Thursday, April 12, 2012

Understanding Coalition Loyalty Marketing

Chapter One:

There once was a week-end market place called Mata Empower.
This market had 50 shops that served 50 customers.
Customers had a strange visiting pattern to this market.  On one weekend, you had all 50 customers visit, but on the following weekend, no customers came to this market.
The shop-keepers at Mata Empower were puzzled and wondered who these customers were and if they could be drawn into coming every weekend, as opposed to every alternate weekend.
So the shop-keepers went to a wise old lady called Ms. Beth Carrots, and asked for help.  Beth Carrots found out through her investigations that the 50 customers went to another market called Competition Bazar on alternate weekends.  So one weekend they spent at Mata Empower and the other they went to Competition Bazar.
As smart as she was, Beth Carrots designed a very interesting scheme. 
She asked the shop-keepers if they would each be willing to give her 1 new car in a year, if she could make customers come to them every weekend, as opposed to every alternate weekend. 
“Yes!” they all shouted.  These were very good customers and if they came every weekend, the shop-keepers could make enough profit to gift 1 car a year.

Chapter Two:

So Beth Carrots prepared flyers and posters and announced, “One free car to every customer who visits Mata Empower 50 times in a year!”  To track the customer visits, she designed a loyalty card that gave 1 point per visit to every customer that came to the market.  And when 50 points were accumulated on the card, they could be redeemed for a new car!
Customers were delighted!  In the next one year, 40 of the 50 customers started coming every weekend to Mata Empower.  In fact, some new customers from Competition Bazar also switched and started regularly patronizing Mata Empower after they heard about this new scheme.
Sales were rocking! 
But Beth Carrots was not happy.  She realized that 10 customers still refused to switch.  And they kept visiting Competition Bazar every alternate weekend.  She wondered why.  She also realized that she was sitting on 10 cars that she did not need to give out (because these cars were left over from customers who only came in half the time and so lost their points at end of year).  She was wondering if she could put these to good use.
As smart as she was, she came up with another scheme to enhance the Mata Empower offering.
She spoke to the town money-lender called Mr. Skate Banks.  Skate Banks basically made profits by loaning people money. 
So she convinced Skate Banks to give credit to customers of Mata Empower.  And he could use the unused reward cars as his security.  However, to avail of this offer, he would need to share details of all customer credit purchases (at Mata Empower and at Competition Bazar), with her.  Skate Banks readily agreed.  He would get ready-customers and also the security of cars if they defaulted.  Information was a small price to pay for this.
So Beth Carrots made another announcement.  Members of Mata Empower could now write, “Skate Banks” on their card and shop-keepers at Mata Empower would now sell them goods on credit.
Customers loved the credit line - They not only came regularly but also bought more from Mata Empower.  Skate Banks loved lending money to them – they were good and diligent in paying back on time.  When the occasional customer lapsed, he recovered his dues from a car that Beth Carrots promptly gave to him to make good his losses.
Shop-keepers loved this too.  They made diligent notes on the customers who bought on credit and recovered their money from Skate Banks, who in turn recovered his monies from the members.  All was going well.

Chapter Three

But Beth Carrots was carefully studying the purchase patterns of the 10 customers she could not win-back.  They had taken credit lines from Skate Banks and through this information, she learned something very interesting.  Each of the ten customers was a regular patron of a barber shop in Competition Bazar.  This barber, Mr. New Partner was very good with his skill and his talk.  He charmed and entertained while he groomed his customers.  They were very loyal to him.
So Beth Carrots went to visit New Partner.  She told New Partner of what she had done with Mata Empower and how she had learned that 10 of her customers were also good patrons of New Partner.  Then she made him an offer. 
“If you agree to move your barber shop from Competition Bazar to Mata Empower, I am sure that at least 10 of your customers will be very happy.  This is because they can now all earn a new car every year!  Moreover, I can share with you information about them that you will find very helpful to talk to them even more – I’m sure with your charms and this information, you can build an even better relationship with them.  Moreover, all our other customers at Mata Empower can now visit you as well when they come in every week.”
“Most importantly, as a joining bonus, I will give you a new car right away if you open shop at Mata Empower!”
New Partner couldn’t refuse.  The next weekend, New Partner moved his barber shop to Mata Empower and wrote to all his customers about the move.  They were delighted!  They had all heard of the shiny new cars being given out by Mata Empower and were so happy to join the program.
Other shop-keepers at Mata Empower were delighted too!  New Partner was valuable and he helped them bring in new customers.  In addition, New Partner received the patronage of existing customers of Mata Empower leading to his delight as well.

