It’s no secret that consolidation has been the name of the game for players in a number of industries over the past decade. Airlines, hotel brands, restaurants, and even retailers have looked to drive growth, generate efficiency in their business, grab market share, and compete against upstart players by buying or merging with their competition. In light of the COVID-19 crisis and the likely lingering long-term economic impacts, this trend is sure to continue as many viable brands encounter financial distress. While in some cases consolidation has resulted in the retiring of legacy brands in favor of cohesive identities (see the U.S. airline industry), in many cases this trend has resulted in increasingly diverse and complex brand portfolios. Take for example, the combination of Starwood and Marriott, which has resulted in a portfolio of 30 (!) unique brands.
Hoteliers are, of course, no strangers to complex multi-brand loyalty programs and the challenges posed by merging these programs while satisfying customer expectations and maintaining unique brand identities. But they are also highly familiar with the benefits of an integrated, multi-brand loyalty effort. But what about brands in other industries? As multi-brand collections in the retail and restaurant industries become more commonplace, how and why should these companies embrace an integrated loyalty offering, what risks will they need to navigate, and what types of outcomes should they expect?
Mitigating consumer confusion as new brands are integrated into a brand portfolio
As “house of brands” players expand, new brands are either introduced or acquired and can create confusion for consumers as they are integrated into the portfolio. Whether the newly acquired brand has an existing loyalty program or not, it is vitally important for marketers to clearly communicate to the new customers what will and what will not change about the brand they love. As the brand is integrated, customers should be made aware of the additional brands in the family and receive information and offers about adjacent brands offered within the portfolio. If a loyalty program exists and is folded into an existing multi-brand program, it is important to ensure that well-liked elements of the legacy program are incorporated into the surviving program, or that customers are made aware of benefits of the program that are well-liked that they will be receiving instead. This must be accomplished with clear, consistent communication. Finally, for members of the program being retired, it may be necessary to offer them a handful of enhanced, short-term benefits (such as complimentary tier status or targeted bonus offers) to help ease the transition.
Above all, it is important to manage customer perception that when something changes, they are losing something. The new program value proposition should focus on the new benefits to members. Messaging should be personalized when possible based on how a member group or segment has utilized the program in the past (for example—heavy redeemers, point savers, high earners, top tier, etc.). Brands must be sure to set KPIs and use benchmarks to gauge participation under the new “house of brands” umbrella. An excellent example of this is American Eagle’s 2006 launch of its sub-brand, Aerie, an intimate apparel and athleisure lifestyle retailer for the 15- to 22-year-old demographic. American Eagle and sister brand Aerie evolved its loyalty strategy over time to offer a fully integrated program with cross-merchandise promotional communications.
Rise of the loyalty “masterbrand” and how it can drive marketing efficiency
Now that we have discussed the path to a multi-brand loyalty program, we can begin to consider some of the benefits. First and foremost, a combined program will drive efficiency from a technology cost standpoint and from a creative and analytics effort standpoint. These are driven by the use of common tools, technologies, data, customer care, and brand elements. However, marketers should expect to see more measured efficiency gains from an operations and strategy standpoint as careful feeding of the individual brands’ program nuances remains vital.
With a common loyalty “masterbrand” and a shared core program, communicating with members will become easier and more effective as customers develop a common understanding of the brands in the portfolio, how they can earn across brands, and how their benefits work throughout the brand family. But it is important to note that an effective multi-brand loyalty program can have the best of both worlds. It is possible for brands to develop unique earnings, benefits, and promotions for the individual brands, while maintaining a shared core program structure. For example, this can take the shape of brand-specific tiers (as deployed by one of our clients), or in the form of enhanced earnings at luxury vs. mid-tier brands. We have also helped clients develop brand-specific program benefits and rewards.
An additional way that a multi-brand loyalty effort can drive efficiency is around the launch or acquisition of a new brand. When a new brand is incorporated into the program, existing program members are a marketable base of customers that can be informed of this new offering and incented to drive trial of the new brand. This is particularly powerful when the offers are targeted to existing customers based on their preferences, past purchase behavior, and predictive analytics, or other available member data (such as demographics, location, etc.).
