Monday, 30 July, 2007

3 problems with multiparty loyalty programmes

The future may well belong to networks. But multi-party loyalty programmes need to solve three problems before they get there.

First, and the most obvious one, is the technology hurdle. How will these programmes ensure that the software that runs the unified loyalty programme smoothly links with the separate transactional, sales and marketing software and CRM databases (I assume that all participating companies will not equate ‘giving points’ with ‘taking care of customers.’)

Second, sooner or later, the programme will need to play the role similar to a points market. This will entail ensuring that points accounts (members’ and marketers’) are properly settled and points-to-purchase ratios are commonly acceptable. For example, the trade in points (which are, to all intents and purposes, deferred discounts) is bound to lead to deficits and surpluses, and problems within individual companies.

Even if these two are solved by importing experts from other fields, there remains a third problem: A multiparty loyalty programme lessens choice, for both customers and marketers.

Let’s take customers first.

With single-party loyalty programmes, as a customer, I will not be penalised for buying petrol from my favourite brand and staying at my favoured hotel: I get points on both counts.

On the other hand, if petrol companies and hotel chains tie up, I lose if my favoured hotelier is not my petrol brand’s (loyalty) partner.

I may, though, reason that I’ll reach the loyalty rewards faster by pooling points from different sources; decide that the hotelier’s petrol partner is not so bad after all; and switch.

(For sure, the number of rewards redeemed will go up [as compared to stand-alone programmes], but this shouldn’t hurt marketers very much if they pool their rewards budgets. Unfortunately, we don’t know how much the redemption rates and amounts will increase.)

It may be argued that since consumers usually buy from a number of brands, there is no conflict of interest between consumers’ need for choice and multiparty programmes rewarding only purchases within a set of brands.

I suppose the matter is somewhat more complicated in real life. While customers may well buy from a number of brands, in frequently bought categories like groceries, credit cards, air travel, and telecommunications the basket is not equally split: A particular (favoured) brand takes the lion’s share. And it is inconceivable that any multiparty programme should have all or most of any member’s favoured brands.

Rationally, that may not be horrible. The consumer just needs to enrol in multiple (multiparty?) programmes and get his fill of points from multiple sources. Now, if only consumers were that rational.

Let’s take the marketer’s point of view. Suppose he wanted to run a sales promotion. As long as he didn’t tie up with other brands, the whole paying population was his market.

Once he gets into partnerships, he limits his choice, at any rate, his first choice, to his partners. There is perhaps little to suggest that his partners’ customers will be his best prospects. (It’s like some direct mail companies agreeing to exchange lists exclusively - an arrangement that is extremely unlikely to benefit any.)

There will certainly be some overlap, but what else can one expect with promiscuous consumers and markets dominated by a few major brands. (The drivers of any multiparty loyalty programme will have to major brands, though many small ones, and even single outlets, may join it… with limited rights, and even more limited powers… primarily to rent loyalty infrastructure and services.)

I don’t think there is any empirical evidence that shows this fear to be misplaced. There are, of course, quite a few multiparty loyalty programmes. There was, of course, the USSR.


mb said...

Having been a marketer for quite some time now, I have realised that multiple party programmes only sound good since they are tieing up a whole bunch of merchants,retailers,malls, etc but the merchant's point of view is that none of the brands individually make it to the top. Since the approach is so wide and large that untill the programme is as large as, say iMint, the brands will not get any mileage at all without individual advertising or marketing of their own - relating them to the Loyalty programme.

N&P said...

Dear MB, I suppose we agree here. I'd be grateful to know about papers, articles and books on multi-party programmes. PAC

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