Benefiting from alliances

As Indian citizens may have got used to coalition governments over a period of time, so can they get used to coalition loyalty, the next level of marketing by marketers.

Customer loyalty is an area that has been actively debated and researched by marketers in India. The proliferation of categories and brands along with the changes in consumers' lifestyle are prompting managers to even attempt a few strategies popular in developed markets. Coalition loyalty is one of the concepts that is being attempted in an emerging market such as India, though like any other strategy tried out in developed markets, it needs to be adapted to the Indian context.

Coalition loyalty – the nuts & bolts

In simple terms, in a coalition loyalty programme multiple categories of brands come together to earn customer loyalty. The objective being, each brand obtaining a higher share of spend per customer, as the customer has the flexibility of earning from one category and redeeming from another.

The motivation for marketers to form a coalition among various brands stems from several aspects concerned with the environment. The emerging middle class that has greater spending power than ever before, opening up of services such as telecom, fuel, modern retail, and banking, availability of databases on the consumption patterns of consumers (though this needs to develop itself fully) and the diversity of lifestyles that are being observed by marketers are some of the important aspects that can move the conventional loyalty of consumers to the next level. For example, a family that shops at Big Bazaar, fills up petrol at HP outlets near home, has Vodafone as a mobile service, banks with SBI and buys books frequently at Landmark has the potential to become a target customer for coalition loyalty. The family can earn points over time through its regular purchases and could spend the points earned through such purchases in any of the outlets specified.

From the marketers' viewpoint, the conventional logic of retaining loyal customers and profiting from them is served. This benefit is probably the anchor benefit that would provide a host of benefits for the marketers. The “captive” set of consumers will be available for migration and cross-sell (make offers on categories that the customer may not have bought), up-selling (upgrade the consumer with a higher priced offering (higher value too for the consumer) and also help in selling a higher share of the consumer's household purchases. Big Bazaar, for example, may want to sell more of commodities to the monthly shopper to enhance its profits in the product line of essential commodities. These can be redeemed through spends happening against petrol which the customer spends through HP petrol pumps.

Pre-requisites for coalition loyalty

Lifestyle constellation of consumer segments is a vital aspect that needs to be researched before brands can team up for coalition loyalty. How the consumer spends his time and money is a simple but far-reaching question that forms the basis of the strategy. A woman executive in her late twenties or early thirties in an urban setting is likely to have the following scenario in terms of her lifestyle: Apart from buying the basic essentials for herself or for her family from a modern retail outlet, she is likely to be a loyal user of a credit card, using it often at various places of merchandising; visits beauty parlours with a fair degree of loyalty (as perceived risk associated with such services are high); buys cosmetics of well-known brands as a part of her personal grooming, visits a bookstore such as Landmark; shops in select shops for apparel in a few malls and uses a specific brand of airline for her domestic/official trips. While being a high spender in terms of her lifestyle with a fair amount of discretionary income, she is certainly not a segment that would be value-insensitive in terms of her transactions. These “everyday” brands form an important prerequisite for coalition loyalty in an emerging market. Also, brands that don't fit into the lifestyle constellation will not benefit as much as the chances of her migration are quite low. It is important to study current cross-lifestyle category usage across brands coming into the programme as that will define acquisition targets and earning potential for the customer.

Velocity of earnings, in the coalition loyalty, will differ across these brands and therefore the earn-burn ratios need to be carefully looked at. In conventional loyalty, it is mostly “earn-with-me” and “burn-with-me” proposition. The potential revenue impact of lost redemptions to other partners needs to be factored in.

Expected growth in share-of-wallet is another interesting metric that can be applied while deciding on coalition loyalty. If a consumer has three credit cards (highly likely with regard to the typical consumer discussed earlier), what is the current share of spend in each credit card with regard to the transactions of the consumer? Does she use a brand of credit card for high-value purchases? Is there a pattern running when she uses the credit cards for various kinds of transactions? Can the bank expect consolidation of spends with one card? The share of current spends that the coalition can give must also be looked into.

New incremental revenue increase either through new-to-brand customer purchases which the coalition will drive or footfalls or cross-partner redemptions must be estimated.

Marketers need to build a fundamental conceptual framework and metrics as above to provide a direction for joining a coalition loyalty. Coalition loyalty can make a difference to many brands vying for customer loyalty but clearly the key question to ask really is: “Does coalition loyalty attract customers similar to mine?”

Building and nurturing brand trust seems to be an evolution over a period time – coalition loyalty seems to be the next stage.

(Ramesh Kumar is Professor of Marketing at IIM-Bangalore and Swaminathan is CEO, Hansa Customer Equity.)

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