Is Plenti's Initial Success Making Way for Coalition Loyalty Programs in U.S.?

Point of View

By: Rahul Kaushal & Sumeet Chauhan

Customer loyalty has increasingly gained a lot of importance in today's uber-competitive era. It's no secret that loyalty programs are effective marketing tools to increase sales, retain customers & improve brand

reputation. Loyalty Programs are structured incentive schemes to encourage frequent & regular purchases. These programs can be standalone or coalition depending upon number of partners participating in the program.

Before Plenti's launch, US market was considered as best fit for standalone programs. At a time when passiveness in US loyalty program is growing, Initial success of Plenti® had raised many eyeballs.

Plenti's offerings substantiated it as a valuable programwith intention to provide customers 'varied choice and savings'. Plenti brought best of partners with exclusive rewards from different domain under single program – so that customer can gain most.

In all, Plenti® has unwrapped the way for large scale competition & expect it to drive growth for partners. This article talks about origins of coalition Loyalty, need for coalition loyalty, launch of Plenti in the US Market, the challenges it faced and the way forward.

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Why Coalition loyalty Programs

Standalone loyalty programs have been quiet popular in US for many years. Most individual stores/chain of stores develop & run loyalty programs for themselves. This has resulted in overcrowded& fragmented loyalty space. As per report by Colloquy (Division of LoyaltyOne), membership in US loyalty programs has increased significantly from 2.6 billion in 2012 to 3.3 billion in 2014. Though membership is increasing, active membership in

loyalty programs has witnessed a decline (as represented in Table 1). In 2014, each household had 29 loyalty memberships, while active only on 12 of them. Increasing inactivity of customer is hindrance in delivering any long lasting value to stakeholders & obstructing loyalty programs to drive desired results. Retailers need to look beyond existing programs& engage customer with better ones. Proven coalition Loyalty model can be a possible alternate in this situation.

Year Average

Association

Active

Memberships

Active Members

2008 14.1 8 56%

2010 18.4 8.4 46%

2012 21.9 9.5 43%

2014 29 12 41%

Table 1: Average membership & Activeness

Coalition loyalty programs are reward-based partnerships among multiple participating merchants, which offer differentiated value proposition& experience across partners. These programs enable better utility and perceived value along with enhanced reward earning potential & wider choice for redemption of rewards.

Coalition loyalty programs benefit merchants as they have to incur less cost on platform, marketing and operations thus, leaves sizable resources for rewards. Mutual benefits of coalition loyalty extends beyond retention& act as platform to collaborate, run cross-promotions and generate opportunities to create pull for new customers to join in. Coalition loyalty programs create far superior case of customer engagements & personalization as partners tend to share customer transactional data. On the financial front, these programs help retailers' shift financial liability of rewards to coalition owner running the coalition loyalty program, and thus create space for greater design flexibility like prolonged or no point's expiry & specialized partners to own the program.Biggest threat perceived for coalition loyalty programs in US was mature loyalty market & more focus of retailers on standalone loyalty programs. There was not much done on coalition loyalty programs in US, while many examples of successful coalition loyalty programs are available outside US like Travel Club (Spain), Air Miles (Canada), Payback (Germany), Fly Buys (New Zealand), Nectar (UK) and Dotz (Brazil).

History of Coalition loyalty Programs

The first coalition loyalty program was developed in the 1980's. Air Miles was first started in UK in 1986 & then extended to Canada, US, Netherlands & thereafter in the Middle East in the 90's. This is now the biggest coalition loyalty program in Canada & Netherlands. Air Miles US was not a success & suspended operation couple of years after launch. Air Miles UK was merged recently to another program by BA (British Airlines) called Avios in 2011.

Loyalty

Program

Country Penetration

Air Miles Canada 70%

Travel Club Spain 70%

Nectar UK 68%

Payback Germany 60%

Fly Buys Australia 60%

Air Miles Netherlands 60%

Dotz Brazil 46%

Table 2: Penetration Level of Loyalty Programs

60Air Miles Canada is a highly successful program with a penetration level of 70% in Canada. Program empowers members to receive rewards by shopping at partner stores & exchange rewards for flight bookings. Table 2 represents success of coalition loyalty programs from different parts of the world.

Travel Club, is the largest coalition loyalty program in Spain and was launched in 1996. The program has 12 million members & more than 10,000 retail outlet partners. Travel Club coalition loyalty program has a penetration of 70% in Spain.

