner with two competing card issuers (American Express and Bank of Montreal).
- Make coalition-loyalty happen.
Loyalty marketers in the US should continue to learn from AIR MILES’ success, which has since expanded to the UK, the Netherlands, Spain and the Middle East. Now, more than ever, the US is in prime position to offer a common loyalty currency. Reason #1 is the current state of the US economy. Merchants are in need of any competitive advantage they can get. They are in need of new business opportunities which are compelling, proven and profitable to their bottom line. Although a majority of leading national consumer giants offer stand-alone loyalty programs, the potential for coalition-loyalty in the US is enormous. The coalition model provides a platform for impactful cross-promotion opportunities, as well as tremendous benefits such as analyzing consumer data. The shared data that comes along with coalition-loyalty is powerful, and if marketed correctly has a direct impact on motivating customer behavior. If the incentive is great enough, consumers will change their buying habits.
The beauty of the US marketplace is that there’s room for more than one coalition provider. Being first to market is always a key factor, but the reality is the dynamics of the US marketplace is vastly more complex than in Canada. For example, in the US, large providers in certain categories such as fuel and grocery tend to be more regionalized. There are many franchise locations in the US which can create complexities. In addition, payment processing systems and point-of-sale variations can complicate the effort.
That being said, there are still enough compelling reasons why coalition-loyalty will work. The sure fact that several category leaders have existing loyalty programs in place today is a big advantage. Currently, there are several companies testing the waters with coalition-loyalty in various pockets around the country. There are formal Requests for Information & Proposals circulating around the industry. There are executive-level meetings taking place every day on the subject. There is strategic planning happening in many boardrooms.
It’s not a matter of if, rather, it’s a matter of when. When will coalition-loyalty launch in the US and what will it look like? It may not look exactly the same in the US as it does elsewhere, but coalition-loyalty can breed success for both sponsors and collectors. But in the end, and like our Canadian neighbors, this gigantic opportunity will most likely come down to that one small word – the will to get it done!
Roger L. Brooks had a chance to catch up with Bruce Kerr, President of LoyaltyOne US (the parent company of AIR MILES) to provide his view on the coalition-loyalty in the US.
Can loyalty-marketing in the US replicate what is being done in Canada?
[Bruce Kerr] “Yes it can, the overall household penetration may not be as high, but the avidity of the customer base will be equal if not greater. The ramp up of penetration will outpace that of Canada, due to the high embedded base of loyal customers across the partners.
What makes the coalition model so strong is its ability to leverage consumers’ everyday spend in high-frequency categories to offer them attainable rewards and benefits they can’t earn as easily in a proprietary program. The everyday spending component is key. Proprietary programs tend to focus on a subset of consumers, like road warriors or the affluent. But the high-frequency categories really open your reach into middle-class consumers, which allows a coalition to naturally build a much bigger customer database from which to generate results for sponsors.”
What are the obstacles that have stood in the way in the past?
[Bruce Kerr] “Obstacles of the past were the unwillingness of US companies to work together cooperatively — sharing marketing costs and issuing a shared currency. Plus the sheer size and diversity of the US marketplace is challenging.
Coalitions are notoriously difficult to orchestrate, but once they launch and achieve critical mass with consumers, they demonstrate formidable longevity and are difficult for competitors to replicate. And with coalitions now operating from Brazil to Malaysia and points between, the case studies suggest that most markets eventually evolve toward coalition loyalty. The US is poised to be next.”
Are things different today, and if so, how?
[Bruce Kerr] “The current recession may ironically open a launch window that finally allows a U.S. coalition program to take flight. Lack of liquidity and low consumer confidence may lead to a short-term weakening in company investment in proprietary loyalty strategies. Conversely, the same environment will fuel a need for U.S. Companies to share marketing costs and control program liability, which will drive demand for partner and coalition loyalty models.
Companies are now prepared to evolve or integrate current strategies with coalition opportunities. Consumers craving differentiated programs allow them to quickly earn great rewards for their everyday spending.”