Last month, the loyalty industry in Canada was rocked, as AIR MILES, the original iconic coalition loyalty program filed for bankruptcy and was subsequently bought by Bank of Montreal, their primary sponsor. 30 years after its initial conception that took the world by storm due to the network effect, innovative data usage, and shared customer value, the organization could not recover from the vicious cycle of losing collectors (i.e., members) and losing key sponsors (i.e., retailers forming the coalition).
Successful coalitions need these three components:
- A credit card and/or debit card. This allows members to earn points everywhere (within and outside of the coalition), thereby accumulating enough points to be able to redeem rewards relatively quickly. Without an associated credit card, members are not likely to be able to ever redeem for a meaningful reward. Similarly, a general-purpose (i.e., not private-label) payment card provides the coalition and its retail members a view and data on spend outside of the coalition and in relevant categories. A bank partner in a coalition drives the vast majority of all points issuance.
- High-frequency retailers (grocery, pharmacy, and gas). These retailers allow members to interact with the program on at least a weekly basis, which increases brand loyalty to the coalition and its members, and to earn faster, which enables them to be eligible for a reward within a reasonable period. High-frequency retailers are the second-highest contributors to a coalition’s top and bottom lines.
- Specialty retailers. This category of retailers includes apparel, pet, and children’s stores, and is now starting to add digital players, such as streaming services and car sharing. Specialty retailers add variety, interest, and differentiation to the coalition.
The main benefit to retailers of joining a coalition program, in addition to potential cost savings due to economies of scale and centralized operations, is undoubtedly data and its use for acquisition purposes. A retailer with a stand-alone, proprietary program can only communicate to its existing customers through its own channels. Coalition players, however, can use coalition channels to market to each other’s customers, thereby acquiring new customers for their respective businesses.
After the successful launch of AIR MILES in Canada, several others have taken suit, most notably Aeroplan. The coalition loyalty concept, however, never took off in the U.S. due to the fragmented nature of the market, especially in the banking and grocery sectors. On the other hand, coalitions are prevalent in Europe (e.g., Nectar), MENA (e.g., Alshaya Aura), and APAC regions (e.g., Payback).
In recent years, Canadian loyalty programs, such as SCENE+ and Triangle by Canadian Tire have been reluctant to call themselves coalitions, dubbing themselves joint ventures or partnerships instead.
Does this mean that coalition loyalty is dead or dying?
There is a new concept that is growing worldwide that may be eclipsing coalition loyalty: card-linked offers. If joining a coalition is akin to a long-term marriage, participation in card-linked offers is more like casually dating a few people. It allows many of the perks, but without the long-term commitment.
Card-linked offers allow customers to link their payment devices, such as credit and debit cards and digital wallets, to their app. Retailers then provide targeted offers for a promotional period directed at new or existing customers. This enables the retailers to drive the acquisition of new customers and grow the baskets of existing customers, with highly measurable results and a reasonable ROI.
2020 data shows a 40% increase in the share of advertising budgets devoted to card-linking and it has become the 2nd most preferred digital tool after social media[1]. Global card-linked offer players, such as Rakuten, Dosh, Figg, and Mogl, and some local Canadian companies like Ampli, Neo, Drop, and yes also AIR MILES, are attracting major retailers, like Foot Locker, H&M, and Dunkin Donuts.
Are card-linked offers replacing loyalty coalitions worldwide or is it just a fad? Only time will tell.
[1] https://www.businesswire.com/news/home/20200924005167/en/2020-CardLinx-Industry-Data-Shows-Strong-Card-Linking-Growth
