What Motivates You?

I was reading an article on the CBS Moneywatch site about strange and unusual benefits offered to frequent fliers on certain airlines, and reflecting that many of these offerings are just as far off target as the mainstream awards with which they were meant to compete. Most people who travel by air have already encountered the typical awards programs – collect miles traveled on an airline or dollars spent on a credit card tied to the same account, and receive credits towards free airline tickets and/or free upgrades to tickets you purchase on your own. Some of these programs also offer free nights in hotels, free rental cars, or discounts on various travel services, and as the competition between the surviving airlines grows more intense, many of these frequent flyer deals are doing away with expiration dates, holiday blackouts and other restrictions. But while these programs may make air travel more affordable, unless you spend all of your points on fare upgrades they will not make the experience any more enjoyable…

Some of these non-standard rewards attempt to address this shortcoming by offering benefits that will add to your existing travel plans. Air Baltic’s free dogsled ride could be fun, as would the weekend in Sweden’s famous Ice Hotel offered by SAS, and anyone who drinks wine might enjoy the wine club membership offered by Qantas. Southwest can hook you up with a trip to Air Combat USA, where you can fly jet trainers and learn how to be a fighter pilot, while American offers a beer-tasting tour in Brussels and Virgin Atlantic offers a seat on a sub-orbital space flight – although that last one will take a lot of miles to purchase. But I still think they’re missing a bet here…

One of the big problems with frequent flyer programs is the perception that you have to fly all of the time to gain any rewards at all – an image that is reinforced by the 25,000 to 50,000 air miles needed to get a single free ticket (that’s 10 to 20 cross-country hops, or more than most people fly in a decade). And, in fairness, a free ticket to anywhere is a huge expense for the airline – we’ve discussed in this space how such tickets are effectively taking on unproductive debt. But the airlines could deal with both of these issues by allowing customers to cash in smaller numbers of miles for smaller rewards, thus eliminating both the perception of limited utility and the huge burden of unpaid customer benefits. Imagine if a specific carrier allowed you to get your checked-bag fees waived for just a few thousand points. Or if they allowed you to pay for your seat selection (window and aisle seats cost extra on many flights now), flight reservation, advance check-in or on-board snacks using frequent-flyer points. Any average flyer could see benefits to such a program after a single flight, and the potential cost to the carrier would be minimized…

Of course, if the airlines really wanted to get creative, there are any number of other incentives they could offer passengers through a frequent-flyer system. We’ve already discussed the idea of child-free and child-friendly sections of an airplane; it wouldn’t take much more to offer family-friendly waiting areas (or even private cubicles) on the ground, or any number of other services for travelling parents. By the same token, you could easily offer adult-only services to older passengers travelling without minors (uncensored movies, quiet areas in the terminal, free alcohol) at minimal cost to the airlines that would simultaneously reward the customer and eliminate the expense of free tickets. Such measures might not help in promoting the airline – they won’t bring you funny stories on Moneywatch, for example. But in terms of promoting the company while reducing its effective debt load, they might be worth a try…

Showing Loyalty to Whom?

I was on the Consumerist website the other day when I ran across a story about the AMC Theater chain discontinuing its previous loyalty program (a free smartcard deal, where every time you buy tickets you swipe the card, and after so many visits you start to earn free items) and replacing it with similar program where you have to buy in each year. We’ve seen more and more companies going to this approach – the idea being that casual users either won’t buy into the program or won’t use the card more than once or twice a year, so the rewards program will only reward people who use it often enough to cover the cost of having the rewards card in the first place. However, according to the Consumerist poster, the AMC people were also aggressively trying to sell membership in the program – to the point of asking eight times during a single visit to the theater complex. I thought it raised an interesting point about these programs, and was worth a closer look…