In February 2020, Foot Locker, Inc. announced the rollout of FLX, its new membership program unifying all Foot Locker brands under one easy-to-use platform. FLX members are rewarded for shopping and engaging across the six Foot Locker brands in the U.S., including Foot Locker, Kids Foot Locker, Lady Foot Locker, Champs Sports, Footaction, and Eastbay. The flexibility and efficiencies can be experienced by both FLX members and Foot Locker, Inc. (which will have consolidated data at its fingertips to help drive marketing decisions).
Taking advantage of data across the brands can lead to more meaningful relationships
Perhaps the greatest benefit of a multi-brand loyalty effort is that it enables marketers to both deeply personalize the relationship with existing brand customers within their preferred brand(s) and allows them to identify, communicate with, and incent potential opportunity customers that are already members of the program. It is crucially important for brands to leverage program data to foster meaningful engagement with customers and increase active participation. This engagement can take the form of unique personal offers, timely and contextually relevant communications, and personalized live experiences delivered by front-line employees who are empowered with actionable member information.
In addition, companies with a portfolio of brands, such as Gap Inc., Chico’s FAS Inc., and Williams-Sonoma Inc., are in a unique position to steal market share when they can architect portfolio-wide multi-tender programs. This pivot in transaction payment tender aligns well with the growing trend and new generational attitudes towards credit cards. And, not only does it allow them to stand apart from others who only offer rewards specific to one brand, but it also provides a vast number of opportunities to personalize messaging and offers based on interactions (or lack of interaction) across the family of brands.
But in addition to engaging customers within the brands they already frequent is the opportunity to leverage segmentation, lookalike modeling, and other analytics-based approaches to identify marketable contacts in the program and to deliver offers and communications that encourage these customers to visit other brands for which they would have a high purchase propensity. While it is important to avoid being heavy-handed with this tactic, highly targeted, personally relevant, opportunistic communication can lead to incremental revenue with these customers and potential new brand loyalists. In addition, customers who have high tier status and take advantage of these benefits at their favorite brand may also be able to reap the benefits of their loyalty at brands they trial.
But this comes with a catch… Use cross-brand marketing wisely or pay the price
While the opportunities discussed above are significant and can drive meaningful business results, brands must be judicious in their use of these tactics. Overmarketing your most loyal customers can lead to marketing fatigue, which results in ignored communications and offers, or even worse, unsubscribing from marketing while remaining in the program. Governance around communications and planning plays a major role in a “house of brands” strategy. If each individual brand in the family operates independently, consumer confusion and frustration will be an issue. Logic and a communications hierarchy that uses data analytics and machine learning are essential to cross-brand marketing success.
Brands need to make sure that engagement with customers—both from the brand they frequent and from a new brand—is highly relevant in order to avoid consumers getting the impression that the brand “doesn’t know me,” or that their existing relationship is being “taken advantage of.” It is far easier to ruin a strong customer relationship than it is to build true customer loyalty.
Two final guiding principles: Treat each customer as an individual and make sure that unique brands can “do their own thing” within a structured, data-driven framework with governance.
Above all else, there are two keys to a successful multi-brand loyalty effort, and they are both rooted in the notion that not everything can be “cookie-cutter.”
Brands need to successfully maintain their unique identities—which is, after all, what made them appealing and successful in the first place—when entering into an umbrella loyalty effort.
Loyalty marketers should take great care to ensure that brands can exist in their own unique ways within the program and that brand marketers can deliver some brand-specific promotional elements or benefits within the program. At the same time, it is crucial for marketers to keep the individual consumer and their unique, personal customer journey at the core of their strategy. Highly personalized, dynamic offers, contextually relevant communications, personalized benefits, and brand-specific communications and offers can help make this possible. Whole Foods and Amazon have done a good job of executing this strategy. Prime members get benefits from Whole Foods, but throughout the experience and across channels, Whole Foods manages to maintain its unique brand identity and ethos—it doesn’t necessarily feel like part of Amazon.
Time will tell whether consumers will tire of consolidation and start to seek out the authenticity and eccentricity of smaller businesses or whether the consistent execution and large reach of bigger brands will continue to be appealing. What is clear is that “house of brands” players have a unique opportunity to drive efficiency and meaningful personalization through thoughtful multi-brand loyalty efforts. It would be a shame to squander it.