6/26/2014
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`Proprietary Programs vs. Coalition Loyalty « The Loyalty Hammer
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`The Loyalty Hammer
`
`A Solid Foundation for Building Loyalty
`
`Proprietary Programs vs. Coalition Loyalty
`
`Overview
`There are two types of loyalty membership programs today: proprietary programs, the most common, where
`customers generate points by doing business only with the company that owns the program; and coalition
`(aggregate) programs in which customers generate points by doing business with any number of companies
`participating in the program.
`
`Modern consumer loyalty programs have been around for 30 years and are ubiquitous. B-to-B programs started
`later. According to Warrillow and Associates, 45 percent of all U.S. and Canadian small business owners belong
`to a loyalty program sponsored by one of their suppliers. Of these, 60 percent belong to more than one program,
`with the average participation exceeding 2.3 programs.
`
`Both coalition and proprietary models do well in increasing customer retention with excellent ROI. And because
`they both use non-cash rewards (points,) they do not dilute the value of a company’s brand.
`
`The Coalition Model
`The advantages of coalition programs:
`
`• New Customer Acquisition — Coalition sponsor partners share their customers. This model is tremendously
`effective in acquiring new customers, often for a fourth to a third of the cost of traditional promotions.
`Proprietary programs do not attract new customers.
`
`• Significant Cost Savings — Because set-up and operating costs are also shared by coalition sponsors, these
`fixed costs are a fraction of proprietary programs. For example, set up and operating costs for the BI Contractor
`Rewards program – $25,000 annually.
`
`Set up in proprietary programs can exceed $300,000 or more based on complexity with operating costs ranging
`from $50,000-$200,000 per year.
`
`• Higher Return on Investment — The lift in business associated with coalition programs is higher; in addition to
`decreasing customer churn, and cross sell/up sell, additional profit is driven from the new customers acquired –
`not available from single sponsor programs. BI research indicates in the first years of a coalition program,
`37%-79% of new customers come directly from the program member file. 
`
`• Greater Earning Potential for Members — Earning velocity for members in coalition programs is very high.
`With potentially 20-30 manufacturers, 50-120 brands and hundreds of different products eligible for point
`earnings, contractors, remodelers and builders stand to earn tens of thousands of dollars in rewards per year.
`
`Coalitions leverage customers’ everyday spend in high-frequency categories to offer them attainable rewards and
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`6/26/2014
`Proprietary Programs vs. Coalition Loyalty « The Loyalty Hammer
`benefits they can’t earn as easily in a proprietary program.
`
`• Easy to Keep Dynamic & Vital — Unlike single-sponsor programs that start out strong, get stale and drop off,
`coalition programs continue to grow in effectiveness. New sponsors come on, new customer bases are added,
`new promotions launch continually keeping a coalition program vibrant and maintaining its momentum year-in and
`year-out.
`
`• Share Best Practices — Coalition partner marketers share best practices and promotional ideas, often
`participating in co-branded promotions. Contractor Rewards hosts regular sponsor meetings to facilitate this idea
`exchange.
`
`• Difficult for Competitors to Replicate — Coalitions are difficult to orchestrate, but once they launch and
`achieve critical mass with customers, they demonstrate formidable longevity and are difficult for competitors to
`respond.
`
`The Proprietary Model
`
`The advantages of proprietary programs:
`
`• Program & Company Branding — Typically, program branding is intertwined with the company’s brand
`(Honeywell Contractor Pro, Cooper Connection, etc.) Members know immediately who is offering the
`promotion.
`
`• Complete Control of Structure — Program design, rules, database schemas, etc. are at the sole discretion of
`the single-sponsor. This includes the look and feel of the platform, communications and using the company’s own
`products or discounts in the program awards offering.
`
`• Addition Revenue Opportunity — Many proprietary programs allow non-competing partners to join their
`program. Opportunity for additional revenue stream exists in selling program points to these partners. But as
`stated before, this structure is difficult to orchestrate.
`
`• Risk in Exiting a Program — If the company decides to terminate a proprietary program, clear planning must
`be taken to minimize the “ill-will” that can result with members. Pull-out of a coalition program is easier but
`presents another risk; the potential of losing customers when a competitor sponsor replaces them in their
`category.
`
`• Cash Outlay for Points — Single-sponsor programs are typically bill on redemption; meaning point earnings
`are paid for at the time points are redeemed for merchandise or services. Float and non-redeemed points are
`retained by the company.
`
`It is a common practice however to accrue the liability of points issued. While carried as non-cash expenditures,
`this accrual is often a marketing budget or cost of goods line item.
`
`Summary
`The compelling value of gathering end-user knowledge, increasing the frequency and impact of communications
`and creating a token-economy of points to reinforce those behaviors you wish to drive, make either initiative a
`wise decision in today’s economic environment.
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`6/26/2014
`Proprietary Programs vs. Coalition Loyalty « The Loyalty Hammer
`The model that’s right for you will depend on your goals. “Companies should make this decision with the
`customer in mind,” says Daren Cotter, CEO of CotterWeb Enterprises, which manages a coalition loyalty
`program with more than seven million members. “Will the customer be satisfied earning rewards that are
`redeemable with just your brand? If not, a coalition program may be a better choice.” Similarly, how much to
`invest in your program’s infrastructure is also dependent on the type of customer experience you want to offer,
`Cotter says.
`
`One Response to “Proprietary Programs vs. Coalition Loyalty”
`
`1.
`
` Toni says:
`June 10, 2013 at 4:56 am
`
`Thanks for this piece. Please, what is the name of the BI research report where you have sourced the data
`that 37%-79% of new customers come directly from the program member file in the first years of a
`coalition program?
`
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