How to drive customer retention with coalition loyalty programs

Today, acquiring a new customer is much more difficult than retaining an existing one, and here are some stats to prove that. The likelihood of successfully selling a product to an existing client is about 60-70%, while for a new prospect, this figure is mere 5-20%. Acquiring new customers is also more expensive: from 5 to 25 times. Moreover, brands can enhance profits by a staggering 95%, if they increase customer retention by just 5%.

From an array of methods to reduce churn, creating a coalition loyalty program is the best option, and in our new marketing blog post, we’ll give you reasons why.

What is a coalition loyalty program?

Starting from the basics, a coalition loyalty program represents a strategic partnership, in which various independent brands team up to propose to customers a shared rewards system. As opposed to traditional or tiered loyalty programs, where clients have loyalty cards for every particular brand, coalitions presuppose using one account to earn and redeem points across a variety of businesses.

Such programs usually have centralized management, i.e. a program owner or a managing entity handles data analytics, reward fulfillment, and financial settlement between all the partners. Customers usually get points by purchasing at a particular brand (like a grocery store, or an airline). These points are then aggregated into one balance, so that clients could receive rewards from any partner in the network. Thanks to the shared infrastructure, brands divide the costs spent for marketing, technology, and customer acquisition.

Top benefits of coalition loyalty networks

Forming part of an advanced coalition program, you get the following perks for your business:

• Facilitated customer acquisition and greater reach. Instead of using cold marketing, you get immediate and smooth access to a firmly established customer base, so-called warm leads from non-competing partners. This also means greater credibility and exposure, especially for smaller brands that become associated with anchor companies like national airlines or supermarkets.
• Cost reduction is reached through shared ownership and infrastructure. Namely, the costs of building and maintaining tech solutions (systems, mobile apps), including backend and frontend management, are split among your partners. Moreover, brands unite their efforts in terms of large-scale promotional budgets that might be unaffordable for a single brand alone.
• Enhanced personalization. Coalition data from multiple brands provide advanced behavioral insights: not only what and when customers buy, but also where they travel, what they eat, and how they spend elsewhere. This allows you to create hyper-personalized, predictive offerings and implement cross-brand targeting (for instance, an airline could offer a discount at partner shops at the airport for business class passengers).
• Improved customer engagement. With coalition loyalty systems, consumers earn rewards 3-10x faster than in traditional programs, which keeps them always “in the loop” and encourages more purchases. This high velocity of earning also boosts the efficiency of cross-selling and increases dwell time for physical locations such as malls or airports.

How to build coalition loyalty programs: Five key steps

When building robust loyalty coalition networks, take into account both marketing and technical peculiarities.

Strategic planning

If you’re the program owner, the first step will be defining the foundational logic. Set up the main goal: whether it’s fast customer acquisition, in-depth cross-industry data, or operational costs sharing. Establish the universal currency (usually it’s 1 point per $1 spent) as well as “earn and burn” rates.

It’s also important to decide on the revenue model or use a combination. For example, you can sell the entrance to the program at a wholesale rate, when partners pay more than the reward actually costs, keeping the difference as profit (direct margin). You can also generate pure profit from ‘breakage’ — the points unredeemed by users. Besides point sales, you can establish recurring fees for accessing the customer data and marketing tools your program provides.

Partner selection

Make sure your coalition includes a variety of complementary brands that share a similar target audience, but not compete with one another. Establish so-called anchor brands — like grocery stores, gas stations, or credit card issuers — with which members interact daily and gather points quickly. To make your network more diverse, add low-frequency, high-interest retailers, including electronics, fashion, or wellness brands.

Also, think how you’ll legally regulate your coalition program. Build comprehensive agreements on data ownership, IP rights, and exclusivity clauses to exclude direct competitions within the network.

Software system choice

Before a full-scale rollout, launch a Minimum Viable Program (MVP). This way, you’ll test the concept according to your key business needs. An experienced software development company will help you with a solution choice:

• Cloud-native platform. You can use a custom-built system based on AWS or Azure. In this case, leverage a microservices-based architecture so that each partner integration could go without a hitch. A NoSQL database like MongoDB can be used for flexible member profiles management.
• SaaS-based approach will ensure you accelerated time to market. You can use a ready-made loyalty system such as Talon.one, Voucherify, or Antavo as the tech foundation and build the coalition logic and UI on top.
• Blockchain approach presupposes using a private ledger for better transparency and trustworthiness among partners. Other perks of implementing blockchain-fueled coalition loyalty programs include diverse, high-value rewards and rock-solid security.