Nectar is the biggest coalition loyalty program in the UK. This program was launched in 2002 by collating four schemes & has expanded to more than 500 merchant partner and has reached 19 Million active card members. Nectar has an impressive penetration level of 68% in the UK.

Payback was launched in Germany in 2000 and extends to Italy, Poland, India and Mexico.. Payback Germany has 28 Million card members with a penetration level of 60%.

Success of coalition loyalty programs outside US have demonstrated incredible value and viable long-term competitive benefits for its patrons.

Plenti

In 2011, American Express acquired a “Loyalty Management Solution” company, which was running a coalition loyalty program called “Payback”. Payback was operating in Germany since 2000 and was extended to Poland & India respectively in 2009 & 2011. American Express extended the program in the US by the name “Plenti” in 2015.

Plenti

AT&T

Telecom

Direct Energy

Energy

Macy’s

FashionStore

Nationwide

Insurance

Chilli’s Grill Bar

Dinner

Expedia

Travel

Rite Aid

Pharmacy

Hulu

Entertainment

Exxon & Mobil

Petro Chemical

• All 10 Partner with different product category offerings

• Earn rewards additionally at more than 800 online stores using E coupons

• Customer Spend data can be used for developing better customer engagement models

• Spend history across partner can help personalize client experience

• Tender neutral program

• Wider range of options to earn & burn points

• Participation of cross category merchant lead to wider reach

• Combatively longer lifespan of 2 year for redemption of MR points

• Plenti Credit Card is also launched by Amex

• MR Points from Amex Cards are convertible to Plenti Points

Salient points on Plenti

Figure 1: Partners & Product Categories of Plenti

American Express with Plenti brought expertise & experience of running loyalty programs. Plenti is free to join & tender neutral program i.e. members are eligible for rewards with any mode of payment– cash, card etc. at partner checkout. All rewards offered by Plenti are on top of existing programs run by merchant partners, with no upper limits on accumulated rewards. These rewards have 2 years for redemption before expiry.

The program was first launched with 8 partners & then expanded to 10 soon after. Additionally, Plenti has tie ups

with more than 800 online stores to earn rewards using e-coupons. Merchant partners associated with Plenti are from all the product categories. To enable accelerated earning, American express had also launched a Plenti credit card - use of credit card could double the earn potential. Plenti also offers bonus/additional points during enrollment, campaigns & events. Existing American express card members have flexibility to convert Membership Rewards (MR) points to Plenti points. Thus, Plenti provides ample opportunity for customers to earn points through different channels – shop with partners,

61special offers or new services, regular shopping – in store or online, American ExpressPlenti Credit card, e-coupons for other stores.

Well, after a year, Plenti penetration level is around 25% & more than 30 million active members. Rite Aid was the biggest contributor to its success. Company has enrolled 26.5 million members to the program “Wellness+ with Plenti” by converting members from its existing loyalty programs to Plenti with a conversion rate of more than

90%. Macy enrolled more than 2 million members within first week of launch.

Standalone loyalty Programs versus Plenti

Plenti being the first coalition loyalty program in US has brought transformational changes as compared to existing standalone loyalty programs. Below table highlights the differences of Plenti versus existing standalone loyalty program

Standalone Loyalty Program Plenti Coalition Loyalty Program

Customer’s Prospective · In standalone programs, members earn points

which are scattered at all merchants, hence it takes

longer time to accumulate sizable rewards points

for redemption threshold.

· Point earned will depend upon card tier or

Customer tier e.g. Silver Customers, Gold

Customers etc.

· Customers can earn points throughout partner stores

& for wide range of product categories. It takes shorter

duration to gain threshold points.

· Plenti follows a single tier model & hence is

independent of shopping volumes.

· Plenti points earned are on top of all existing programs

or card loyalty programs. 100 Plenti point = $ 1 saving

Merchant’s Prospective · Focus of standalone loyalty programs is on

retaining existing Customer & generate maximum

value.

· Affordability to single merchant to spend large

amounts to promote program & reward members

is limited.

· Plenti program will help partners retain existing

customer base & attract new customer base as well.

· Plenti program can leverage shared resources to reach

wider audience either through digital campaigns or

cross participant branding.

· Limited investment on set up & maintenance of loyalty

system.

· Benefits by economies of scale in setting up

infrastructure, running campaigns to engage customer.

