Unlocking Loyalty: The Power and Challenges of Third-Party Redemption

Back in the early 2000s, while I was at Tesco, a pivotal shift occurred when Airmiles moved from being a redemption partner of Sainsbury's Nectar to Tesco’s Clubcard program. This transition was a game-changer, bringing a wave of Airmiles enthusiasts to Tesco, eager to earn more Airmiles through their everyday shopping. Tim Mason, Tesco’s Chief Marketing Officer at the time, credits this influx of loyal Airmiles collectors for giving Tesco a significant boost in sales—a clear testament to the power of offering third-party redemption options to loyalty members.

The strategic decision to partner with third-party redemption partners is still a critical consideration for loyalty programs today. As the Airmiles example illustrates, third-party redemption can enhance a program’s appeal. However, this strategy also brings its own set of challenges.

In this blog, I delve into the benefits, challenges, and some real-world examples of how third-party redemption is driving customer engagement and loyalty.

Benefits of Third-Party Redemption

1. Attracting "Burn Chasers"
   Third-party redemptions can be highly appealing to “Burn Chasers”—customers who accumulate points with the sole intention of redeeming them with specific partners. Frequent flyer programs offer great examples of this phenomenon, as seen with the Airmiles and Tesco partnership, which drew in highly engaged members actively seeking to earn Clubcard points so they could convert them into Airmiles.
2. Everyday Engagement
   Offering third-party redemption options in everyday categories keeps members engaged, especially for programs where redemptions might otherwise be infrequent. Members are more likely to stay active in programs that offer flexibility to redeem points for practical, everyday purchases.
3. Increased Brand Exposure
   Partnering with third-party businesses expands your brand’s reach by introducing it to new customer segments. This shared exposure enhances customer loyalty while providing opportunities for both brands to acquire new members—a mutually beneficial relationship.

Challenges of Third-Party Redemption

1. Increased Costs
   While third-party redemptions can drive engagement, they often come with additional financial costs. Loyalty program operators typically need to reimburse partners for redemptions at agreed-upon rates, which are often higher than the costs of fulfilling in-house rewards. This can strain margins, particularly if high-value partners dominate the redemption choices.
2. Operational Complexity
   Managing third-party partnerships requires significant effort. Tracking redemptions, integrating systems, and ensuring smooth customer experiences across platforms can be complex, especially when real-time processing is needed to prevent fraud and ensure seamless transactions.

Real-World Examples of Successful Third-Party Redemptions

Virgin Red & Greggs
Virgin Red’s partnership with UK convenience retailer Greggs allows members to redeem points for everyday items such as coffee, pastries, and Greggs' iconic sausage roll. This partnership keeps members engaged even when they aren’t planning to redeem points for a flight anytime soon.

Loblaw’s PC Optimum & Esso
In Canada, the PC Optimum program allows members to redeem points for fuel and car washes at Esso stations. This adds practical value for members while increasing footfall at Esso locations, showcasing the benefits of third-party redemption even in functional sectors like fuel.

Asda Cashpot for Schools
A recent innovative third-party partnership model has been grocery retailer Asda's "Cashpot for Schools", a fundraising platform designed to support local schools. Local schools can register as partners to receive donations based on customer spending at Asda. Although other retailers have run programs allowing customers to raise funds for schools, Asda's version is a modern and fully digital approach.

Tesco Clubcard & Restaurant Rewards
Tesco Clubcard enables members to double the value of their points when redeeming them at partner restaurants like PizzaExpress and Ask Italian. This strategy delivers value to Tesco customers while driving foot traffic to partner restaurants. The restaurants can maintain profitability by setting conditions, for example excluding alcohol from the deal.

Conclusion: Is Third-Party Redemption Right for You?

Allowing members to redeem rewards with third-party partners can enhance customer engagement and increase your brand’s reach. However, financial and operational complexities need careful consideration. A balanced approach can improve the value of your program for both your business and your members.

If you’re a loyalty program operator, or partner, looking to explore third-party redemption options, Eagle Eye's platform delivers real-time partner management solutions for some of the world’s leading loyalty programs.

Contact us to learn more about how we can support your needs by taking care of the technology while you take care of your business.