While the development of the modern day loyalty program can be traced back to the 1800's with the creation of the Sperry and Hutchinson "green stamps" programs, it has more recently manifested itself in the many popular airline frequent flier and other point programs that are available. However, the limitations inherent to these traditional programs, coupled with ever-shrinking interchange revenue, have led to the evolution - and success - of the multi-merchant (a.k.a. "coalition") loyalty model. The future of loyalty marketing among card issuers can already be seen in the multi-merchant, multi-reward concept, as evidenced in Citi's recently launched "ThankYou" program. Looking at the continued evolution of the coalition loyalty model during the next 24 to 36 months, several central themes have already begun to shape the landscape. These include:
* "Democratization" - The next generation of loyalty programs combines both the flexibility to generate program equity through multiple methods, conveniently and on a regular basis, with the freedom of choice to redeem that equity in a myriad of ways that are meaningful to the participant. One of the most "democratized" loyalty programs in the world today is Canada's Air Miles program, which allows participants to earn program equity through multiple methods, and also redeem program points for a broad array of rewards. From a product life cycle standpoint, this combination of a flexible front end (earning options) and a flexible backend (redemption options) is the next generation of loyalty programs.
* Cross-Pollination - North America and Europe have taken different paths on their way to coalition loyalty nirvana. However, in the months ahead, program managers on both sides of the pond will learn and adopt new strategies from each others' successes and failures. More specifically, North America will see continued growth of the traditional coalition model, similar to Germany's PayBack program and the highly publicized Nectar program in the U.K. Likewise, Europe will see the adoption of the "microinvesting" model that has been pioneered by the BabyMint, Stockback, and Upromise programs in the U.S.
* Consolidation - Particularly in the U.S., the slow moving old guard of the loyalty world have sat on their hands, while coalition upstarts have captured the imagination of both consumers and participating merchants. Faced with this realization, the old guard must - and will - take action. More specifically, watch larger firms strengthen their positions and/or shore up their competitive weaknesses through the launch of new programs, or the acquisition of smaller upstarts.
According to a recent report by Financial Research Corporation, coalition loyalty programs have the potential to capture more than $21.7 billion annually in eligible shopping transactions, which in turn translate into millions of dollars for individual retailers, debit and credit card issuers, and loyalty program administrators. The only question for players and prospective players in the coalition loyalty space is whether those monies will be counted as incremental gain, or lost market share. To that end, fully understanding and properly positioning your firm to take advantage of these three key trends is of critical importance.
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Authoritative analysis and perspective for every segment of the payments industry
Authoritative analysis and perspective for every segment of the industry
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