September 25, 2006
Shopping for Frequent Flier Points
Want to take that trip to Hawaii? Go shopping.
A growing number of airlines and hotels are joining with retailers in online shopping malls to reward consumers with frequent-flier miles and other travel-related bonuses when they make purchases.
Airlines including Aloha (Maui, here we come), American, Delta and United have 150 or more retail partners, according to a USA Today report. The Intercontinental Hotel and Marriott chains also have deals in place with retailers such as Barnes & Noble and Old Navy.
Consumers are eligible for the travel bonuses when they link to a retailer from an airline or hotel web site. Consumers going directly to a retailer’s site are not eligible for the travel bonuses.
Both retailers and travel businesses seem happy to be linked with one another. Retailers get additional traffic with consumers motivated to purchase at their web sites. Airlines and hotels receive payment from the retailers for agreeing to link to their sites.
US Airways is moving into this area with its own Dividend Miles Mall scheduled to takeoff next month. The company claims that the program will not be a typical online mall.
“We have a high-end partner that truly knows retailing,” said US Airways spokesperson Morgan Durrant. “We will be rotating top-quality merchandise and be able to offer higher mileage on certain individual products than our competitors.”
It’s often not easy to find online shopping malls through airline and hotel sites. As the USA Today report points out, the shopping sites are not typically featured on a travel partner’s web site. Often, the retailer’s web sites can only be linked to from an airline or hotel’s own loyalty program page.
Whether airlines and hotels feature retailer sites more prominently will depend on the success of these programs compared to other avenues.
Hawaiian Airlines Vice President Keoni Wagner said the method “is growing at a fast rate, but we think it will be some time before it catches up to earning from the credit card.”
The eventual success or failure of these programs comes down, as always, to the consumer.
Steve Gorman, a frequent flier who lives in Atlanta, said, “if two retailers have similar products and services, and one has a miles/points program, it will get my business 100 percent of the time.”
Adam Conrad of Hollidaysburg, Pa., said there are too many hurdles to get over to buy from online retailers with frequent flier programs.
“This is a great concept, but it is difficult mechanically,” he said. “There are often additional sign-ons and passwords to manage.”
Discussion Questions: Do you see opportunity and value for retailers to be associated with these travel program tie-ins? What do you see as impediments
to this business and solutions for increasing the popularity of these programs? Do you, for example, see these types of programs migrating from online to in-store?
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This has been done so many times and in so many ways. I buy the salami, I get a trip. Back in the 70s we ran airline flight fulfillment programs to boost sales in our supermarkets, and excellent programs persist to this day. What is old is new again. Shine it up and put it back on the shelf.
In this case, the “shine” is supplied by the internet. “New and improved!” But it’s just the same old thing. It worked before, and if it’s adjusted to fit today’s environment, it’ll work again!
Having directed a supermarket/airline loyalty program some years back, I can relate to the marketing potential of these programs, despite the ever-increasing dilution of frequent flyer programs due to their expense to the struggling airlines.
But in my view, a couple of things have to be in place for these programs to truly impact the retailer’s business.
1. The retailer needs to be in a marketplace with a major hub airport where the dominant percentage of flights is with their airline marketing partner. It’s a numbers game and without many flights and many options, miles will not be attractive to shoppers. Also, the number of miles you can reasonably earn shopping for groceries is minimal and likely not to be attractive to shoppers unless they are already earning miles through other co-marketing programs. In hub cities, this is likely to be the case.
2. The “currency” or ratio of dollars spent in the store to the number of miles earned has to be reasonable. No one is going to see the value in “buying” miles for more than a couple of dollars/mile.
3. The airline must be aggressive in other co-marketing support such as travel specials, double miles days, sweepstakes, etc.
4. The retailer must understand that no matter how impactful the program is in the beginning, it will diminish over time and become more of an “entitlement” program, than a true builder of incremental sales and traffic. To that point, there must be some room in the pro forma for special promotions and even merchandising tie-ins to keep the program exciting and keep customers engaged.
5. And finally, it should be noted that not all shopper constituencies will engage with these programs. While shoppers across many demographic groups are now flying, travel programs remain more appealing with those shoppers who have significant disposable income.
While airlines are eagerly peddling these relationships, the data shows that if a retailer is targeting ‘mom,’ these programs really are not all that effective long-term. The thresholds required to reach any redemption level frustrate any non-frequent flyer and don’t add to any loyalty factor I know of.
