Loyalty coalitions

Last Updated: Sun, Oct 07, 2012 20:01 hrs

A coalition platform, along with the ability to harness the collective power of brands, can give customers relevant communication and faster rewards

Since the launch of Lever Brothers in India in 1988, FMCG companies have built brands and defined the brand marketing landscape. One hundred and twenty four years later, the energy of retail growth is palpable, and consumer choices are exploding. New products, retail formats, brands and channels are being introduced every day and the opportunities for retail growth are dazzling. Customers are in the driver’s seat, but likely suffering from message overload as they are bombarded with media, messages and promotions on a constant basis. The four ‘P’s are the mainstay of brand loyalty in India, but what of customer loyalty, and where does it fit in this new retail scene?

Customer loyalty is based on the notion that customers are multi-dimensional, with varying engagements to brands. A customer may be both an international traveller collecting frequent flyer points or a loyal shopper at the local kirana. Customer-buying patterns reveal many inconsistencies. A family who belongs to the newly emerging middle class in India may be both rural and urban, savers and holders of a premium credit card, mall shoppers and discount buyers. Customers today don’t buy-to-type, and maybe they never did. Traditional brand loyalty measures have sometimes been reported as an on-off switch. You buy a product or you don’t. You’re a mall shopper or you’re not. But consumer profiles and behaviours are complex. Marketing to India’s mixture of culture, ages and socio-economic status demands adding a few new chapters to the marketing handbook; beginning with customer analytics, behavioural segmentation and transactional profiling. As we build deeper insights on customer behaviour, the new practice of customer management is taking hold in India.

Customer management works on the understanding that customers become engaged in stages. First they go through a consideration stage where mass marketing, referral and other viral strategies invite them to try a product or visit a store. But once they have made their first transaction, they are evidently not loyal brand customers and it might be foolhardy to call them customers at all. What is clear from tracking consumer behaviour is that you become engaged with a brand in stages. After product trial, you need to have at least a purchase or two before you officially become the brand customer. There are direct marketing strategies to increase store visits and basket size, and incentives to purchase other products in the brand family. You become a customer by degrees, and it takes time before a regular shopping pattern is established. It is only at the point where you shop regularly, resist competitive offers and sing the brand’s praises to your friends that you can truly be called ‘a loyal customer’.

Some years ago, when Indian marketers recognised that brand loyalty and customer loyalty measures worked hand-in-hand, they embraced loyalty programmes, which, in turn, is an effective device for identifying customers and moving them through the stages of customer engagement by giving them rewards, recognition and relevant communications. In India, we’ve seen a proliferation of such programmes, and according to the 2011 Colloquy Cross-Cultural Loyalty Study, the average number of loyalty cards is 2.8 and avid shoppers might have as many as 4 or 5. This is below the US average of 18 programme memberships per household, but according to Colloquy, “this number is ramping up exponentially — when asked if they would be willing to join a loyalty programmes in the future, 26 per cent of Indians says “yes,” and 57 per cent said “maybe.”

Indian retailers generally perceive loyalty programmes as a marketing tactic to capture consumer attention and add to their consideration of new products and services, but the marketing world is changing and loyalty is changing with it. Most recognise that building customer loyalty demands more than a points programme, and when combined with a relevant product mix, strategic assortment management, good in-store experiences and the recognition of higher value customers, it’s a winning formula for retail success. Some retailers like Shoppers Stop and Tanishq Jewellers manage the integration of points and experiences very well, but many other programmes suffer from low customer engagement and low reward redemption, failing to drive significant customer behaviour shift.

Not all loyalty programmes are created equal, and here, too, there are opportunities to differentiate. A newly emerging model in India is ‘coalition loyalty’. Launched more than 20 years ago in Canada, the AIR MILES Reward Programme was one of the first such scheme to capture customer attention. Loyalty coalitions are a transformative way for companies to engage their customers, effective to create brand differentiation, acquire customers and increase both retail spend and number of visits. Results, thus, achieved exceed the proprietary points programmes.

How do they work? A coalition is a network of companies in both non-discretionary and discretionary spend categories who issue a common reward currency, offer a broad-based rewards portfolio and participate on a shared loyalty platform. Coalitions are almost always run by third parties who are entirely independent of brands. Typically, they acquire loyalty members across a series of brands, from grocery stores and telecom providers to petrol retailers and financial services firms. A coalition platform is unique in its ability to harness the collective power of brands, thereby creating programme differentiation and higher attainability for customers. Customers love coalition programmes because they support customer choice, with members getting recognition, relevant communications and faster rewards. For companies, coalitions provide support for customer acquisition, and access to a platform of member data, insights and advanced analytics, which reveals information about the customers. It allows valuable insight into customers who have never shopped in stores but are strong prospects for targeting.

Coalition loyalty programmes enhance and accelerate brand loyalty, but not in ways you would expect. While a store loyalty programme carries the company logo, the coalition card carries an independent brand. The function of the coalition brand is distinct but adds to the product brand. The brand works hard to drive programme comprehension, communicates a call-to-action and ultimately, changes consumer behaviour. In mass marketing and billboards, the customer message doesn’t say “shop here”, it says “use this to get rewards”. When the product and loyalty messages are married together, the brand impact is doubly effective. In fact, ‘coalition loyalty’ was designed to accelerate consumer engagement with brands, and therefore, brand loyalty.

Coalition brands have their own personality, and communications are designed to inform customers on the loyalty steps that we want them to take. It operates according to its own version of the 4 ‘P’s, called the Coalition Brand Principles:

* Brand builds the base

* Invite self-selection

* Make the customer the hero

* Capture the imagination

Coalitions operate on the principle that you need to ‘build the brand to build the base’, which is the rationale behind creating an independent loyalty brand that will activate the highest number of coalition customers across multiple categories and brands. This serves the interests of participating partners, because they increase the penetration of affected sales with their own customers, with access to a huge pool of prospect consumers in the coalition base for qualified targeting.

A coalition brand positions itself across a broader set of customers than a proprietary brand. It attracts a broad segment of customers, rewarding those at the top end of the segment for being special while inviting those at the lower end to aspire for the next reward. The coalition should not spread itself too broadly or it will enroll members who may never qualify for offers. Defining the target customer and inviting self-selection is the job of a coalition brand.

By making the customer a hero, coalition brands are complimentary to the retailer or partner brand. Participating partners promote their brands and products while leaving room for the loyalty brand to focus on the customer, making them the hero by accumulating rewards to their advantage. The product benefit is covered by the retailer, the loyalty benefit is covered by coalition communications. Together they are stronger.

Finally, a coalition brand needs to capture imagination. Despite being charged with the functional goals of driving comprehension and behaviour change, coalition brands shouldn’t be overly functional. Product and customer marketers will agree: If you cannot be persuasive and capture the customer’s imagination, the deal is done.

As David Ogilvy once said, “If it doesn’t sell, it isn’t creative.” At its heart, marketing should invite customers to feel, to believe, to trust and to imagine a better state than the one they’re in. A well-managed coalition brand will balance the functional attributes of the brand that drive comprehension with the imaginative aspects of the brand that drive engagement. When paired with a strong partner brand, it is infinitely more remarkable and rewarding than any programme seen in the Indian market today.

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