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Chris Jacobs4 April 2013
The Benefits and Challenges of a Multi-Partner Coalition Programme
Contents
• Introduction• Customer Loyalty - What do Consumers want?• Customer Loyalty - What Retailers want?• How a Coalition Programme works• Advantages of joining a Coalition• The Financial Model• Disadvantages of joining a Coalition• Current Programmes around the world
My Credentials
• Independent Customer Loyalty Consultant• Personally involved in over 90 Customer Loyalty
Programmes, including:• Boots Advantage Card• Nectar• Barclaycard Freedom• Vodafone & O2• BP• Applegreen, Easons, Statoil
• Founder of 2 companies providing customer loyalty services
• Regularly conduct independent supplier evaluations for retailers, banks and MNOs
• Passionate believer in the value of data
• BSc in Computational & Statistical Science• Fellow of Institute of Direct Marketing
My Positioning
• Advise Organisations considering a Programme• During their annual marketing budget review• Carry out cost benefit analysis• Prepare strategy• Sell the decision to the Board• Emphasise the value of data and explain how it’s used• Prepare RFIs and RFPs• Supplier Evaluation & Selection• On-going reviews of programme progress
• Loyalty Expert Consultations• Advise Solution Providers on Product Roadmaps• Speak at Conferences & run loyalty workshops• Loyalty Awards Judge
Customer Loyalty - What do Consumers want?• A unique and relevant reward that is attainable
• A currency that is easily understood
• Lots of ways to earn the currency
• No restrictions on rewards
• Easy, fast redemption
• Meaningful, non-intrusive communications
• Recognition
• No junk mail!
Gamification (3 Motivational Pillars)
Progress
● Collector mechanic, points balance, points accrued, nights towards free weekend, challenges
Rewards
● Meaningful, achievable and valuable. Random acts of kindness. Competitions.
Status
● Tiers (bronze, silver, gold), privileges, recognition, league tables.
Customer Loyalty - What do Retailers want?
• Understand customers and their behaviour
• Build meaningful customer relationships and provide information that the customer is more likely to be interested in
• Reduce churn by recognising the typical behaviour of customers that precedes switching and taking appropriate action
• Increase the ability to acquire, retain, up- and cross-sell customers
• Increase frequency and spend, and improve retention
• Acquire new customers that are more likely to be profitable by targeting prospects that have a similar profile to their ‘best’ customers
• Improve the effectiveness of marketing campaigns through better targeting
• Improve customer satisfaction
The Retailer's Dilemma
BUT• A loyalty scheme is a major investment • A major project to implement and manage• Significant resources are needed• Difficult to cost justify
Retailers need a means of collecting customer data in order to understand and serve them better to
compete effectively in today’s market
Can a coalition programme help with these issues?
Multi-Partner Coalition Programme
CustomerTransactio
n Database
PointsBank
Customer
Enrolment
Independent Coalition OperatorRetail Partners
Data Mining
Marketing Communicatio
ns
Data Monetisation
ID Issued
Billing
Transactions
Points Issuance
& Redemption
Customer data is owned by the Operator
Customer may pick up a card from a Partner, but enrols with the Operator
Multi-Partner Coalition Programme
CustomerTransactio
n Database
PointsBank
Customer
Enrolment
Independent Coalition OperatorRetail Partners
Data Mining
Marketing Communicatio
ns
Data Monetisation
ID Issued
Billing
Transactions
Points Issuance
& Redemption
Advantages of a Multi-Partner Coalition Programme
• Ready-made customer loyalty solution• Quicker and cheaper to launch• Shared operating costs• Wider appeal and more compelling customer
proposition• Opportunity to leverage other brands for acquisition• Richer customer database• Greater customer insight• Independent operator with dedicated skills and
expertise• Easier to exit than a single Retailer scheme
Coalition Partner Sectors
• Only non-competing Partners are invited to join the coalition• Partners from a cross-section of sectors are needed with the objective of
representing at least 25% of the consumers’ wallet.• An anchor, high-frequency Partner is essential (preferably a grocer)• Key sectors for coverage are:
● Grocer
● Fuel Retailer
● Financial Services
● Leisure & Travel
● Utilities
• Once established, other sectors can be added, including low-frequency retailers
Coalition Partners
• Partners will fall into one of the following categories:
1. Issuing only2. Redeeming only3. Issuing and redeeming
• Category 3 should be the Partners’ aim, to encourage repeat purchases and reduce the ‘real’ cost of the points
• However, the technology required for redemption at the point of purchase is more complex
• Option 2 Partners are easy to recruit. The more of these there are, the more attractive the programme is to the consumer, although Option 3 Partners have a reduced opportunity to redeem points
Coalition Economies of Scale
0123456789
10
Cost
s
Coalition Financial Models
§ Partners are charged:§ Joining fee§ Ongoing management fee§ Points issued (plus 5%)§ And credited for points redeemed (less 10%)§ Campaign communications
§ Suppliers fund special offers
§ The “Points Bank” grows rapidly (great for cash flow!)
§ “Breakage” is significant
Coalition Funding Example
1 point = 1 €cent (to customer)
Issuing Partner is charged a premium (say, 5%)i.e. 1 point costs 1.05 €cents
Redeeming Partner pays a commission (say 10%)i.e. 1 point is worth 0.9 €cents
Coalition Funding Example
Issuance
Customer accrues 500 points Value to Customer is €5.00
Issuing Partner is charged:500 x €0.01 + 5% = €5.25
Operator’s profit is €0.25
Redemption
Customer redeems 2,500 points
Worth to Customer is €25.00
Redeeming Partner is credited: 2,500 x €0.01 - 10% = €22.50
Operator’s profit is €2.50
Data Processing
Reduced Cost of Direct Marketing
Artwork & Copy
Personalisation
Materials & Inserts
Fulfilment
Postage
Cost
Single Retailer Mailing
Artwork & Copy
Coalition Mailing
Inserts
Compelling Customer proposition
Earn everywhere, Redeem anywhere, Faster!
• Earn points faster through a network of off and online retailers
• Earn points on every purchase (well, nearly)• Redeem more widely though an array of
redeeming Partners• Buy anything with points (well, nearly)• Receive targeted offers from suppliers that are
meaningful
Greater Consumer Insight
• Transaction data is collected from a greater range of retailers covering a large % of the customer’s wallet
• Customer segmentation is broader than a single Retailer view
• Targeting is more precise and meaningful• New customers can be acquired from other
coalition Partners• The data can be monetised through suppliers
However, there are Disadvantages
• Loss of branding• Loyalty is to the Coalition currency not to the Partner• Marketing communications is delivered by the Operator• Loss of control – the Operator manages the frequency of
customer comms, and the content• The cost of points issued is incurred on sales, whereas in
a single Retailer scheme the cost is delayed until the points are redeemed, which could be 12 months later
• Breakage adds to the Coalition Operator’s bottom line. This is usually a minimum of 20%.
• The Coalition owns the customer data and access to this is lost on exiting
• Difficult to pilot
If you are a Retailer considering joining a Coalition:Become a founding Partner and negotiate hard on the contract!
Some Existing Coalition Programmes
• Advantage Card (Australia)• Aeroplan (Canada)• Air Miles (UK, Canada, Holland, Middle East)• BonusLink (Malaysia)• Carlson Gold Points Reward Network• eBucks (South Africa)• FlyBuys (Australia, NZ)• Infinity (South Africa)• Magna Rewards (Caribbean)• Malina (Russia)• Nectar (UK, Italy)• Payback (Germany)• Premium Club (Poland)• R&R (Kenya)• SmartClub (China)• Travel Club (Spain)