Chapter Four

But best of all, everybody loved Beth Carrots!  She kept whispering useful information in their ears every now and then that could be used to create even more delight.
As an example, Beth Carrots told Mr. Apparel that Mrs. Smith had just bought a lot of baby food from Mr. Grocer.  And Apparel was able to offer a special deal in baby clothes.  And when Beth Carrots offered the special deal to Mrs. Smith on the baby clothes, Mrs. Smith hugged her in joy… how timely!
And Skate Banks did his part too – he kept alerting Beth Carrots when he saw customers of Mata Empower spending a lot of time and money somewhere else – some other market or shop or service.  And Beth Carrots promptly reached out and convinced the new business to be part of Mata Empower to add even more value to customers and the partners and to Skate Banks. 
One evening, Beth Carrots, smiling to herself wondered aloud, “Have I just set up a coalition marketing initiative?”

Five Key Takeaways:
  1.   Coalition Loyalty initiatives are basically cooperative marketing efforts and can emerge from commitment from a variety of like-minded stakeholders with a common purpose - these could be tenants of a mall, various businesses participating in a common card-based points initiative or business owners on a high-street.
  2.  Before one can see the benefits, stakeholders need to commit to value – new cars as in this story, or more commonly, points, central CRM software and other such infrastructure as is necessary.  This commitment of value is a crucial prerequisite to design and communicate a compelling proposition to customers for inducing profitable behavior change.
  3.   Information is the life-blood in coalitions.  Beth Carrots in this story used a card that could be tracked to know more about her customers and then used that information to create value.  Without a strong and committed process to gather and leverage information, the coalition can fall flat. 
  4.  Marketing framework, Financial management of points, Communication, Technology infrastructure and Partner management are 5 critical functions, typically best served by a neutral centralized entity.  This entity can collect fees for points dispensed, pay out funds for points redeemed and use the breakage in points to fund program management and member communication.
  5.  Credit becomes a useful tool to deliver a bump in sales and to access information, otherwise not necessarily accessible.  A bank-issued credit card, debit card, prepaid card or other such device is normally a great tool to make this happen.


  1. There isn't a better way to explain Coalition Programs. You made things so simple to understand. So simple. — Yogesh B

  2. Very nice Ashish. Crisp and very simply put.

  3. Amazingly simple way to make one understand Coalition Marketing... Awesome

  4. I visualised the entire blog post like a pop-up book - FANTASTIC! More Points to you. More Power to your blog!

  5. You are right, Ashish. Coalition works if you can capture fair share of the individual customer wallet (rather than mere numbers of members) through mapping customer purchase patterns and preferred destinations / preferences. The customer sees value if there's quick ramp up of points and its corresponding value is significant to stay engaged with the program. Intuitive promotional offers must be aimed at meeting customer aspirations and not just supplying utilities. The challenge: collecting insightful data, building marketable clusters with huge pay-off for marketer and marketee, thereby building a virtuous engine of continues and exponential growth with increasing scale across differentiated clusters.

  6. Ashish,kudos. One thought that the post left in my mind was that any complex operation can be broken down into simple parts. And success is determined by how well these simple parts are executed. Looking forward to reading your forthcoming posts.

  7. The KISS guide to the concept of Coalition Loyalty Marketing. Makes sense even to the uninitiated like me...Would be worthwhile analyzing why coalition programs aren't still the done thing. Too hard to understand? Too hard to implement? Badly sold as an idea? What's your take?

  8. Hi DJ,

    Thanks for your comments. My personal view is that there seems to exist a larger challenge in India, around database marketing as opposed to coalition programs.

    Many evolved economies in the West, that have highly organized retail (eg. India is about 5% organized compared to about 85% in the USA) also have a higher relative incidence of database marketing. So India is still predominantly a newspaper and television advertising environment - hence the slower traction of coalitions.

    However, in India, iMint (now Payback) and Tata Empower have shown some good traction. And the program by Jet Airways is beginning to look like a coalition with multiple partners on Earn and some on Burn.

    Other examples of successful coalitions from around the world include Nectar in the UK and Payback in Germany (both claiming 1 in every 2 households as members in their respective countries), AirMiles in Canada and FlyBuys in Australia.

  9. Great article. Made very easy to understand. Thanks.