3 Trends that Rewrote the Rules of Loyalty Marketing in 2017 (Part 3)

(This is the third in a three-part series on shifts that occurred in 2017 that will have long-term impact on the loyalty industry. Part 1: Liquid Currency covered the adoption of pay-with-points solutions and Part 2: Loyalty Program Fraud covered the increasing awareness of program hacking risks.)

Shift #3: Coalition Loyalty Programs Stumbled

If you were one of the many loyalty experts predicting the likely failure of any coalition loyalty model in the US, you might have ended the year enjoying a bit of schadenfreude.

2017 was simply a tough year for coalition loyalty to catch a break.

While the dominant form of loyalty program outside of the US — one wherein members can earn and redeem points freely across a defined network of complimentary brands (the coalition) — a large-scale coalition loyalty initiative has never succeeded in the US. That seemed about to change when American Express announced the launch of Plenti almost three years ago. But since then we’ve witness not just the multiple stumbles experienced by Plenti, but challenges with both of its Canadian-based counterparts:

  • Plenti – While boasting more than 30 million members and the support of Amex, Plenti has struggled to attract and retain key partners to maintain a strong coalition. And it ends the year seeing the exodus of more partners and declining support from their parent entity. 
  • Air Miles – the Canadian-based coalition program owned and operated by LoyaltyOne suffered a significant PR hit starting late in 2016, when Canadian media began to cover the upcoming first-time expiration of Air Miles points. Due to overwhelmingly negative public reaction that continued into this year, Air Miles reversed their decision and agreed to reimburse members who had already dumped their points. That decision resulted in a multi-million dollar loss, much of that in unrealized breakage. The incident pushed some Canadian legislators to pursue legal restrictions on loyalty point expiration policies. AirMiles subsequently announced other changes to their program in an effort to gain back some of the member good will lost over their point expiration issue.
  • Aeroplan – the Canadian-based coalition program, owned by Aimia, was jolted earlier this year when its key partner, Air Canada, announced it was leaving the relationship by June 2020 to establish its own proprietary loyalty program, a move that could potentially cost Aimia millions of dollars in lost revenue and leaves their coalition program without an airline anchor brand.

So, as I noted — a tough year for North America coalition loyalty schemes.

Its the Consumer, Stupid

When I first wrote about Plenti back in March of 2015 I asked, “Is Plenti the holy grail of loyalty?” I outlined my rationale for being skeptical that a coalition could succeed in the US, while expressing optimism that if any entity could pull it off, it was Amex. My main concern was whether US consumers would actuality understand and embrace a coalition loyalty program.

New data from a Maritz 2017 consumer study only reinforced my concerns:

  • 50% of surveyed consumers said they were not familiar with Plenti at all (although of those who were, a majority had a positive or neutral view of the program). 
  • Less than half of self-identified Plenti members said they have ever redeemed for a reward through the program.
  • The majority of members said they only purchase from one or two coalition members (defeating the main value prop of the coalition model)

Amex might still put it out, but its just as likely that the stumbles experience by Plenti and the significant challenges with Aeorplan and Air Miles portend an inevitable decline of the coalition model the US.

Implications for Loyalty:

When Plenti debuted it was considered a potentially serious threat to proprietary loyalty approaches. Coalitions offer brands the allure of participating in a loyalty scheme without the up-front costs and commitment that can come with launching their own program. But the last year has shown the weaknesses of the coalition model, particularly in its inability to engage US consumers. And when you take into account the challenges with Canadian coalition schemes, it seems that many companies are making the calculation that they are better served by owning their own program where their brand rules supreme. Moving into 2018, its a safe bet that proprietary loyalty will continue to have strong hold over the US loyalty market.

Thanks for following along with our 3-part series – Maritz Loyalty wishes you a Happy New Year!

The Debate on Customer Loyalty and the Future of Points

The Great Customer Loyalty Points Debate

If you have pondered the future (and potential extinction) of points-based customer loyalty programs, it’s worth taking note of a debate that briefly raged at a Loyalty Academy Conference hosted by The Wise Marketer.

Loyalty Academy, a newer entry to the loyalty space, is an annual confab of loyalty practitioners from 16 countries gathering to share best practices and discuss the future of customer retention and engagement. This year’s event also proved to be the perfect forum for an Oxford-style debate that posed a question on many loyalty marketers’ minds:

Are points-based loyalty programs still necessary to build customer loyalty and foster profitable behavior change?

This is far from an academic question. Many brands today that are considering a new program are not automatically assuming they need a proprietary loyalty currency. And some with legacy programs are evaluating the place points will play in the future. In February Coca Cola put this question in the spotlight when it announced a decision to sunset the point-based aspect of their long-running “My Coke Rewards” program to focus instead on more experience-based offerings.

The Debate Begins

The Loyalty Academy discussion on points pitted Nicole Harris of Maritz (pro) against Phil Rubin of rDialogue (con), each of whom had agreed to represent a particular viewpoint for the purpose of the debate. Rubin opened with the argument that traditional points-based loyalty programs no longer fully meet the needs of the customers they were created to entice. He also noted that their value as the primary tool of loyalty marketers has diminished as the market has shifted focus more toward optimizing emotional connection and customer experience.

Harris came at her pro-points argument from a strong human sciences perspective. She cited how a program currency can enable a brand to leverage both medium maximization theory and goal gradient hypothesis to engage customers. She went on to note that points programs also allow you to engage the social brain, as consumers will often publicly discuss how many points or miles they have earned in your program, even though they’d never discuss how much money they have in the bank.

From the perspective of the Multi-Loyalty Framework, Rubin essentially argued that Mercenary Loyalty is less effective than it once was, and that brands need to be more social and programs need to be more engaging – thus moving towards True and Cult Loyalty. This is a hard case to refute – brands cannot rely any longer on mercenary loyalty alone.

After the Dust Settled

So what conclusions can we draw from this debate? While Rubin made a salient point about points, it is also true that points remain an incredibly useful tool to direct and influence humans to behave in a specific way. In any human endeavor, including marketing programs, the brain needs some system to hook into and to commit to. Points are great for that — they give consumers a framework for understanding expectations, a game to master and to beat, and a means to track progress toward goals. Are points the only way to do this? No, certainly not. But, in the loyalty space at least, they are the most proven approach of this kind to drive behavior.

While a hand vote at the end of the debate gave a decisive win in favor of the pro-points argument, a savvy loyalty marketer would tell you that both points and experiences are essential in any loyalty program offering. Rick Ferguson, CEO of The Wise Marketer, summed up the debate saying: “(Harris) and Rubin agreed that essentially both sides were right. Points programs are still a valuable tool, but (the) argument that points alone are no longer sufficient to win true brand loyalty resonated with the audience.”