Have we seen the end of coalition loyalty programmes?

There is a growing trend for brands to create their own loyalty programmes, rather than sign up to coalition loyalty schemes, says Belinda Clark of RAPP UK

When Sainsbury’s announced it was buying Nectar from Aimia earlier this year, we all nodded knowingly. That made sense. As the retailer that issues the most Nectar points and provides the most rewards¹, it’s not surprising they saw value in owning the coalition, rather than merely being a part of it.

But when news broke that Avios.com would close on May 20^th, with Avios currency transferring across to the Executive Club², it signalled a clear change. And, of course, we can’t ignore the imminent merger between Sainsbury’s and Asda and what that means for its loyalty strategy – but we do know that there is a growing trend by big brands away from third-party-owned coalition programmes and towards brand-owned programmes.

So if brands (especially big brands) are no longer buying into coalition-driven loyalty, that raises the question: is there any future for coalition loyalty programmes?

Recent evidence would suggest, no.

Why? Because coalition programmes are not designed to drive loyalty to any one brand. They drive loyalty to the coalition at the expense of individual brand loyalty. Yet this individual loyalty is ultimately what brands are after, as it offers the best long-term value.

Coalition programmes have instead leant on the marketing potential from their massive customer databases. But many brands have found this access to be limited, too – limits that could deepen when GDPR legislation comes into force on May 25th – less than two weeks from now. While aggregate data, insight and trends are useful to a point, customers are demanding more than being treated in aggregate. And brands have responded by creating their own customer databases, which are arguably bigger and better than those available from a coalition.

Coalitions undoubtedly benefit the consumers who are members by allowing them to earn and burn points from just one programme. But as the value of a point begins to decline³, so too does a coalition’s popularity. Without value, the simplicity of earning and burning in one program simply loses its sparkle.

So what lessons can brands learn from coalitions?

When done well, brand-owned programmes can achieve many of the benefits of a coalition… and more. Yes, it will require investment, or a coalition purchase such as Sainsbury’s and British Airways have opted for. But this investment is in more than just a programme; it’s in your customers, your company’s data collection capabilities and your competitive advantage.

There are some simple tips for those running loyalty programmes:

OPTIMISE THE VALUE EXCHANGE
Coalitions were known for their no-brainer value-add. Over time this became a reason for customers to share their data; but while the value-add has eroded over time, the principle of offering a strong value exchange (namely, rewards for data) still holds true as it makes the exchange valuable for both sides.

TO REMAIN RELEVANT, ENSURE YOU REMAIN VALUABLE
For all customers, a valuable programme is one that offers something in exchange for their continued purchase. But as the point declines in value, so too does a programme’s popularity, unless it’s able to demonstrate value beyond just monetary terms. In the case of Nectar, this meant its alignment with Sainsbury’s and its ability to target their customers with personalised offers based on their purchases. Something which gave loyal Sainsbury’s customers yet another reason to shop.

SIMPLICITY, SIMPLICITY, SIMPLICITY
Coalition programmes that last get this one right every time. They offer a programme with a minimum of steps to join, participate and earn and burn. This familiarity of structure was key to their success because it meant customers knew what to expect without having to re-learn the rules every time.

But if brands are to succeed in a coalition-less world, they also need to go above and beyond this. They need to:

BE GENEROUS:
With much more than just their money – their time and people too. Because money doesn’t talk like it used to! Customers demand brands be generous with their entire offering in an effort to make them feel special and give them a reason to return again and again.

BE VALUABLE – AND MAKE PEOPLE FEEL VALUED…
To be valuable means to offer something that customers see real value in. While rational reasons like money are still core parts of this equation, to be a valuable programme means to give customers bragging rights (think myJohn Lewis…free coffee and cake anyone?). To make people feel valued, means to make the programme feel like it’s been created just for them – even if its offering is available to everyone (think Harvey Nichols’ complementary concierge service…yes please!).

DELIGHT WITH AN EXCEPTIONAL CUSTOMER EXPERIENCE…
A simple, seamless end-to-end customer experience is now expected as standard. To delight now means to make customer’s lives easier; to demonstrate shared values and to improve their experience not only with you, but with the environment and community you both live in.

The best of both worlds really is possible, as Sainsbury’s and British Airways will no doubt demonstrate in time. While coalition programmes used to make sense, they just don’t cut it in today’s world. And as Sainsbury’s and British Airways have now shown us, a new world is opening up. And that world just so happens to be owned and run by brands.

Belinda Clark is Senior Strategist at RAPP, a London-based integrated agency which is part of the Omnicom Group. Rapp works with clients including Rapp UK is based in London, working with clients including PayPal, Virgin Media, Mercedes Benz and Nestlé Waters.

Sources:

¹ Sainsbury’s buys Nectar rewards scheme from Aimia for £60m. The Financial Times. February 1, 2018 https://www.ft.com/content/584f106e-0766-11e8-9650-9c0ad2d7c5b5

² British Airways’ Avios scheme is closing down – here’s everything you need to know about your points. UK Business Insider. April 11, 2018
http://uk.businessinsider.com/british-airways-avios-frequent-flyer-scheme-closing-points-2018-4?r=US&IR=T

³Sainsbury’s Nectar point cut angers customers. The Guardian. 10^th April 2015. https://www.theguardian.com/money/2015/apr/10/sainsburys-cuts-to-nectar-points-anger-its-customers