So from a retailer perspective, be realistic. If you are an airline, it’s a great deal given the incremental visibility, impressions and perceived value attach to your program. Not to mention the low mile redemption rate!
Skymall is the merchant partner USAir refers to.
As a niche retailer looking to build online traffic, the current process needs significant improvement to deliver on the opportunity.
Travel providers with loyalty programs have not been tactically excellent at monetizing their sites, relative to the value received. As has already been noted, the click through process often requires linkage from a loyalty program page, not just from the travel portal itself. Assuming this was corrected, the benefit to retailers with associated products is clear.
The benefit to general merchants is not so clear. While families may be one of the primary beneficiaries of frequent flyer programs, they are NOT the primary generator…that is the traveler. So the point of contact is the individual purchasing or researching travel. The type of travel being researched or purchased should drive the type of link being offered. For example, if the traveler has selected multiple individuals, some are children, and noted it as personal rather than business travel…that would imply a different link value for a retailer than a business traveler on his or her own.
Improve the process, link the retail partners to the profile of the online shopper, and focus on niche retail.
Seems like it takes 25,000 or 50,000 miles to get a free ticket. That means spending $25,000 to $50,000 to get those miles. Maybe 15,000 less if they offer a bonus at the start. The typical airline ticket at those levels costs maybe $300-400.
Using the American Express cash rebate card, you get a half percent on the first $6,000 and 1.5% after that. Right now they are offering 5% back at drug stores, gas stations, and supermakets (if you can find a supermarket that takes AMEX). So if you spent $50,000, that would be $690 back. Heck, that might pay for the flight, car rental, and hotel as well. I think mileage cards are a bad deal. It’s barely a break even deal if you spend $50,000 a year on air fares and get double miles on the card. I find its usually best to take the cash.
There are a couple of issues here. First is the change for supermarkets from mass to targeted marketing. Unless a supermarket’s target customers want frequent flyer points, there is little appeal. These customers are paying for purchases with a credit card that gets them miles. Frequent flyer miles have lost much of their value due to low cost airlines such as Southwest and JetBlue. Why burn the miles when you can buy a ticket for $89?
The success of these types of loyalty programs of course depends on the consumer. There are so many frequent flier programs out there, the choices seem to be endless. Retailers need to keep in mind that these programs need to be convenient, meaningful and easy to track for consumers. Simplicity in the key, but often forgotten by marketers.
It is clear that shoppers like to be rewarded as long as the signup for rewards is seamless to the shopping. A great many shoppers have pre-existing relationships with airlines and hotels. These two marketing realities set the stage for a major opportunities for retailers to gain new business.
The challenge for retailers is to make their product or service relevant to the on-line shopper. If I am traveling to Pittsburgh, staying for two nights at the downtown Doubletree, a relevant retailer might be a fine local restaurant, or a local branch of Brooks Brothers, or a local theater.
Hiding the retail offers on “retail partner” pages of these travel and hospitality web sites is counter intuitive and will not meet the relevance test.
As a huge fan of loyalty programs, it’s a nice plus to be able to extend benefits into frequent flier miles. However, I do feel that we are oversaturating people with the number of cards and individual incentive programs out there. There seems to a be a slow movement of intolerance towards more and more incentives programs. Truly, how many cards can you carry in your wallet until it’s just ridiculous?
Maybe a pipe dream, but wouldn’t it be nice if we had cross-brand, cross-vertical loyalty programs with choices for incentives? The UK has had great success with this and it would sure make sense for consumers.
Frequent flier points…hmmm…good or bad? Loyalty programs are good if other conditions such as a) good products, b) good prices and c) good service are present. The other factor is whether or not the reward from the loyalty program is perceived as having value. With the negative publicity that frequent flyer programs have, based upon the difficulty in actually using the mileage, the question becomes…Why affiliate with a program that can create a negative buzz? If an airline has too many blackout dates or the seats for the frequent flyer points are already taken, can this have negative repercussions for the retailer? If I were a retailer, I would be very wary or I’d negotiate for no blackout dates at the very least.
When points programs appear, I foresee the gradual diminishing of e-retailing’s price advantage. More complexity for the operator and more complexity for the shopper doesn’t add up to greater value for either party. This is not a loyalty initiative, it’s a game of erecting switching barriers that will breed disloyalty over the long run.
