The American Express Launched A Coalition Loyalty Program

Background In May ’15 American Express launched a Coalition loyalty program called Plenti. Members of Plenti can earn and redeem points by shopping at participating merchants (e.g., Exxon, Macys, Rite Aid and ATT.) The biggest challenge in launching the program was signing up merchants and building an economic case for shifting away from proprietary programs. As part of efforts, we were in negotiations with Rite Aid to join the program. Under their old loyalty program (Wellness+), Rite Aid issued reward dollars (+UPs).The dollars could be used for purchase within their store over next 2 weeks while in Plenti the points (1 point = 1 cent) are valid for 3 years and can be redeemed at any participating merchant. Rite Aid was concerned that if†¦show more content†¦One option was to guarantee dollar value of points redeemed at Rite Aid However, in their old loyalty program, all points were redeemed in their stores, so the guarantee had to be equal to their point issuance. Rite Aid was planning to issue $75M worth of points so the proposal represented a large risk. Alternatively, we could have offered them exit rights linked with in-store redemptions but that would have created an uncertainty and would have been against spirit of coalition. We finally proposed ratio of points redeemed at Rite Aid to Rite Aid issued points redeemed at other sponsors would always be greater than 1. The ratio implied on Cash flow basis the program will be neutral for Rite Aid. The proposal guarded us against slow adaptation and penalized only if redemptions at Rite Aid were lower than other sponsors. We did not have any data to inform the metrics. Even though we were confident about meeting the metrics in the long term as Plenti envisioned signing â€Å"earn only partners† (where customers will earn points, but will not redeem them) but in the short term it was a challenge to estimate it. The proposed guarantee had two major drivers, firstly, how many Rite Aid issued points will be redeemed in each year and secondly how many Rite Aid issued points would be redeemed at Rite Aid vs. other merchants. We used data from international loyalty programs (Nectar, Air miles) and estimated 80% of the points The American Express Launched A Coalition Loyalty Program considered.† Background In May ’15 American Express launched a coalition loyalty program called Plenti. Under coalition loyalty programs, members can earn and redeem points by shopping at participating merchants (e.g., Exxon, Macys, Rite Aid and ATT.) The program helps consumers to earn rewards faster and lead to better engagement and provides merchants and opportunity to attract new customers and run cross-promotional campaigns. The biggest challenge in launching the program was signing up merchants and building an economic case for shifting away from proprietary programs and collaborate for collective benefit. We were in negotiations with Rite Aid to join the program. Under their old loyalty program (Wellness+), Rite Aid issued reward dollars (+UPs).The dollars could be used for purchase within their stores over next two weeks while in Plenti program the points (1 point = 1 cents) are valid for three years and can be redeemed at any participating merchant. Rite Aid was concerned that if they joined Plenti, customers will continue to earn points at Rite Aid but with more redemption options and longer validity, the redemptions will be skewed towards other merchants especially the â€Å"Grocer† Partner. In effect, they will be subsidizing a loyalty program for the â€Å"Grocer†. Challenge As part of the negotiations, our team was tasked to identify and propose â€Å"Performance Guarantees† to address Rite Aid’s concerns. 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