What is a Coalition Loyalty Program?

It’s a very exciting time in loyalty marketing. With the rise of technology and innovation in rewards structures, companies and customers alike have unique and exciting opportunities at their fingertips. One of those opportunities is to create a coalition program.

Basically, a coalition loyalty program is a partnership or cooperation between multiple businesses or brands that allow customers to earn and redeem loyalty points or rewards across any of the participating businesses. Coalition loyalty programs offer dynamic possibilities for customer engagement, uniting multiple companies to provide customers with a broader range of rewards. However, as with everything, success is not always a guarantee.

Examples of Successful and Failed Coalition Programs:

Kohl’s & Sephora Create a Successful Coalition:

The partnership between Kohl’s and Sephora is a successful example of a coalition program. Featuring store-within-store collaborations, the program facilitates cross-store promotions to boost consumer spending. In 2022, half of Sephora customers’ purchases included an extra category item. Moreover, members who connect their Kohl’s Rewards and Sephora Beauty Insider memberships can accumulate points on both programs when making Sephora purchases at Kohl’s [1].

Building a successful coalition loyalty program requires strategic planning and implementation. Successful programs exhibit strong partnerships and offer appealing, targeted rewards. Conversely, failure often results from a lack of cohesion among participating businesses. 

The Plenti Program Failure:

The once-successful Plenti program combined brands like Exxon, Macy’s and Hulu. As you can assume, the program failed due to a misalignment among partners. Plenti aimed to create a loyalty program where consumers could earn and redeem points across various participating brands, spanning different industries. Despite initial enthusiasm, the program faced several challenges that ultimately led to its failure:

• Complexity: Plenti’s structure was too complex, with numerous partners across various sectors, including retail, travel and dining. This complexity made it challenging for consumers to understand how the program worked and where they could earn and redeem points.
• Limited Engagement: Many consumers found it difficult to accumulate points quickly, leading to slow reward accumulation. This lack of immediate gratification discouraged participation and engagement.
• Lack of Personalization: Participants received generic promotions rather than offers tailored to their preferences and behaviors.
• Partnership Turnover: Several key partners, including Macy’s and AT&T, left the program over time, reducing the program’s attractiveness. This resulted in a shrinking network of participating brands.
• Competing Loyalty Programs: Many of Plenti’s partner brands already had their own proprietary loyalty programs, leading to a lack of commitment to the coalition.
• Communication Challenges: Ineffective communication and marketing efforts made it challenging to convey the program’s benefits to consumers and drive adoption.
• Limited Value: Consumers perceived the value of Plenti points as relatively low compared to other loyalty programs. This perception impacted their willingness to participate.
• Inconsistent User Experience: Different partners had varying rules and redemption processes, leading to inconsistency in the user experience.
• High Costs: Operating a coalition loyalty program can be costly due to administrative expenses, marketing efforts, and managing partnerships. If the return on investment (ROI) is unfavorable, it can lead to financial challenges. [2]

Research shows well-structured coalition programs can significantly enhance customer loyalty and retention rates. The key lies in carefully crafting and managing the coalition’s partnerships and rewards and keeping things simple for all involved.

The Mechanics of Coalition Loyalty Programs

Coalition loyalty programs function based on partnerships and collaborations. Brands or businesses form an alliance to reward customer loyalty collectively. The design of such programs aims to offer greater value to customers. They also allow brands to provide more choice and interesting offers to their program members, limiting offer repetition and creating great program engagement.

The success of a coalition loyalty program relies on seamless logistics. Accurate data sharing and synchronization between the brands are crucial. This interoperability ensures customers can earn and redeem rewards across all brands. Using the services of a loyalty marketing agency or loyalty program consultant can simplify this process. With the right partnership and seamless execution, these programs can highly benefit businesses in retaining and satisfying customers.

Key Benefits of Implementing Coalition Loyalty Programs

Kohl’s partnership with Sephora continues to shine. Sephora at Kohl’s sales exceeded $1.4 billion in 2023 and will surpass their previously shared goal of $2 billion in sales by 2025.

“We are proud of the continued success of our partnership with Sephora,” said Nick Jones, Kohl’s chief merchandising and digital officer. Over the past three years, Sephora at Kohl’s has become a beauty share leader, and our continued investment in bringing prestige beauty offerings to more stores this year demonstrates our steadfast belief in the power of our partnership.”

When Kohl’s announced its partnership with Sephora in 2020, the company committed to bringing prestige beauty to neighborhoods across the country, making it accessible to more Americans than ever before while enhancing Kohl’s customer experience. The strategy is not only resonating with existing customers, but it’s bringing in new customers that are shopping more frequently as well, and has seen a more than 90% total sales growth year-over-year. [3]. 

Their partnership has been brilliantly executed. The simple rewards program enhances customers’ experiences at Kohl’s stores, encourages them to spend more time in the store at both Kohl’s and Sephora and has boosted revenue for both partners. 

• Improved customer access to rewards: customers are motivated to increase their spending to earn better rewards
• Shared marketing costs; in joining forces, individual businesses lower their marketing expenses. Each can contribute a smaller portion to a larger reward pool.
• Better customer data collection: sharing data grants businesses deeper insights. It aids in delivering more personalized offerings to the customer.

Having a comprehensive understanding, not only of the rewards but also of the customer base is the key to success in coalition loyalty programs. 

Evaluating the Success Metrics of Coalition Loyalty Programs

In evaluating the success of coalition loyalty programs, there are several KPIs to consider. Customer lifetime value, frequent engagement and the number of active accounts are all important. 

Noteworthy examples include Hertz Global’s Gold Plus Rewards and Loblaw’s PC Optimum. Each of these demonstrates increased customer participation and sustained coalition dynamics. Outlined results reflect a comprehensive performance analysis following key KPIs [4].

Upcoming trends point towards more personalized experiences and integrated solutions. Future improvements could include predictive analysis for personalization. Enhanced use of technology for seamless integration across platforms is another potential.

Summary and Future Perspective of Coalition Loyalty Programs

The opportunities for businesses to create effective coalition loyalty programs with aligned partners are endless. We’ve learned how these programs can enhance customer retention, boost profits and open new markets. Explore and invest in these programs if you’re a business owner or a loyalty marketer. We’ll likely (and hopefully) see more successful and exciting partnerships in the future.

References:

[1] Kohls & Sephora Beauty Rewards – https://www.kohls.com/feature/beautyrewards.jsp 

[2] Plenti Customer Loyalty Program To End In July: What Went Wrong? https://www.forbes.com/sites/warrenshoulberg/2018/05/01/no-good-and-plenti-as-the-customer-loyalty-program-winds-down/?sh=582848c8156d 

[3] Sephora at Kohl’s Surpasses $1.4 Billion in Sales, More than 100 New Shops to Open This Year https://corporate.kohls.com/news/archive-/2024/march/sephora-at-kohl-s-surpasses–1-4-billion-in-sales–more-than-100

[4] The future of customer loyalty –  https://www.fastcompany.com/90965428/the-future-of-customer-loyalty