Some research says that people value frequent flier points more than they cost retailers or airlines. That may make them a useful marketing tool for differentiation. However, as more firms offer points, they become little more than Trading Stamps. Eventually there will be competition to get out of them (who will drop points and lower prices first?).
I’m a self-confessed mileage whore. I’ll do anything for miles. I’ve entered promotions. Made wacky flight connections. Focused my spending on a particular credit card. The darkest mileage moment of my life was when I moved from one airline’s hub to another’s, stranding 200,000 miles and requiring me to start from scratch on the other airline. Finally, I am gold again. YES!
I am not rare. Many of my fellow travelers have the same mileage addiction. We eye each other as competitors on the upgrade list. There’s one big difference. For the most part, my fellow mileage hoarders are, indeed, FELLOWS. I have done some nosing around for stats. One website targeted at frequent flyers discloses their gender ratio as 70% male, and 30% female. Looking around us first-class upgradees, that seems just about right.
So I wonder– since women are the major purchasers of goods — how well will these shop-to-earn-miles programs actually do? I imagine the best idea would be to focus on categories (consumer electronics) in which men are more frequent shoppers.
People who crave airline miles already have mileage-linked credit cards. People who love to save money use cash-back rebate credit cards. Airline miles are a very mature, very crowded space for any “new” entrant to make themselves heard. And they’ll be greeted by a very cynical, jaded audience. Surely America’s retailers could be more creative than engineering more tie-ins with the low-esteemed airline industry.
Given the attitude change of shoppers today vs. 20 or thirty years ago, and with evidence of major market segmentation, the right retailer with the comparable airlines and hotels could emphasize a number of valuable benefits for the retailer! And importantly, such a partnership could further the exposure of the all important Brand name, loyalty program, good-will, and a consumer reminder value of the retailer first, and then its partners. But, a most targeted effort on only certain companies teaming up and offering such a program would work.
I would offer the point that Wal-Mart, supermarkets and C-stores in general, Sears/ Kmart, Penney’s, Best Buy, most drug store companies, Fast food business, and middle of the road family chain restaurants, and Michael’s types aren’t the retailers to benefit in such a program.
Even with major supermarkets offering their own credit card and reward points/dollars, they don’t mirror the upscale department store, clothing shop, and/or target consumer shops, e.g. Metro Park, etc. With that said, examples of this program’s partnerships could be:
1)Gap’s group of stores, or Abercrombie-Fitch with Southwest and Holiday Inn, or the mid to low tier Marriott. These young consumers of those clothing retailers could be rewarded with trips on the youthful Southwest, and Marriot’s desire to nurture the growing 14 to 20 year group to their outlets. Gap who needs help would be of benefit to team up with the noted and consumer friendly Southwest, and the courtesy and cleanliness and service-oriented Marriot. By the way, this age group spends over 3 to 5 Billion on cloths and accessories.
2) A major department store chain, with an image of consumer orientation in service, engagement and value could be part of such a partnership program. Macy’s, with its national geographic coverage, and excellent consumer image and engagement could offer such a program with Marriot, Westin, Four Seasons, Ritz hotels; and pick either one or two airlines like American, etc. Target stores could be another participant with Holiday Inn, and pick an airline or two, e.g.: American and Southwest. This would reinforce efforts at Macy’s and Target and give added business to airlines with the right consumer image and profile.
Sounds good for the above participants, and their consumer base. Hmmmmmmmm
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This has been done so many times and in so many ways. I buy the salami, I get a trip. Back in the 70s we ran airline flight fulfillment programs to boost sales in our supermarkets, and excellent programs persist to this day. What is old is new again. Shine it up and put it back on the shelf.
In this case, the “shine” is supplied by the internet. “New and improved!” But it’s just the same old thing. It worked before, and if it’s adjusted to fit today’s environment, it’ll work again!
Having directed a supermarket/airline loyalty program some years back, I can relate to the marketing potential of these programs, despite the ever-increasing dilution of frequent flyer programs due to their expense to the struggling airlines.
But in my view, a couple of things have to be in place for these programs to truly impact the retailer’s business.
1. The retailer needs to be in a marketplace with a major hub airport where the dominant percentage of flights is with their airline marketing partner. It’s a numbers game and without many flights and many options, miles will not be attractive to shoppers. Also, the number of miles you can reasonably earn shopping for groceries is minimal and likely not to be attractive to shoppers unless they are already earning miles through other co-marketing programs. In hub cities, this is likely to be the case.
