For most people, that phrase is likely to be meaningless. A loyalty programme is just a loyalty programme surely. Even within the loyalty industry, talk of ‘coalition loyalty’ can trigger confusion, derision, and forecasts of its impending death.

Given the confusion around the definition of coalition programme, let's dispel some myths and explain what exactly it is, how it works and why it has a strong future ahead of it.

Coalition loyalty is essentially an overarching loyalty programme that works for many different unrelated partners. In a sense, it’s multiple loyalty programmes in one, sharing a single points currency and single brand, but operating for the benefit of each participating partner.

From Airmiles and Nectar in the UK, Aeroplan in Canada, to Flybuys in Australia, the coalition model is generally quite similar. The idea is to bring together the top brands in a market and give them exclusivity in each category — whether grocery, fuel or payments — such that it creates an ‘everyday spend’ network that has a shared recognition currency in the form of points.

This network seeks to encourage participating consumers (‘members’) to consolidate their spend within the partners to the benefit of both the member, through increased and accelerated points earning, and for the partner, in the form of increased loyalty.

In practice, what it’s creating is a ‘walled garden’ that looks to maximise opportunities for members and partners within a closed loop loyalty marketing eco-system.

Depending on the brand, the coalition model brings several key benefits.

Connecting high frequency with low frequency — many brand categories such as speciality retail or F&B naturally have lower customer frequency and this in turn can make it harder for a standalone loyalty programme to make meaningful sense for the majority of their customers. Instead, any loyalty efforts tend to only attract and appeal to a heavy buyer of the brand, limiting the overall reach.

Within a coalition programme, you can bridge this frequency gap through the coalition brand and other everyday partners like grocery. It was ultimately this approach that allowed yuu Rewards to quickly exceed the active-to-brand members of all the partners previous proprietary (standalone) programmes.

Span utilitarian with rewarding — brand categories like telco, insurance, or payments are inherently un-engaging. Once you’ve picked a vendor and have that relationship in place, you don’t really care who the logo is, it’s simply a functioning service. This is a big issue for these brands as that type of brand apathy can put them at risk at times of change and mean they miss out on additional product sales.

Being part of a coalition programme can help functional brands get more everyday visibility and be linked to a much more dynamic currency.

For yuu Rewards, we ensured that these partners, whether payments or insurance, provided accelerated earning within everyday spend and it helped propel the yuu Rewards credit card to one of the largest in market.

Within Nectar, Vodafone was a founding partner with 30% churn at launch and clearly looking for a way to keep customers a little longer. Just 12 months later, Vodafone reported churn had dropped by 2.1% (to 29.3%) which at their ARPU of £297 would have been around £28m in retained income.

Make the mundane, meaningful — There is a reason Starbucks focused on the concept of a ‘third place’ — they recognized that a coffee can become an experience, something they describe as ‘the feeling of warmth, connection, [and] a sense of belonging’.

That’s not bad for a $5 cup of coffee.

The ‘feeling of warmth [and] connection’ is not however how you’d ever describe the weekly grocery shop with kids in tow; that is anything but ‘a sense of belonging’. Yet, with coalition loyalty, one can unlock the other.

That weekly grocery shop or that 4th fill up of the car can unlock a free coffee or a cinema ticket that then goes on to unlock a whole different consumer experience. This is how coalition partners can complement each other and bring mutual value and it’s how, within yuu Rewards, we had enough redemptions of KFC egg tarts to treat everyone in Hong Kong!

First party prospecting — I know I said in an earlier article that acquisition is not something loyalty can really impact; however, this is not strictly true within a coalition loyalty programme.

Instead, for participating brands in the coalition, the loyalty programme becomes an ‘acquisition flywheel’ because of the overlapping customer segments, with one partner’s customer becoming another partner’s prospect. It still takes work to make it work, but leveraging that ‘walled garden’ gives participating brands their own massive ‘first party data’ media channel to help tip the game in their favour.

This acquisition is though a double edged sword. It’s desired by partners entering the coalition, but equally when they feel they’ve had their fill, it’s also why they leave. The coalition needs to ensure it’s more than just short-term reach for partners.

It’s also worth acknowledging that within a coalition, one brands heavy buyers may remain light buyers of the other partners. The aim here is not to make all coalition members heavy buyers to all partners, but simply to ‘tip the balance’ in your favour to gain slightly higher market share and slightly higher frequency (loyalty) through increased mental availability (awareness).

When Airmiles issuance moved from Sainsburys to Tesco’s in 2002, Tim Mason, then Marketing Director of Tesco, reportedly said that it was ‘like switching on a tap’ — with 60,000 new customers and 35,000 ‘reawakened’ customers joining Tesco Clubcard. However, with 6m Airmiles members at that time, this still represented just 1.6% of their base.

On the other hand, Sainsburys joining Nectar as a founding partner, opened up an opportunity to tap into Vodafone’s customer base which was 13.4m at that point.

Creates Added Value — When the Flybuys New Zealand coalition recently announced its closure after 28 years, CEO Lizzy Ryley said “The landscape for loyalty programmes has changed [..], with businesses now having greater access to technology and capabilities that enable them to create their own highly tailored proprietary loyalty programmes.”

The underlying suggestion here is that one reason for a coalition programme to exist was the technical and operational complexity of running your own programme — sharing these costs made sense.

That was also an argument we used at Nectar when talking to potential partners — the cost of entry for coalition was lower than that of your own programme. This may have been somewhat true 20 years ago, but as someone who sold and implemented a lot of proprietary loyalty programmes back then too, I’d say the math was sketchy at best.

Instead, coalition is not so much about cost saving but more about value add. Modern coalitions are essentially a digital eco-system like Facebook or WeChat — whereas the ‘currency’ for social networks is ‘content’, for a coalition it’s offers.

A strong coalition creates a branded, owned, digital eco-system which can be cost-effectively leveraged by its partners to create deep and engaging reach. The mix of partners provides frequency, surprise, ‘warmth and connection’. It is not a supermarket flyer and it’s not a ‘voucher cloud’.

Done well, a modern coalition programme is a ‘digital third place’ between social and eCommerce- somewhere to browse and be inspired.

This is something I’ll discuss in a future article as it represents the evolution of coalition loyalty — something I’d argue yuu Rewards created, and it’s why I’d suggest it’s a little too early to write off the concept of coalition marketing based on designs from 30 years ago.