Membership Points · Card programs are dependent on type of payment

& work only for Card present scenarios. Will CNP

not work?

· Plenti points are tender neutral i.e. card member can

be engaged & rewarded through various channels –

Card, Online etc.

· American Express MR Points can be converted to Plenti

Points, thus supports American Express reducing MR

points liability and move into Plenti.

Data Analysis · Customer spending history will be limited to

specific product category & difficult to leverage.

· Customer data collected from all the partners will give

near real pattern to provide them with meaningful

offers.

Table 3: Comparison between existing standalone loyalty programs versus Plenti

Challenges for Plenti

New Partners from complimentary product categories

Customer adoption in any loyalty program depends on the mix of partners. While Plenti gives members an opportunity to earn points for grocery shopping online but lacks a grocery store as partner. In addition to grocery, inclusion of additional partners complementing existing portfolio of product would enhance appeal for Plenti. With Nectar in UK – members can earn & redeem rewards across more than 500 partners.

Member always prefer partners in the vicinity

With just 10 partners, there is room for more growth in a big country like US. Plenti should expand locations & add

alternate channels like E-stores. This would result in enhanced card member experience & engagement.

Low Reward rate comparing Merchant programs

Plenti gives member option to earn & redeem rewards quickly. While comparing value of rewards Plenti offers is much lesser value comparing co-brand cards & standalone loyalty programs. Partners are reconsidering the options to further decrease the linked points – AT&T has recently reduced the earn points to half of value & limit the points to be linked to lesser products.

Competition from upcoming players

Plenti is the first coalition loyalty program in US & its success will attract other players to launch bigger & better coalition loyalty programs. Plenti will always have the

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Rahul Kaushal is a consultant in Cards and Payments Practice at Infosys. He has 10 years of experience working indifferent areas of Cards & Payments. He is a regular contributor on recent trends in cards and payments to Infosys KM portals.

Rahul holdsa master's degree in business administration in Finance & bachelor's degree in science.

He can be reached at Rahul_kaushal01@infosys.com.

Sumeet Chauhan is a consultant with Cards and Payments at Infosys. He has 8+ years of experience in business analysis and consulting across Cards & Payments domains.He can be reached at Sumeet_chauhan@infosys.com

benefit of being the first mover in this space, while Plenti need to constantly reinvent for upcoming challenges from entry of new player, & enhanced programs from existing players.

Conclusion

The fundamental expectation from any loyalty program is enhanced psychological and financial value for all stakeholders. Plenti being the first coalition loyalty program in the US, has come as a strong alternative to existing &ubiquitous stand alone loyalty programs. Shared customer data is added advantage, this shall be used tocustomise offerings thus has potential to enhance success. Even though program needs expansion horizontally to reach hinterland but it is likely to get better as more partners will join. Every new partner in the program will renew offerings & increase value exponentially. It would be too early to predict Plenti as success – we should wait & analyze the impact of new entrants in coalition loyalty & innovations in existing loyalty programs. Plenti has set a trend for others to follow and hence competition coming from launch of similar schemes cannot be ignored.

Infosys Offering

Infosys has deep experience in card member loyalty space. Infosys was a major contributor in orchestrating Nectar loyalty program for UK which included building a mobile app for the program and offshoring processing of points. This illustrated Infosys's integrated use of research & development, business analysis and retail analytics expertise. As a system integrator, Infosys is well equipped to support global expansion by delivering local support in markets worldwide. With strong experience in Cards & Payments, CRM, Systems integration along with a proven Global delivery model, Infosys has the ability to help organizations earn the loyalty of millions.

References· https://www.plenti.com/

· https://www.americanexpress.com/us/credit-cards/plenti· http://about.americanexpress.com/news/pr/2015/plenti-loyalty-program-available-now.aspx· https://www.colloquy.com/latest-news/2015-colloquy-loyalty-census/· http://www.sli21.com/?whitepaper=coalition-loyalty-a-model-with-sustainable-advantages-for-retailers· http://www.payback.net/en/about-payback/facts-figures/· h t t p s : / / c o n t e n t . r i t e a i d . c o m / w w w . r i t e a i d . c o m / w -content/images/company/investors/anrpts/annual16.pdf· h t t p : / / w w w . f i r s t a n n a p o l i s . c o m / w p -content/uploads/2015/08/First-Annapolis_-Plenti-Program-Update_15Aug13.pdf