The basic idea of a loyalty or frequent customer rewards program has been around for decades, predating most of the current technologies used to facilitate such things. Each time a customer spends money at your business (whatever that might entail) they receive a marker – such as a punch made in a small paper card – that acknowledges the purchase; once a specific number of markers have been accumulated the customer earns a specified reward. This sort of punch card system has been used for everything from food and beverage to dry cleaning and car washes over the past five decades, but it has a few problems. In addition to the obvious issues of fraud (how do you keep customers from just punching their own holes at home?) and loss (how to you handle someone who claims to have lost a filled card, or to have not received their “punch” the last five times they came in?), there’s the additional problems that a punch card does not tell you which of your locations all of these purchases were made at, or anything else about the customer except that they come to visit you often…

For all of these reasons, many companies have introduced an electronic version of the rewards card. Just by swiping your card you can qualify for any number of specific benefits, and the company gets to track your purchasing habits – and movement patterns, if you frequent more than one of their locations. If the card application includes basic demographic data about you (and most of them do) the company can harvest its own sales survey data without the bother or expense of taking actual surveys, and improve their product mix to suit you (or your demo group, at least) better. It’s also possible for the company to provide you with special offers that are tailored specifically to you. This is a major savings to the company, and can be a revenue center in its own right (if they can find someone who wants to buy their demographic information). It can be difficult to get people to give you detailed demographic information, and some people will be averse to carrying extra cards around in their wallets, but for the most part these programs are a huge win-win for the company and the consumer…

Unfortunately, such programs still aren’t free. There are still costs associated with collecting, processing and analyzing the data, not to mention the actual discounted (or free) merchandise or services offered to participating customers. Hence some companies will try to recoup the costs, either by charging a fee to use the program or by offering “rewards” that don’t actually cost them anything. This can work, of course, assuming that the benefits to the customer outweigh the cost of having the card; our purchase at Barnes and Noble was actually cheaper with the charge for a year of their loyalty program than it would have been without the card, so even if we don’t buy anything else from that company this year, it was already worthwhile. But if you’re charging too much, selling too hard, or making too many attempts to close, you’re likely to annoy the customers and ultimately lose their business outright…

I can’t help wondering if some of these companies have lost sight of the original purpose of such programs. It they’re using these cards as a profit center and ignoring their primary function as a marketing tool, they’re going to lose customers; it they do it too often they’re going to destroy whatever profitability these programs might have had left – and eventually the company…

Losing Your Miles

Most of you have probably encountered frequent flier programs at some point in your travels; they’re customer loyalty programs that offer rewards for flying a certain number of miles on a specific airline – thus motivating you to book all of your travel on that same carrier. If you travel a lot – in excess of 100,000 miles per year, for example – most airlines will also give you membership in a special rewards club, which entitles you to special benefits, in addition to the free tickets and ticket upgrades you can earn with your flyer miles. In some companies, frequent flyer miles have become a perk all by themselves, and we’ve seen cases of the IRS ruling them to be income (under the non-monetary compensation rules) and requiring people to pay taxes on them, but all such programs have an inherent problem: they cost the company money…


To combat this, most of the airlines that still have frequent flyer programs have imposed limits on when the free tickets can be used, and on how long you can keep them. There are a few exceptions – Capital One is making a major selling point out of its “never expire, no blackout dates” airline miles cards, for example – but for the most part, it’s a “use them or lose them” proposition. This, unfortunately, has the side effect of lowering how valuable these “rewards” points are to the casual user, and thereby undermining the effectiveness of the entire program. The truth is, the airlines are attempting to have it both ways, and are annoying their customers into the bargain. The new program being offered by American Airlines, however, may have reached a new low…


Called the buyAAmiles program, this handy little offer allows you to purchase additional miles on American for cash. Now, this isn’t a new operation; most of the airlines that have frequent flyer programs have been doing this since the beginning, so that people who want to use a “free” ticket but are short a few thousand miles can make up the difference out of pocket. The new wrinkle is that since buying miles counts as “account activity” it can also prevent your account from going inactive and your existing stock of miles from expiring. American is sending out emails to their infrequent passengers (like me) saying that your miles are about to expire, but for under $60 you can buy a few new ones and some time…


