{"id":1442,"date":"2018-06-27T22:22:14","date_gmt":"2018-06-28T02:22:14","guid":{"rendered":"https:\/\/www.yupingliu.com\/wordpress\/?p=1442"},"modified":"2018-06-27T22:26:16","modified_gmt":"2018-06-28T02:26:16","slug":"building-loyalty-program-partnerships-wisely","status":"publish","type":"post","link":"https:\/\/www.yupingliu.com\/wordpress\/2018\/06\/27\/building-loyalty-program-partnerships-wisely\/","title":{"rendered":"Building Loyalty Program Partnerships Wisely"},"content":{"rendered":"

In less than two weeks from today, Plenti, a coalition loyalty program, will officially shut down<\/a>. Created by American Express three years ago, Plenti<\/a> had an impressive roster of partners, at one point including Macy\u2019s, ExxonMobil, Rite Aid, Hulu, Expedia, among others. Despite its high-profile start, the failure of Plenti shows the many challenges associated with loyalty program partnerships. If you ever consider loyalty program partnerships, it is important that you do so strategically and judiciously.<\/p>\n

The Business Case For Loyalty Program Partnerships<\/h3>\n

On the surface, loyalty program partnership is a great idea. It allows consumers to earn points from different businesses, making reward earning easier and more relevant to more consumers. This expands the potential market for the program. Running a joint program reduces the operational cost for each business. In the case of a dominant business-peripheral business partnership (such as the partnerships airline frequent flyer programs form with smaller businesses), the dominant business can make good money selling its program currency to its partners. Airlines, for example, are estimated to make between 1.5 and 2.5 cents per mile<\/a>. With all these benefits, what could possibly go wrong?<\/p>\n

Mixed Outcomes for Loyalty Program Partners<\/h3>\n

About 20 years ago, an academic study<\/a> was conducted by Drs. Byron Sharp and Anne Sharp on FlyBuys, a popular coalition loyalty program in Australia<\/a>. The study showed mixed outcomes for partners in the program. Only two out of the six participating brands studied gained significantly in terms of repeat purchase loyalty, while the other four showed minimal impact from the program.<\/p>\n

In a more recent study of a major multi-vendor loyalty program in the Netherlands<\/a> by Dr. Dorotic and her colleagues, the program did not have much impact on members\u2019 purchase behavior, and the researchers failed to find evidence of a synergistic effect in joint or cross-promotion efforts. Obviously these are results from only two loyalty programs. There are other academic studies that also looked at the effectiveness of coalition loyalty programs. Taken together, existing research shows mixed results from such programs and point to the reality that loyalty program partners may not all benefit from participating in a loyalty program alliance. Unfortunately there is not yet enough evidence to conclude exactly what type of businesses are more likely to benefit from such a program.<\/p>\n

Loyalty to Whom?<\/h3>\n

From a psychological point of view, loyalty program partnerships exemplify the critical question of who the consumers are loyal to. Last week, I wrote about the possibility that a loyalty program may foster loyalty to the program itself rather than than loyalty to the company<\/a>. This possibility of a loyalty gap is even more likely in a coalition loyalty program, where the program currency is highly fluid and monetary, and there is not a single entity for consumers to be loyal to other than the program itself.<\/p>\n

The situation is improved however in a loyalty program where there is a dominant provider (e.g., the airline). My former student Dr. Gulfem Kutlu\u2019s doctoral dissertation research find that when partnering with a strong main brand, the smaller partner\u2019s brand equity experiences a lift after the partnership. In addition, this benefit comes without losing the distinctiveness of the dominant brand. This is good news for those interested in partnering with a major loyalty program provider such as an airline or a hotel chain. In the meantime, the same research also shows that when a low-equity brand joins the loyalty program of another low-equity brand, only the host brand (the one running the loyalty program) benefits from the partnership. Therefore, if you want to partner with a loyalty program provider, make sure that it is a high-equity brand.<\/p>\n

Service Failure Spillovers<\/h3>\n

\"Spill<\/p>\n

Another factor you should consider is the likelihood and frequency of service failure of your potential partners. The dissertation research I mentioned above conducted a study looking at how people react after they experience a service failure with the peripheral business in a loyalty program partnership. We find that the negative feelings from the service failure spill over to the main host brand in the partnership, even though the host brand has nothing to do with the service failure. The only situation where the host brand is immune is when the host brand itself is a high-equity brand and the partner brand is in a very dissimilar product\/service category (e.g., a floral business when partnering with an airline frequent flyer program).<\/p>\n

In a separate study of a coalition loyalty program in Europe, the researchers found that service failure by one of the program partners lowers overall loyalty toward the entire program<\/a>. However, this is buffered somewhat if consumers see high benefits from the program itself.<\/p>\n

Key Takeaways<\/h3>\n

My main message here is not that your business should avoid loyalty program partnerships altogether. But you do want to be careful who you select as your loyalty program partners and how you structure the partnership. Some of the key takeaways are:<\/p>\n

If your business has its own loyalty program and you want to get other businesses to join:<\/p>\n