2. The “currency” or ratio of dollars spent in the store to the number of miles earned has to be reasonable. No one is going to see the value in “buying” miles for more than a couple of dollars/mile.
3. The airline must be aggressive in other co-marketing support such as travel specials, double miles days, sweepstakes, etc.
4. The retailer must understand that no matter how impactful the program is in the beginning, it will diminish over time and become more of an “entitlement” program, than a true builder of incremental sales and traffic. To that point, there must be some room in the pro forma for special promotions and even merchandising tie-ins to keep the program exciting and keep customers engaged.
5. And finally, it should be noted that not all shopper constituencies will engage with these programs. While shoppers across many demographic groups are now flying, travel programs remain more appealing with those shoppers who have significant disposable income.
While airlines are eagerly peddling these relationships, the data shows that if a retailer is targeting ‘mom,’ these programs really are not all that effective long-term. The thresholds required to reach any redemption level frustrate any non-frequent flyer and don’t add to any loyalty factor I know of.
So from a retailer perspective, be realistic. If you are an airline, it’s a great deal given the incremental visibility, impressions and perceived value attach to your program. Not to mention the low mile redemption rate!
Skymall is the merchant partner USAir refers to.
As a niche retailer looking to build online traffic, the current process needs significant improvement to deliver on the opportunity.
Travel providers with loyalty programs have not been tactically excellent at monetizing their sites, relative to the value received. As has already been noted, the click through process often requires linkage from a loyalty program page, not just from the travel portal itself. Assuming this was corrected, the benefit to retailers with associated products is clear.
The benefit to general merchants is not so clear. While families may be one of the primary beneficiaries of frequent flyer programs, they are NOT the primary generator…that is the traveler. So the point of contact is the individual purchasing or researching travel. The type of travel being researched or purchased should drive the type of link being offered. For example, if the traveler has selected multiple individuals, some are children, and noted it as personal rather than business travel…that would imply a different link value for a retailer than a business traveler on his or her own.
Improve the process, link the retail partners to the profile of the online shopper, and focus on niche retail.
Seems like it takes 25,000 or 50,000 miles to get a free ticket. That means spending $25,000 to $50,000 to get those miles. Maybe 15,000 less if they offer a bonus at the start. The typical airline ticket at those levels costs maybe $300-400.
Using the American Express cash rebate card, you get a half percent on the first $6,000 and 1.5% after that. Right now they are offering 5% back at drug stores, gas stations, and supermakets (if you can find a supermarket that takes AMEX). So if you spent $50,000, that would be $690 back. Heck, that might pay for the flight, car rental, and hotel as well. I think mileage cards are a bad deal. It’s barely a break even deal if you spend $50,000 a year on air fares and get double miles on the card. I find its usually best to take the cash.
There are a couple of issues here. First is the change for supermarkets from mass to targeted marketing. Unless a supermarket’s target customers want frequent flyer points, there is little appeal. These customers are paying for purchases with a credit card that gets them miles. Frequent flyer miles have lost much of their value due to low cost airlines such as Southwest and JetBlue. Why burn the miles when you can buy a ticket for $89?
The success of these types of loyalty programs of course depends on the consumer. There are so many frequent flier programs out there, the choices seem to be endless. Retailers need to keep in mind that these programs need to be convenient, meaningful and easy to track for consumers. Simplicity in the key, but often forgotten by marketers.
It is clear that shoppers like to be rewarded as long as the signup for rewards is seamless to the shopping. A great many shoppers have pre-existing relationships with airlines and hotels. These two marketing realities set the stage for a major opportunities for retailers to gain new business.
The challenge for retailers is to make their product or service relevant to the on-line shopper. If I am traveling to Pittsburgh, staying for two nights at the downtown Doubletree, a relevant retailer might be a fine local restaurant, or a local branch of Brooks Brothers, or a local theater.
Hiding the retail offers on “retail partner” pages of these travel and hospitality web sites is counter intuitive and will not meet the relevance test.
As a huge fan of loyalty programs, it’s a nice plus to be able to extend benefits into frequent flier miles. However, I do feel that we are oversaturating people with the number of cards and individual incentive programs out there. There seems to a be a slow movement of intolerance towards more and more incentives programs. Truly, how many cards can you carry in your wallet until it’s just ridiculous?
