Coalition loyalty programs: How to create an engaging open-loop loyalty program?

In the ever-evolving customer loyalty landscape, businesses continually seek innovative ways to engage and retain their customers. One such strategy is coalition loyalty programs.

A coalition loyalty program goes beyond the traditional single-brand loyalty approach, uniting multiple businesses under a single umbrella to offer customers a broader range of rewards and incentives. ‍

This blog will delve deep into coalition loyalty programs, exploring how to create an open-loop loyalty initiative that captivates and retains customers while fostering mutually beneficial relationships among participating brands.

Coalition loyalty programs can be complex, involving several stakeholders and systems. However, in specific industries and situations, they present an excellent opportunity for a home run.

That’s why we have enlisted the help of Lia Grimberg, Principal of Radicle Loyalty. She has over 20 years of experience managing loyalty programs of popular companies in Canada, such as The Home Depot, American Express, and The Bay.

Read more: Loyalty program business case - good practices with Lia Grimberg.

Here’s what you will learn:

• What is a coalition loyalty program and how it differs from regular loyalty programs?
• What benefits can the business get from running or participating in the coalition loyalty program?
• What are some examples of successful coalition loyalty programs and their rewards program?
• How to create and run a strong coalition loyalty program with multiple brands?
• Which partners are the best match for an effective coalition loyalty program?
• What are the steps for implementing a coalition loyalty program?
• How to maintain an engaging open-loop coalition loyalty program with participating brands?

Key takeaways to boost multi brand loyalty

Here are the key learnings:

• Coalition loyalty programs involve a controller and multiple partners.
• Good programs offer convenience to customers and shared rewards for the partners.
• Two inspiring case studies are Scene+ and Aeroplan.
• Its four main challenges are data governance, competing priorities, partner buy-in, and balancing partner needs.
• Most successful programs have these three partners: credit and debit cards, high-frequency retailers, and specialty retailers.
• Data sharing has to be agreed on from the start. 
• Once the program is running, you should measure the success and keep an eye out for warning signs.
• Card-linked offers are a simpler model compared to coalition programs.

What is a coalition loyalty program and how it differs from regular loyalty programs?

Imagine a shopping mall that rewards customers who spend over $100 across different stores. It’s a win for customers, stores, and the mall. That’s an example of an open-loop coalition loyalty program, where customers can earn and redeem at multiple partners, and a third-party owns the liability and runs the program.

When creating loyalty programs, companies often partner with other businesses to form a wider offer, sometimes called shared loyalty programs. It’s what the stores in our example did.

A coalition program has a special figure: the program owner at the center. Going back to our case, that would be the mall.

There is a grey line between open-earn/open-burn loyalty programs with multiple partners and coalition loyalty programs. Typically, programs with multiple partners are owned by one or more of the partners.

In contrast, in a coalition program, it is a third party that owns the liability, the data, and the reward fulfilment, rather than the partners.

To recap, how is it different from a standard loyalty program?

A coalition loyalty program is a customer engagement approach involving multiple businesses collaborating to offer a shared loyalty initiative.

In contrast to regular loyalty programs, which are exclusive to a single brand, coalition loyalty programs tend to enable customers to earn and redeem rewards across a network of participating businesses. They feel they have more opportunities to earn.

This approach encourages customer loyalty and spending within the coalition while providing a broader range of earning and redemption options.

What benefits can the business get from running or participating in the coalition loyalty program?

Well-implemented coalition loyalty programs offer several compelling benefits to all involved. 

For example, from the customer's perspective, this loyalty model offers:

• Convenience of needing a single loyalty card or app for accruing points from multiple sources.
• Faster path to earn rewards, as customers can collect points from a wide array of retailers.
• Exposure to exclusive discounts and offers coming from different shops.
• Diverse range of rewards for redemption, sometimes from many unrelated brands.

The participating companies in the program, meanwhile, can:

• Share the costs of reward fulfillment while the coalition takes care of the liability.
• Split the marketing costs, data governance, and benefit from the halo of the brand.
• Get access to data for mutual campaigns and customer acquisition opportunities (e.g. the grocer can partner with the gas provider in the program to offer a bonus if the customer shops at both or the bank targets the grocer’s customers for credit card acquisition campaigns).

What are some great examples of coalition loyalty programs?

