Kick-Starting the Coalition

How strategic marketing and attention to customer value coalesce into success

Patrick Lewis

The KickBack Points loyalty coalition has roots in convenience stores—and in desperation. I operate the Oasis Stop ‘N Go C-store chain and several restaurants in and around Twin Falls, Idaho, which the big-box retailers eventually discovered in 2000. That's when the discounters began offering gasoline at prices under my cost as a branded dealer. Knowing our C-stores couldn't compete on fuel prices, we responded by creating the KickBack Points Loyalty Program to complement our brand. At the time, our naïve vision didn't extend much beyond some sort of plastic card, a machine to help track the information, a computer somewhere, and maybe a phone line.

Today the KickBack Points program is a multi-tender coalition loyalty program, based on a magnetic-stripe membership card, that rewards customers with a hard benefit rebate on purchases and soft benefits such as prizes and sweepstakes entries. Customers can earn points for all their purchases. Fueling customers come inside the store to earn points—leading to incremental sales on high-margin items. Since its inception, the program has gone from a startup with just a handful of members to a surging loyalty coalition with a over a million cards issued and over 100 companies participating across the United States. Annually, we capture $180 million in sales and 7.3 million KickBack transactions.

Initially, to build the KickBack Points program, we spent eight months and half a million dollars in startup capital—and remember, this was a very small company putting this thing together. While the idea of placing all of our marketing eggs in one basket gave us pause, the more we studied the coalition model and the more we looked at other information both empirical and anecdotal, the more we realized we were on the right track. Besides, if you're going to go broke, you might as well go broke by a lot—in the end, you're just as broke.

We didn't go broke. We kept working on the program value proposition and infrastructure, and at every opportunity to improve the system, we said, "Why not? Let's make it a little better." The program was so successful that other merchants asked to participate. "Why not?" we thought. "It's a way to make the program a little better." That's how we evolved the program into a "coalition lite" model without even realizing that's what we were doing. Today, six years later, we are a lot more knowledgeable. To give you some insight into how we've refined our strategy since the program's inception, here are some of the "little betters" we abide by when launching the KickBack program in a new region. Think of these steps as the stages of conquering new territory on the customer loyalty battlefield.

Stage One: Invasion
First, we won't go into a market unless we have one or more substantial anchors—a business or businesses that see a lot of customers, and see those customers a lot. To us, anchors are convenience stores, grocery stores, quick-service restaurants, and similar businesses. They're visible, they're frequented, and they usually feature multiple locations.

The anchor might even be composed of competitors. For instance, when we go into a market, we seek participation from a certain percentage of local convenience stores. That percentage might be provided by one company, or it might be provided by a couple of companies willing to be unlikely allies in this deal. With these anchors, we can get massive card penetration. We seek to make the card visible and understandable—we're defining the card to potential users. To build share of mind, when we launch into a market we use the KickBack logo as the entire card front, though this changes later.

Stage Two: Consolidation
Once we have card penetration and the public understands how the program works, we go get the other ancillary businesses, ones that couldn't normally benefit from a loyalty program if they were to launch their own. The participant mix presents a challenge, especially in the area of exclusivity. For instance, we might encounter a convenience store who wants to be the only C-store that takes KickBack in the market. If that operator has only one location in a city of one million people, then exclusivity can be a problem. But there are times when we can offer exclusivity—if you're the major oil & lube company in town, for example, then we could definitely offer you exclusivity.

When selecting participants, we look first at our cardholders. We ask, "What's going to maximize value to customers?" Then we look at the types of businesses. We limit the number of businesses that can participate, because if you enroll everyone, participants lose their points of differentiation, and the program loses value to them. When value is lost, businesses stop promoting the program, and the program in turn eventually loses value to the consumers.

We want to present a card that customers will pull out of wallets or purses three to four times a month. The customer thinks, "I'm going to use the card when I go to eat, when I fill up, when I have my oil changed, for my dry-cleaning, and when I have to buy flowers." Portability and opportunities to use are of enormous value. There's no way the KickBack card could have gotten two-thirds market penetration in Twin Falls, Idaho, where we began the program, if we had been the only ones issuing the card.

Stage Three: Exploitation
With the card now established in the public mind and available from a variety of businesses, we shrink the KickBack logo down on new cards, positioning it as a bug in a bottom corner to allow participating businesses to co-brand the card and benefit from brand equity. We then start to support the card with advertising. Billboards establish our logo and image. Participating businesses allow us to piggyback on their radio commercials; users and potential users hear commercials for Jiffy Lube, Burger King, Taco Time or Chevron, each tagged with the KickBack Points name. Targeted use of mass market advertising brings an enormous level of awareness to the program.

We also get a lot of card penetration by promoting at the store level and by just pushing the card out there through classic guerrilla-marketing techniques. Since consumer participation is free, we can issue the cards without requiring customers to register at the point of sale. This flexibility helps secure customers who have privacy concerns. We even allow unregistered users to accumulate points and to win instant prizes such as free sodas. But if customers want to redeem points, we need them to participate in the value exchange by registering their cards and allowing us to identify them.

To fuel card usage, we make redemption easy and rewards simple—and in many cases, instant. Customers are really hooked when they get something for free. To customers, a points program is a theory; it's theoretically valuable. But the second customers get something free—they win a prize or make a redemption and walk out of the business with something they didn't have to pay for—then they understand completely, because the program now has actual value. Because we own, maintain and control our own database, we can assure that every transaction is live, so customers can spend earned points immediately. We have a number of what we call "power issuers" on our system—furniture stores, for instance, that issue millions of point a month. KickBack cardholders can make a purchase at such issuers, and then go directly out and have dinner or buy a tank of gas with the points they just earned. The power of that instant gratification can't be underestimated.

Each stage in this strategy is a step designed to establish how KickBack Points is "a little better" as a marketing initiative for participating businesses, certainly. But more importantly, we hope to demonstrate how it's a better value proposition for their customers than what they could offer on their own. So far, both constituencies seem to be getting the message. As I noted, the KickBack coalition has its roots in convenience stores and in desperation. By overcoming our desperation, we've thrived on convenience.

Patrick Lewis is CEO of KickBack Points, LLC. Email him at patlewis@kickbackpoints.com.