Web-based coalition loyalty programs gather steam

With discount or cash-based rewards programs an expensive way for retailers to reward loyal customers, coalition-based loyalty programs in which merchants group together to offer cash alternatives are a coming trend in customer retention initiatives, Answerthink Retail Solutions group director Frank Andryauskas said at Retails Systems 2001 on Wednesday. The key to making them work is giving customer the ability to manage their rewards online.

Comparing such programs to “e-enabled S & H Green Stamps,” Andryauskas said at least six companies are working to launch in the U.S. versions of a successful cash-alternative coalition-based rewards program, www.Airmiles.ca, operating in Canada. The program rewards purchases made at participating retailers, travel service, or entertainment and restaurant locations. Unlike other loyalty programs that assign points redeemable at a single merchant, the Airmiles program aggregates more than 100 companies, allowing consumers to combine points from participating vendors. The rewards, consisting of air miles, merchandise, and other branded goods and services, are displayed in an online catalog and trackable by shoppers online under individually registered PINs. Many of the rewards are redeemable via online ordering as well. Participating retailers pay Airmiles a percentage of the value of points given out, Andryauskas said.

The number of Sony products redeemed through the program has made Airmiles.ca the largest b2C distributor of Sony products in Canada, he added.

The coalition-based cash alternative loyalty programs benefit retailers in two ways, he said. Due to so-called “breakage,” a phenomenon in which a percentage of rewards offered aren’t ever redeemed -- only 60% of airline miles offered are redeemed, for example – retailers can run a loyalty program less expensively as they don’t pay out unless consumers take action to redeem points or awards. Additionally, the value of rewards consisting of strongly branded quality merchandise or services, as perceived by consumers, exceeds what it actually costs the merchant to provide the reward, Andryauskas said.