Maybe a pipe dream, but wouldn’t it be nice if we had cross-brand, cross-vertical loyalty programs with choices for incentives? The UK has had great success with this and it would sure make sense for consumers.
Frequent flier points…hmmm…good or bad? Loyalty programs are good if other conditions such as a) good products, b) good prices and c) good service are present. The other factor is whether or not the reward from the loyalty program is perceived as having value. With the negative publicity that frequent flyer programs have, based upon the difficulty in actually using the mileage, the question becomes…Why affiliate with a program that can create a negative buzz? If an airline has too many blackout dates or the seats for the frequent flyer points are already taken, can this have negative repercussions for the retailer? If I were a retailer, I would be very wary or I’d negotiate for no blackout dates at the very least.
When points programs appear, I foresee the gradual diminishing of e-retailing’s price advantage. More complexity for the operator and more complexity for the shopper doesn’t add up to greater value for either party. This is not a loyalty initiative, it’s a game of erecting switching barriers that will breed disloyalty over the long run.
Some research says that people value frequent flier points more than they cost retailers or airlines. That may make them a useful marketing tool for differentiation. However, as more firms offer points, they become little more than Trading Stamps. Eventually there will be competition to get out of them (who will drop points and lower prices first?).
I’m a self-confessed mileage whore. I’ll do anything for miles. I’ve entered promotions. Made wacky flight connections. Focused my spending on a particular credit card. The darkest mileage moment of my life was when I moved from one airline’s hub to another’s, stranding 200,000 miles and requiring me to start from scratch on the other airline. Finally, I am gold again. YES!
I am not rare. Many of my fellow travelers have the same mileage addiction. We eye each other as competitors on the upgrade list. There’s one big difference. For the most part, my fellow mileage hoarders are, indeed, FELLOWS. I have done some nosing around for stats. One website targeted at frequent flyers discloses their gender ratio as 70% male, and 30% female. Looking around us first-class upgradees, that seems just about right.
So I wonder– since women are the major purchasers of goods — how well will these shop-to-earn-miles programs actually do? I imagine the best idea would be to focus on categories (consumer electronics) in which men are more frequent shoppers.
People who crave airline miles already have mileage-linked credit cards. People who love to save money use cash-back rebate credit cards. Airline miles are a very mature, very crowded space for any “new” entrant to make themselves heard. And they’ll be greeted by a very cynical, jaded audience. Surely America’s retailers could be more creative than engineering more tie-ins with the low-esteemed airline industry.
Given the attitude change of shoppers today vs. 20 or thirty years ago, and with evidence of major market segmentation, the right retailer with the comparable airlines and hotels could emphasize a number of valuable benefits for the retailer! And importantly, such a partnership could further the exposure of the all important Brand name, loyalty program, good-will, and a consumer reminder value of the retailer first, and then its partners. But, a most targeted effort on only certain companies teaming up and offering such a program would work.
I would offer the point that Wal-Mart, supermarkets and C-stores in general, Sears/ Kmart, Penney’s, Best Buy, most drug store companies, Fast food business, and middle of the road family chain restaurants, and Michael’s types aren’t the retailers to benefit in such a program.
Even with major supermarkets offering their own credit card and reward points/dollars, they don’t mirror the upscale department store, clothing shop, and/or target consumer shops, e.g. Metro Park, etc. With that said, examples of this program’s partnerships could be:
1)Gap’s group of stores, or Abercrombie-Fitch with Southwest and Holiday Inn, or the mid to low tier Marriott. These young consumers of those clothing retailers could be rewarded with trips on the youthful Southwest, and Marriot’s desire to nurture the growing 14 to 20 year group to their outlets. Gap who needs help would be of benefit to team up with the noted and consumer friendly Southwest, and the courtesy and cleanliness and service-oriented Marriot. By the way, this age group spends over 3 to 5 Billion on cloths and accessories.
2) A major department store chain, with an image of consumer orientation in service, engagement and value could be part of such a partnership program. Macy’s, with its national geographic coverage, and excellent consumer image and engagement could offer such a program with Marriot, Westin, Four Seasons, Ritz hotels; and pick either one or two airlines like American, etc. Target stores could be another participant with Holiday Inn, and pick an airline or two, e.g.: American and Southwest. This would reinforce efforts at Macy’s and Target and give added business to airlines with the right consumer image and profile.
Sounds good for the above participants, and their consumer base. Hmmmmmmmm