Loyalty Doesn’t Fly
By John Hennessy
United Airlines recently launched Mileage Plus Auctions, a new program that lets members of its Mileage Plus frequent flyer program use their miles to bid on big-ticket items, such as private golf lessons, spa treatments, a flight simulator experience and a four-day U.S. Winter Olympic experience.
“We were looking for a creative [outlet] to give our consumers others ways they can use their frequent flyer miles,” said United Airlines spokesperson Robin Urbanski. “A lot of our customers were asking us to use their miles for things other than air travel. What is so creative about this [program] is a lot of things on the auction are things money can’t buy.”
Through the program, United Airlines wants to reward loyal consumers with once-in-a lifetime experiences or treasures, Urbanski said. Members can bid on items in a variety of categories, including action and adventure, gourmet, sports and rest and relaxation. The auctions offer big-ticket items, including 2005 Chrysler Crossfires, which two Mileage Plus members bid on and redeemed separately for 1.4 million miles and 1.45 million miles, respectively.
The program marks a growing trend by airlines to offer programs in which frequent flyers can redeem points or miles for items beyond air travel. United Airlines also lets its frequent flyers redeem miles for hotel stays, car rentals, music downloads, and newspaper and magazine subscriptions.
“Fares are so cheap now, people are more reluctant to use their miles to travel,” Urbanski said. “They want to keep their miles for other things. We really focus on giving our customers more ways to use their miles so their miles are more useful.”
Moderator’s Comment: What are other innovative ways companies are making sure members of their loyalty program continue to receive value?
Interesting dilemma.
Lots of members with lots of earned credits are reluctant to use them as originally intended.
Some companies would view not having redemptions as a boon. That kind of short-term thinking would devalue participation in the program for members and
result in a gradual realignment of loyalties.
Rather than accept its fate and let the value of their Mileage Plus program slide, United recognized that miles unredeemed would hurt the program and took
steps to make sure members have ways to realize value. –
John Hennessy – Moderator
In our short history of Frequent Shopper programs, there have been ideas, but few have worked. Redeeming points for items was one of the early successful approaches. These items may or may not be normally sold in the store. While along the lines of the old stamp programs, the issue here is keeping the customer interested while accruing points. Marriott and American Express issue catalogues for people to redeem points for merchandise. As usual, there are no bargains. Forgetting the monetary value, the continuing decline in travel experience makes these offer worth less. American Air has offered a program where points can be given to selected charities. In the case of United, this looks more like Eastern Air. Customers want to redeem their points before they are worth nothing. Couple this with being one of the worst airlines to travel on (customer service, etc.), it is unlikely to build or support loyalty.
“Fares are so cheap now, people are more reluctant to use their miles to travel,” Urbanski said. “They want to keep their miles for other things. We really focus on giving our customers more ways to use their miles so their miles are more useful.”
Wow, look at that. A company recognizing that over time, their ‘value equation’ has changed, and they are changing to meet the (continuously changing needs) of their customers. United realizes this is more than an issue with the Mileage Plus program, it impacts their corporate reputation as well. And their corporate reputation impacts current and future customers, employees, vendors, creditors, shareholders, and government officials.
Would any good marketing person doubt for a moment that the two Mileage Plus members who scored the new Crossfire have increased their loyalty to United? Sure they are tooling around in sporty new Chryslers, but it was their usage of United products and services which allowed them to purchase the car, and which will drive their continued loyalty to United.
And remember, customers who are loyal to a company will continue to buy their products and services, buy more from their product line, recommend the company’s products and services to their friends and colleagues, and help out the company during tough times. John, there should be no dilemmas here.
I remember when I was a teenager, my mother used to shop at a supermarket in Los Angeles called Boys. They had the S&H green stamps program and I was a loyal devotee to the collection of those stamps. Why? Choice. The catalogue allowed me to choose from a number of types of items and, if memory serves right, there weren’t a lot of strings attached. Today, frequent user programs need to offer 1) Choice; 2) Non-traditional options that might not be easily found or obtained elsewhere and 3) Ease of redemption and collection. Only a few are getting it right. Amex is starting to do an interesting job of it.
