If a loyalty member is part of competitor programs as well, are they actually loyal? In many verticals, consumers follow incentives to register for competing loyalty programs. This is because, for large merchants, a loyalty program in and of itself can no longer be considered a competitive advantage—a loyalty program is a minimum requirement for the license to operate in today’s competitive landscape.
As with any component of consumer engagement, it’s how a company executes on loyalty that really can provide an advantage.
The Problem with Value Prop
Companies have traditionally looked to value proposition as a means to gain advantage over competition. While consumers do appreciate value, that the industry has seen value props become so complex that the average consumer often doesn’t understand how to redeem their rewards. It’s important to remember that consumer communications must be simple— the average consumer doesn’t weigh the best value across every loyalty program. Even if the consumer does register for a program for which they don’t understand the value prop, they are likely to remain active members of the program.
A Loyalty Partner: One Way to Gain an Advantage
For the last few years, loyalty partnerships have been drawing attention. When Delta and Starwood brought crossover rewards into the market, and when American Express launched the Plenti coalition, many pundits were writing about partnerships and coalitions as the future of loyalty.
The theory behind partnerships is sensible from a consumer standpoint— the consumer has more options to redeem, which is assuredly convenient and appealing. In a recent survey on hotel satisfaction, JD Power found that “Companies in a position to partner with third parties in retail, travel and more are positioned to benefit the most.” The same survey discovered that hotels that offered car rental or dining options scored significantly higher on loyalty satisfaction than those who limited reward point redemption to hotel stays.
In their research phase prior to standing up the Plenti coalition, American Express found that “72 percent of Americans prefer a rewards program that allows them to shop at many stores versus a single brand.” These results are not surprising— we’ve seen airline and hotel alliances in particular that have been taking advantage of the partnership space, and it shows in their customer loyalty.
The merits of the partnership model are simple. A partnership allows a company to extend beyond its own brand’s reach, while simultaneously sharing in the benefits that another brand’s program can offer. If the fit is right, all parties in the partnership or coalition stand to benefit.
Considerations for a Loyalty Partner
The most obvious consideration is to find a loyalty partner that fits with your brand. The aforementioned Delta and Starwood partnership makes more sense than if Delta would have partnered with, say, a fast food brand. More pointedly, however, once you choose a vertical to partner with, is to find those specific brand elements that best complement your own brand.
Although a partnership offers increased brand exposure, it’s inevitable that partnerships impose limits on branding— every corporation will have brand guidelines, and these guidelines will become further restricted when imposed beside the guidelines of a partner brand. Delta and Airbnb recently collaborated on an offer that grants consumers “$25 off your first qualifying Airbnb stay, and up to 1,000 bonus miles. Plus, earn 1 mile per $1* spent on all stays.” While this is a solid, competitor offer in today’s marketplace, it will undoubtedly change as the partnership evolves. Any change, whether to the offer itself or to advertising strategy or terms and conditions, becomes more complex when the project must navigate the guidelines and organizational practices of two large companies.
Understand the Value of your Loyalty Currency
While certain currencies have resonated greater with the public (i.e. airline miles, Starbucks stars, etc.), for those brands that have existing loyalty programs in the market it will be imperative that they do not alienate their most loyal base when moving to a partnership or coalition model. If there are consumers who have demonstrated loyalty to a given currency, it’s important that they have the option to transact in that currency, regardless of the value prop decided in the partnership.
Perhaps the most important piece at present to consider is the data generated by the partnership. Many loyalty programs don’t produce a significant ROI in and of themselves— perhaps their greatest benefit is that they produce monetizable consumer data. When engaging a prospective loyalty partner, the question must arise— who owns the consumer? Who owns the data? This piece is an essential component of assessing a partner for fit.
It is essential when considering a loyalty partner to consider the future as well. Last week, CAPRAplus published an article around how merchants should begin to rethink their approach toward digital wallets. While a single wallet hasn’t yet emerged to dominate the mobile market, it’s a surefire bet that the winning solution(s) will incorporate a robust loyalty solution. If your brand does decide to pursue a loyalty partner or a coalition model, make sure that the brands you align yourself with are those you can grow alongside.
For further discussion, contact Daniel at [email protected].