This next class will be rather short!
In our first class, we discussed what our points and miles. Within that post, we discovered that points and miles are a type of currency that is used to purchase travel with (instead of paying for that travel with cash).
This begs the question: What is a loyalty program? In my mind, a loyalty program is the ecosystem in which points and miles live. It defines the boundary by which points and miles can be used. For example, Hyatt points can be used within the Hyatt ecosystem, whether that is redeeming their points for free nights, credits toward food and beverages within a Hyatt hotel, or with one of their partners.
Loyalty programs exist for two reasons: they exist to reward behaviors within a given ecosystem and to recognize continued engagement within a given ecosystem.
Before I go further in depth about what these two things are more concretely, it’s important to understand a (very brief) history of loyalty programs.
History of Loyalty Programs
I personally find the history of loyalty programs interesting. First of all, a little context. Up until 1978, airlines were highly regulated, with the government telling airlines which routes they could fly and how much they could charge for a ticket. In 1978, the Airline Deregulation Act went into effect, allowing airlines to complete. Airlines began to get creative with how they marketed to potential customers. In 1979, Texas International Airlines developed the first frequent flyer program where gave customers rewards for earning miles. The first major airline to develop a frequent flyer program was in 1981 with American Airlines AAdvantage program. United was so shaken by it that they developed and launched their program in less than 1 week after AAdvantage was announced (talk about people working overtime!).
Most airlines have given miles based upon how far your flew. That’s changed in the past decade, where airlines now give miles based upon the price of your ticket, rewarding their highest spending customers (a defensible position, but that’s not the point of this post).
I haven’t done much research into hotel loyalty programs, but, if I were a betting man, I would expect Marriott or IHG to be the first hotel programs to launch loyalty programs.
Why Loyalty Programs?
At their core, loyalty programs are marketing programs. They are trying to nudge behavior so that they can earn more money.
Imagine a world where there are no loyalty programs. What will your average customer do when purchasing a flight or choosing a hotel room? They’ll pick by the best price, with some respect to schedule (airlines) and amenities (hotel).
However, when someone has earned points in a program, it exponentially increases their propensity to return to that airline or hotel chain because they have a stake in that program. Furthermore, if they know they will travel enough, the benefits of loyalty will cause them to continue using that program.
These programs have become so effective that airlines and hotels (sometimes) let the loyalty programs drive economic decisions. For example, back in the 80s, when someone would spend their miles on a flight and zeroed out their balance, some airlines would actually automatically deposit 5,000 miles into their account because they were afraid that that customer would become a “free agent.”
Instead, research has shown that, after a redemption, people become more invested in a program, because they now know what they are able to get with their points.
Parts of a Loyalty Program
Loyalty programs are constructed by 2 key features: rewards and recognition. Rewards are pretty simple: you are rewarded for being active in the program. For example, some reward based upon how far you fly (Alaska Airlines) while most reward you based upon how much you spend (the Big 3 US airlines, Southwest, and hotels). You earn miles and points for spending money with a given program.
Recognition (or elite status) is a bit more nuanced. These are often a combination of performing a certain activity (airlines and hotels) and spending a certain amount of money (airlines). For airlines, it typically is with how far you fly or how many segments you fly (although, American Airlines has done something new this year with Loyalty Points, where every mile earned, even outside of flying, is important for elite status). Hotels typically depend on the number of nights stayed (although this can be somewhat manipulated with credit card spend).
Elite status can get you wonderful benefits for those that use them, from free checked bags, to upgrades to suites, to free breakfast (at hotels) and upgrades to first class (airlines). Whether or not this matters to you depends on how much you travel. I personally value hotel loyalty status over airline loyalty status, because we spend more times in the hotel than we do on an airlines (but you do you).
Conclusion
This class has been a brief overview of loyalty programs. Hopefully, you now understand how points and miles fit into a loyalty program ecosystem. I have a lot of thoughts about loyalty programs as a marketing program (I am a marketing consultant, after all), but that is beyond the scope of this class.
For our next class, we’ll go over the 2 basic rules of points and miles. I’m hoping to get back on schedule and have that posted on Sunday. My apologies for the late post!
Do you plan on utilizing loyalty programs for elite benefits, or are you just in it for the points? Leave your thoughts and comments below!
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