Merchants should take note of the lesson in how United has expanded the kinds of offerings that its travel miles (or points) can buy. The original intent of airline miles programs – to instill loyalty – has eroded for many reasons related to the airline industry as well as the fact that miles have become a more widely traded currency. Airline miles have become a commodity – they’re bought, sold, swapped and even discarded. They’re used to reward behaviors and purchases unrelated to travel.
In order to enhance the value of its miles (which are about 1/2 as valuable as they were say 3 years ago), United had to come up with something new that only it could offer. I’ll call it a “Loyalty Hook.” Merchants of all kinds should be looking for their own “Loyalty Hook” as they contemplate their current loyalty plans because the standard model of offering loyalty programs based solely on points has a limited life with consumers. Merchants need to begin thinking of what they have to offer their consumers besides free stuff. In launching the program, United is pushing as many relevant things as possible to keep their program relevant….
Bottom line…when was the last time you qualified for that last upgrade!!!
The Wall Street Journal recently ran an analysis of the true “value” of these miles-for-products opportunities based on the current (and deflated) value of an earned mile. Many airline product and service offerings scored toward the bottom in terms of product value-per-dollar. Their assertion was that, if you did the math and found any products or services that were valued by the airline at one cent per mile or above, you should go for it. (The Crossfire, for example, was pegged at about two cents per mile – a real deal.)
Were miles accrued only through travel, you could call this a true loyalty program, however, many million-milers got there through a combination of affiliated credit cards and travel.
Safeway’s 6¢ per gallon discount voucher for gasoline sales in their own stations – awarded to frequent shoppers who reach certain sales plateaus – is both timely and serendipitous. Not only are gas prices a serious concern to consumers right now, but Safeway is currently building several gasoline locations. Unfortunately, my Safeway gas discount vouchers are gathering dust on a shelf because there are no Safeway gas stations near me or on any route I travel regularly. So for me, it’s an empty reward. It would be nice to have a choice of rewards, as United discovered.
United cleverly profiled their top travelers as people who desire unusual, non-traditional rewards. Tesco, in the U.K., has for years profiled their supermarket shoppers in much the same way, offering them non-traditional rewards such as culinary training, trips to French wine country, and help for entertaining at home. More and more it seems that the keys to successful new loyalty program offerings are: 1) An up-to-date understanding of customers’ interests and, 2) A choice of non-traditional rewards.
I hope I live long enough to see the MBAs and PhDs come to the realization that you can’t buy loyalty – it has to be earned.
Do you have a favorite restaurant? Why do you eat there? I bet you can name specific POSITIVE reasons you like to eat there. A negative impression could move you to another eatery. Four or five negative experiences would definitely move you to another eatery.
United’s auction is not in any way aimed at providing service for their passengers. It is a management tool designed to burn off the massive “frequent flyer liability” they are carrying on their books.
United, Delta, US Air are all operating under the Frequent Flyer cloud. Each have a huge liability in that they OWE millions and millions of seats to members of their Frequent Flyer programs and they cannot unburden this liability via bankruptcy, etc. without alienating ALL of their customers. Don’t confuse gimmicks for customer service. Customer service is the result of actually caring about the value and experience you are providing. There are no shortcuts; there are no formulas; it isn’t a card or even a thank you note – it’s an attitude!
If United were to combine this program with a strong, differentiated offering in their core business, I can see the potential for sustainable and defendable loyalty. As it is, they have nothing going for them in their core business, so the miles program becomes nothing more than a spreadsheet exercise for smart customers with the time and interest to maximize the utility they get from their miles. This is a very low level of customer loyalty – having no emotional component and completely vulnerable to competitors doing the same thing.
Flying United is not a high quality experience compared to a few other airlines, such as Jet Blue. So United is expanding its frequent flyer rewards. The expansion is a copy of other programs that are fairly boring (American Express, Citibank, etc.) Before World War II, children were given prizes by seed companies for selling their products. So you could get a shiny new bicycle if you sold a truckload of seeds at 10 cents a package. United is not just financially bankrupt, it is innovatively bankrupt. If United can’t think of its own ideas, why don’t the executives fly Jet Blue, write down what happens, and copy them?