The American Express ( Axp )

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Background In May ’15 American Express (AXP) 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 a higher level of engagement with a program which provides merchants an opportunity to attract new customers and run cross-promotional campaigns. However, the biggest challenge in launching the program was signing up merchants and building an economic case for shifting away from proprietary to collaborative program. AXP was 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 “Grocer” Partner. In effect, they will be subsidizing a loyalty program for the “Grocer.” Challenge As part of the negotiations, our team was tasked to identify and propose “Performance Guarantees” to address Rite Aid’s concerns. With no data and uncertainty about other merchants who will
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