Coalition Loyalty Programs: The Next Big Thing?

Loyalty, and the right offers for customers, is a topic hot on retailers’ minds. The topic sparked high engagement from retailers at Retail Systems Alert Group’s recent Webinar on promotions management, as well as at a standing- room only session on promotions at the annual FMI convention in May.

However, one type of loyalty program hasn’t yet taken off in the United States. That slow mover is coalition loyalty, or a program that enables shoppers to use one loyalty card at multiple retailers—sometimes competing retailers.

This program doesn’t refer to a founding program that expands by adding partners. This includes shoppers being able to redeem American Express points at Circuit City. Conversely, coalition programs are about independent programs serving multiple coalition partners.

Probably the best-known example of a true coalition program is Nectar, the U.K.-based program that launched in 2002. According to the company’s press release from March 28, 2007, Nectar is the largest loyalty program in the U.K. Half of all U.K. households hold a Nectar card, and 16 companies participate in the coalition.

Coalition programs are popping up around the world, from South Africa to South Korea and India. eBucks, the South African coalition, reported that its members spent the equivalent of more than $6 million in eBucks points during the 2006 holiday-shopping season, according to Wise Marketer. However, we’ve seen very little activity on that front in the United States.

One company looking to change that is Alliance Card, Inc. (ACI). It is piloting several coalition programs in Minnesota and looking to expand further across the United States. The company’s concept ties customer rebates to nonprofits designated by the retailer or the consumer. This is a nice tie-in, given the “greening” of America.

The company has two versions of the program. SmartTown focuses on small towns looking to recapture local spending, and Cash Value is targeted to metropolitan areas. Consumers can designate the nonprofit of their choice, which receives matching funds for every rebate the consumer earns. Think of it as the Target program, which donates money to a designated school. However ACI is Target on steroids—it’s not dependent on the form of payment, and can be used at any participating retailer, not just one.

So why aren’t there more of these programs in the United States? The Gold Points program has a lot of coalition members, but it’s really more of an online community, rather than a total loyalty experience (few retailers offer bricks-and-mortar redemption opportunities).

And while Upromise also has some big partners, it’s for such a specific reward (college-tuition savings) that it does not apply to a lot of people.

According to Retail Systems Alert Group’s new loyalty study, only 9% of retail respondents participate in a coalition program, and only 11% offer redemption of points to partners. ACI’s representative, Mike Bann, posited that domestic retailers tend to have tighter margins than some European counterparts, and the competitive environment in the States makes it harder for retailers to see through to the benefits—especially when the coalition offers the potential for competitors to join.

I don’t have a good answer for the hypothesis. As the mother of an elementary-school student who also lives in a small town that is on the border of a large metro area, I think a program such as ACI’s has a lot of promise.

The program clearly has benefits. Smaller, local retailers have an opportunity to recapture spending that might otherwise go to large chain stores. Meanwhile, consumers get rewards they can use at those same retailers, and also support local nonprofits. (Anything that means my child doesn’t have to hawk candy or wrapping paper is a good thing.)

My only suspicion is that there is a barrier of mutual affirmation—it’s hard to get the first coalition partner to jump in. Retailers are a conservative lot, and they are waiting for someone else to be the first to commit. The nonprofit angle offers an opportunity to overcome that barrier—partly because many nonprofits already have strong retail relationships that they can potentially bring to the table, and partly because the nonprofit angle gives retailers something to promote to customers.