Coalition Loyalty in the U.S. – Shop Locally, Earn Globally

Aug 12, 2011

Coalition loyalty has been a hard sell in the U.S. To date, there have been two attempts to establish a nationwide multi-partner loyalty program, and neither has taken flight. Now it seems that the path to coalition loyalty in this country might be paved through local neighborhoods and with local merchants.

There is white-hot focus on local merchant marketing today. Groupon, Living Social and other “deal of the day” programs have brought local merchants into center stage for consumers. Purveyors of merchant funded debit card rewards programs have sought to build wide ranging networks of brick and mortar merchants to differentiate value propositions from the common “online mall” model and to make programs more interesting to consumers.

Several groups around the country have established, or are working hard at establishing, regional coalition loyalty programs based on local merchants. Kick Back Rewards has established a solid network of independent gas stations and convenience stores in the Western U.S. and is building a social shopping and cause driven program in South Florida.

Zavee follows a registered card model, meaning that the consumer must affiliate specific debit and/or credit cards as part of the program enrollment. When the individual shops at a participating merchant using one of the affiliated cards, rewards are earned. Kick Back has a different model, with rewards earned regardless of how the individual completes a transaction. Cash or card both work and the key to the Kick Back scheme is the pre-integration of the Kick Back software with the fuel dispensing machines and POS systems on site with the merchant.

Thanks Again has made the news lately as it announced its agreement to trial an “airport coalition” at Hartsfield-Jackson International airport in Atlanta. Starting in September and using a registered card model, travelers will be able to earn miles on Delta, Alaska, United or Continental airlines or US Airways by shopping, eating or parking at the airport. The goal is to make the journey through the airport more “rewarding” for the flying public.

Thanks Again allows three ways to earn cash back and has its foundation in local merchant networks of golf courses and dry cleaners. The company seems to be moving away from these roots in hopes of becoming the reward currency of the frequent flyer.

Today we see three solid attempts to build coalition loyalty in the U.S. using a grassroots approach. Whether any of these programs are able to establish a nationally recognized consumer brand remains to be seen. At the least any or all of these three could build a merchant network so comprehensive and attractive to consumers that they could easily “white label” this valuable asset to banks, retailers, hotels, airlines, or other big brands seeking to connect the dots between their “local shoppers” and their “global activity”.

Some questions remain:

1. Is the registered card model the best choice for consumers? Surely it can represent a speed-bump to enrollment rates, and the steady stream of security breach announcements in the news may cause consumers to become reticent to add card information online.
2. Is a vertical focus the right approach, or is geographic penetration more important to pursue. Capitalizing on fuel and convenience retailing or airport parking locations has its advantages. It’s proven that focus is rewarded in business. But establishing a wider range of merchants and saturating a geographic market might create the best value for consumers and lead to the national branding sought by coalition marketers.
3. Are some customer experiences too challenging to be overcome with rewards?  The airport experience, on ground and in the air, has eroded over the past 10 years. I think it’s fair to say that most flyers feel held hostage by the airport concessions, whether restaurant, newsstand, or coffee shop. Consumers will react to these programs in one of two ways: grabbing whatever rewards they can in hopes of exacting some value from an overpriced purchase or just continuing to walk to the gate while they pull their home-made sandwich out of their bag.

Questions aside, the power of local merchant marketing is clear and the interest of big brands to connect with local merchants will increase over time. Let us know if there is a program in your market that we’ve missed and we’ll cover it in a future post.