I find this annoying for at least two reasons. First, having the miles expire in the first place is blatant cost-cutting measure; it’s good for the company and comes at the expense of the customers, and is therefore not a good choice. Second, my frequent-flyer miles do not expire until April. Yes, as I write this, it’s six months before the expiration date on the email I got yesterday. As with magazines sending you “Your Subscription is About to Expire!!!” letters half a year before your end date, I expect to be getting these messages every week until the due date comes up or I send them money. All of which is made even more absurd by the fact that I’ve only got 2,416 miles in my account to begin with; to actually get a free ticket I’d have to spend at least $250 on more miles, or fly cross-country seven more times…


Long-time readers (assuming I have any) may recall that I’ve been avoiding American ever since the episode when they refused to sell me two tickets (for me and my wife) because the departure date was less than 72 hours away; we each had to purchase our own ticket with our own credit card, and the airline also refused to guarantee that we’d be able to sit together on our cross-country flight. I generally only use American when there is no other way to get where I’m going, and even then preferably when somebody else is paying for the tickets. I can’t say I’m any more likely to avoid them after this stunt, but I’m certainly no more likely to fly with them. Of course, you could argue that having a spam-bot send me a spam email doesn’t cost the company much, and I’d agree with you – but that’s not the same thing as not costing them anything. It seems unlikely that they’re going to make much money doing this, whereas the extortionary nature of the offer may anger some potential customers enough to quit doing business with the airline for good…

Holding the Bag

Sometimes the ideas you need to gain a business advantage are very complex, involving intricate arrangements of high finance, specialized insider knowledge and technical expertise, unique innovations in high technology, or unbelievable timing to seize the perfect moment to make your move. And sometimes all you need is about five cents worth of nylon…

The drycleaners near our house recently asked us if we wanted to sign up for their VIP program. This is less hype than it is a large nylon laundry bag with your name and account number printed on a tag attached to the drawstring. I’ve seen these programs before – they were fairly common in Los Angeles while we were living there – but this particular company had managed to find a new wrinkle: the service is free. Most of these VIP services have used the speed and convenience factors as their main selling points – you don’t have to wait in line to drop off your laundry, just toss the bag on the counter and run – and have required some lengthy registration forms and a deposit for the bag. Which is why people like me have traditionally blown them off, of course…

Now, I’m not attacking the companies back in Los Angeles. Most of them were using nice canvas bags with metal grommets for the drawstring holes and the customer’s information printed on them, which have the advantage of not needing replacement for years at a time (and a nicely unique, giving a real feeling of a relationship being established), but have the drawback of being expensive enough that you wouldn’t want to have to keep replacing them. Hence the deposit, and the information to establish who you really are and where you actually live…

The difficulty here is that the value to me (of being able to just dump my laundry and run) was not worth the time or money involved in joining the VIP program. It’s not that the amounts of money or time involved were especially large, it’s just that since I usually dropped my laundry off before 7:00 am (where there was usually no wait to drop off an order in the usual way), the value created by the VIP service wasn’t worth it to me. This would be even more likely now, since I spend most of my days dressed as a grad student (jeans, knit shirts, sneakers) and only dry-clean a few items each month…

Using the cheap nylon bags, our local drycleaner doesn’t really have to worry about people walking off with them (or just misplacing them) since these things only cost a few cents each; thus, they can do away with the formal requirements of the VIP service. They’re not creating the same sense of “belonging” that a customized bag give you, but neither are they dealing with the big-city formality that would make such a thing more of an issue. And I’d be willing to bet that you could apply the same idea to any number of other “frequent customer” programs, depending on what your business does and where it is located…

Which is why I’m calling this concept to your attention in the first place, of course…