Technical implementation

When building your coalition loyalty program, pay particular attention to the following aspects:

• Frontend touchpoints are ‘the face’ of your loyalty program. Create an easy-to-use mobile app / web portal, where customers will see their balance, participating brands, and can manage their points. Under the hood, provide an advanced partner portal with in-depth dashboards featuring brands’ performance data, ROI, and customer demographics.
• The financial reconciliation module is implemented through a centralized ledger that works similarly to a bank’s core ledger that coordinates all the point-related assets and liabilities. Besides regulating how much the program owner owes anchor brands, the financial engine also automatically generates monthly statements for all participating brands.
• Integrations. Your central loyalty engine should be securely connected with each partner’s Point of Sale (POS) system and e-commerce platform for better financial data governance and a unified customer view. You can also implement an advanced Customer Data Platform (CDP) to analyze consumer behavior across the entire network in real time.

Launch, optimization, growth

To drive awareness and achieve as many sign-ups as possible, launch omnichannel marketing campaigns across all partner touchpoints, including websites, social media, and in-store signage. Continuously monitor key performance indicators (KPIs) such as redemption rate, customer lifetime value (CLV), and net promoter score (NPS) to timely perform corrective actions and introduce program enhancements. Also, regularly renew reward catalog and add new brands to the coalition, based on the received analytics.

Coalition program use cases around industries and business domains

To help you understand what complementary brands to choose, here are some working coalition loyalty program examples from different niches.

Booking and travel

The Marriott Hotel giant has its own Bonvoy loyalty coalition network in which they operate as the central owner and unite various non-competing brands to grow their massive customer base. This multi-brand integration includes airlines (about 40 companies), where passengers can earn airline miles for hotel stays or conversely redeem Bonvoy points into frequent flyer miles.

Marriott partners with banks like Chase and American Express that issue co-branded credit cards. Program members can get points through daily activities with brands such as Starbucks, Uber, and Hertz. Bonvoy also issues experimental ‘money-can’t-buy’ rewards, for example, VIP sports or concert access.

As for monetization, the Marriott coalition program generates profit through franchisee fees, breakage and interest on the large cash reserves, as well as customer database monetization for targeted marketing.

Media and entertainment

Amazon runs a coalition ecosystem centered on Amazon Prime, uniting multiple non-competing brands and thus driving value for its own subscription service. Among the brands that integrate their services into Prime are:

• Groceries / food delivery: Amazon Prime members get a free year of Grubhub+ (an exclusive service that unites over 1,000 US grocery retailers).
• Fuel: Amazon customers can save $0.10 per gallon, when using service stations like BP and Amoco.
• Retailers such as Zappos, Woot!, and Shopbop offer Amazon Prime customers substantial perks, including early access to deals, free shipping, and double-reward points.
• Finance: Chase provides 5% back rewards, if customers shop on Amazon.com and Amazon Fresh.

Healthcare and fitness

A leading UK insurer, Vitality, leads its own coalition. The company partners with local gyms to provide discounts and offers a possibility to gain points. Shopping of health food at partner stores like Walmart is highly welcomed and redeemed. Vitality integrates with wearables like Apple Watch, Fitbit, and Garmin to track steps and give the corresponding rewards, up to earning back the cost of an Apple Watch.

On top of that, subscribers of this coalition program can get rewards like free weekly drinks at Caffè Nero, discounts at itsu or PizzaExpress, cashback of up to 25% at Waitrose or Ocado, 50% off cinema tickets at ODEON, discounts on hotel bookings, and more.

Partner with Aetsoft to launch a high-class coalition loyalty program

Successful development and implementation of coalition loyalty programs requires comprehensive strategic and marketing planning as well as deep tech competence. An experienced AI and ML software consulting and development company, Aetsoft, has got your back around:

• Automation. Our knowledge covers the implementation of AI agents and building private large language models (LLM) to automate key marketing workflows and speed up coalition program launch.
• Blockchain management. Our in-house blockchain loyalty program can give you a leg up in security, control, and transparency.
• Customization of ready-made solutions is also made easy with Aetsoft. Functionality enhancements, third-party integrations, extra scalability — you choose the aspect and we do the work.

Ready to kickstart your coalition loyalty program? Let’s connect and discuss your specific needs.