Lia points out two inspiring implementations of coalition loyalty programs:

1. Scene+

How does the Scene+ coalition program work?

Scene+ members earn points by making purchases at Cineplex-owned cinemas in Canada, as well as through other partners. For example, spending using Scotiabank debit and credit card, shopping at Sobeys grocery stores, Home Hardware stores, the Expedia travel site, various family restaurants under the Recipe brand, and the Rakuten online shop. 

These points can be used for discounts at Cineplex locations and at participating retailers and restaurants.

Similarly, you can redeem for a vast catalogue of rewards, including statement credits for your credit cards, and with any of the partners stated above.

Learn how it works.

How has it evolved?

Originally established as a joint venture between Scotiabank and Cineplex in the early 2000s, S primarily targeted Millennial customers. 

However, in light of the shifting landscape, where Millennials have transitioned into parenthood and movie theaters faced challenges during the pandemic, Scene+ embarked on a rebranding journey. They welcomed a third partner, Empire (a grocery chain), to broaden their offerings and cater to a more comprehensive range of consumer needs.

Additionally, they diversified their partner portfolio to include dining, home improvement, and other retail establishments so members have multiples opportunities to earn.

Why is it inspiring for shared loyalty?

Its data asset proved immensely valuable, attracting numerous partners eager to connect with the younger consumer demographic.

What is an example of a good loyalty campaign inside the Scene+ loyalty program?

As a member, you have various ways to earn points. For example, members can earn 1 point for every $1 spent at The Rec Room and Playdium. On the other hand, members can spend their points on discounts and benefits from different partners.

What makes the coalition loyalty program successful?

Scene+ is adding partners relevant to its changing customer, as they are becoming parents: with grocery, home improvement and family dining.

It is not only meeting the customers where they are, but it has also dramatically increased the velocity of earning with everyday spend partner categories.

2. Aeroplan

How does the Aeroplan coalition program work?

Aeroplan members can earn points through Air Canada flights, the Aeroplan loyalty card, or the new Aeroplan credit card when dealing with participating travel and retail businesses. These points are redeemable for various travel rewards like flights, hotels, car rentals, and gift cards at the Aeroplan eStore.

With over 200 partners, including brands like Apple, Sephora, Uber, and other online retailers, members can accumulate points beyond air travel.

Learn how it works.

How has it evolved?

Recognizing the need to stay relevant to today's consumers, Aeroplan has undertaken innovative steps. They have forged partnerships with companies such as Bell Canada to provide free in-flight messaging, enhancing the in-flight experience. 

Why is it inspiring for shared loyalty?

Aeroplan has expanded its network by collaborating with new partner brands, including Uber, Starbucks, and Parkland (a gas retailer), reflecting their commitment to meeting the evolving p loyalty programs references of their members.

What is an example of a good loyalty campaign used in the Aeroplan loyalty program?

With Aeroplan, you can earn benefits while shopping in various places.

One of the examples is a campaign with Starbucks. After linking Aeroplan and Starbucks® Rewards accounts, customers can earn 100 points for every $75 or more loaded to their digital Starbucks Card.

What makes the coalition loyalty program successful?

Aeroplan is introducing 21st-century relevant partners into the world of coalitions: Uber, Starbucks, and Internet service providers. These are partners who are increasingly getting more of our share of wallets.

How to create a successful open-loop coalition loyalty program?

It’s almost time to roll up our sleeves and dive into the nitty-gritty of building an enticing open-loop coalition loyalty program.

Before that, however, let’s assess our options to create a plan.

Which challenges to consider before kicking off the program?

Despite their potential advantages, coalition loyalty programs have their fair share of challenges and considerations. These include:

• Data governance – Ensuring the adequate protection of each partner's customer data is a critical concern in coalition programs.
• Competing priorities – Balancing personalization and relevance to customers while managing partner objectives and requests can be complex.
• Partner buy-In – Securing buy-in from all partners on marketing campaigns and maintaining brand consistency across all partners are ongoing challenges.
• Balancing partner needs – Coalition programs often involve partners of various sizes, requiring careful consideration of how smaller partners can compete for marketing and promotional space alongside larger partners.

When and how do you share data among coalition partners?

Data sharing needs to be contemplated as of Day 1. 

You need agreements with each participating brand and potentially among the partners.

Additionally, you must contemplate data governance within the coalition organization for internal teams.

