Are coalition loyalty programmes a trap?

Coalition loyalty schemes promise scale and savings, but in reality they erode brand identity, dilute data advantages and lock retailers into costly, restrictive models.

For decades, multi-merchant coalition loyalty programmes have been marketed as the silver bullet for retail customer engagement. The promise is compelling: Instant scale, shared costs, and access to millions of existing members. Yet beneath this attractive veneer lies a strategic minefield that can undermine the very goals these programmes claim to achieve.

The erosion of brand identity

The fundamental problem with coalition loyalty programmes is that they commoditise customer relationships. When shoppers earn the same points whether they visit your stores or your competitors’, loyalty becomes transactional rather than emotional.

Customers develop affinity for the programme itself, the airline card or the supermarket account, not for your brand. This weakens the direct connection between your value proposition and customer behaviour, making it nearly impossible to differentiate your offering in meaningful ways. Simply, put – you lose control.

In the Australian and New Zealand markets, where retail consolidation has intensified competition amongst major players, this commoditisation is particularly dangerous. When customers all accumulate points in similar ways, the battle shifts entirely to price rather than brand loyalty.

Data: The currency you’re giving away

In today’s retail environment, customer data is arguably more valuable than the transactions themselves. Coalition programmes require participants to share this precious asset with competitors.

Every purchase, every preference, every behavioural pattern gets pooled into a collective database. While you might gain aggregate insights, you lose the exclusive intelligence that could inform your unique competitive strategy. Even worse, your rivals now have visibility into your customers’ shopping habits, potentially using these insights to target your best customers with competing offers.

For Trans-Tasman retailers operating in relatively small, concentrated markets, this data sharing is particularly costly. With fewer customers to compete for, exclusive customer intelligence becomes even more critical to competitive advantage.

The margin squeeze

Coalition programmes aren’t free. Participation fees, transaction costs, and point redemption expenses typically consume 2-5 percent of sales, a devastating burden for retailers operating on single-digit margins.

Unlike proprietary programmes where you control the economics, coalition costs are largely fixed regardless of the value generated. You’re essentially paying a tax on every transaction for the privilege of sharing your customers with competitors.

In markets where grocery margins average just 2-3 percent and retail profitability remains under pressure, this represents a significant structural disadvantage.

Trapped in someone else’s strategy

Perhaps most damaging is the loss of strategic control. Coalition programmes force retailers into standardised structures that may not align with their business model or customer segments. Want to test a new earning tier for premium customers? You’ll need coalition approval. Want to launch a surprise-and-delight campaign? It must fit within programme guidelines. Want to exit because it’s not delivering ROI? Prepare for a complex, costly separation that could take years.

The coalition operator’s incentives fundamentally misalign with yours. They profit by adding more partners and maximising point circulation across the network. You need focused customer loyalty and profitable transactions at your specific locations. When points earned in your stores get redeemed at competitor locations, you’re literally funding your rivals’ sales.

The better alternative

Forward-thinking retail groups are increasingly rejecting the coalition model in favour of proprietary loyalty programmes that offer complete control over customer relationships, data, and economics. The success of programmes like The Warehouse Group’s Market Club in New Zealand and specialty retailers’ proprietary schemes demonstrates that Australasian consumers respond positively to brand-specific loyalty when it’s done well.

Yes, building your own programme requires investment and patience. But it delivers something coalitions never can: authentic differentiation, exclusive customer insights, and loyalty that genuinely belongs to your brand.

The retail landscape has evolved. Customers expect personalised experiences, not generic point accumulation. They want to feel recognised by the brands they choose, not processed through a shared loyalty machine. As competition intensifies and margins compress, retailers can’t afford to outsource their most valuable strategic asset (customer loyalty) to a third party that also serves their competitors.

The coalition model made sense in an era when scale was everything and data was scarce. Today, with advanced CRM systems and digital engagement tools accessible to retailers of all sizes, the calculus has fundamentally changed. The question isn’t whether you can afford to build a proprietary programme. It’s whether you can afford not to.