Some principles and guidelines the coalition needs to think through:

• Would the team working on Partner A have access to the data for Partner B?
• What if Partners A and B are competitors within the same industries, assuming there are no industry exclusivity clauses within each contract?
• What kind of data would you want to protect: is it just customer data, or would you extend it to campaign post-analysis or results reporting?
• Would you have separate internal teams working with competitive partners?

Which partners are the best match for an effective coalition loyalty program?

For a coalition loyalty program to be profitable to the partners and valuable to consumers, partners must complement each other.

Lia points out three essential combinations:

1. Credit and debit cards – Play a pivotal role by enabling members to earn points not only within the coalition but also outside of it. This broader earning capability allows users to accumulate loyalty currency more quickly, making it feasible to redeem rewards in a shorter timeframe.
2. High-frequency retailers – Partners such as grocery stores, pharmacies, and gas stations are integral to the success of coalition loyalty programs. They facilitate frequent interactions with the program, thereby increasing brand loyalty and enabling members to achieve reward eligibility more swiftly.
3. Specialty retailers – Shops such as apparel stores, pet shops, and children’s stores contribute to the diversity and appeal of coalition loyalty programs. Recently, digital players like streaming services and car-sharing platforms have also joined the mix, expanding the program's offerings.

Which campaigns are the most effective in coalition loyalty programs?

When it comes to launching effective campaigns within coalition loyalty programs, national promotions take center stage.

These promotions have the potential to drive awareness, usage, excitement, and cross-partner participation.

Support from above-the-line media further amplifies their impact, driving the message to a wider audience.

What are the steps for implementing a great coalition program?

With all previous considerations, we are now more prepared.

Implementing a successful coalition loyalty program involves several key steps:

1. Partner onboarding – Get all key partner brands on board, ensuring equitable and profitable arrangements for the price-per-point.
2. Value proposition and brand building – Establish the coalition's value proposition and brand promise and build the brand identity.
3. Customer value and communication – Create value for customers and establish effective communication strategies to engage them.
4. Data governance and privacy – Set privacy expectations and implement robust data governance practices to protect customer data.
5. Reward catalogue – Ensure an exciting and diverse reward catalog that appeals to a broad range of customers.
6. Profitability monitoring – Continuously monitor the profitability of the program and make adjustments as needed to maintain a positive bottom line.

How to maintain an engaging open-loop coalition loyalty program?

Great, you have a program in place. How to make it the best out there?

Let’s talk about two important aspects: measuring the success and keeping an eye open to potential problems.

1. Measuring the success

A successful coalition loyalty program can be measured through various key indicators, including:

• Positive ROI for partners – Ensuring that the program delivers a positive return on investment for all participating partners.
• Growing customer spend and engagement – Monitoring an increase in customer spending and engagement within the coalition.
• Declining customer attrition – A decrease in customer attrition rates is a positive sign of program success.
• Positive bottom line – Ensuring that the coalition's financial bottom line remains positive and continues to grow.
• Healthy redemption patterns – Monitoring and maintaining healthy redemption patterns, along with observing the ultimate redemption rate.
• High Net Promoter Score (NPS) – A relatively high NPS reflects the satisfaction and loyalty of program participants.
• Constant reinvention – A successful coalition program should continually innovate and add more value to its customers to remain relevant and appealing.

2. Paying attention to common warning signs

These situations are clear indicators that something is going wrong and requires full attention as soon as possible.

• Yellow flags – Customer attrition and/or declining spending, apathy.
• Red flag – Many partners (or key partners) leaving the coalition.

Are there alternatives to coalition loyalty programs?

In certain regions, coalition programs are shrinking and being replaced by Card-linked offers (CLOs), which are less permanent partnerships.

CLOs grant consumers discounts or cashback when they use their credit or debit cards for purchases. These programs operate by connecting a consumer's credit or debit card to promotions offered by retailers or merchants.

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.

Conclusion: coalition loyalty programs

To wrap up, coalition loyalty programs offer a unique and compelling approach to customer engagement and retention. They apply to specific circumstances and hold a particular set of challenges, but offer unique benefits to program managers, partners, and customers when well-implemented and if appropriate.

By understanding their key components, benefits, challenges, and success metrics, businesses can embark on the journey to creating engaging open-loop coalition loyalty programs that drive growth and customer satisfaction.