In 1793 a merchant in Sudbury, New Hampshire started giving out tokens made of copper when a customer made a purchase.  This may be the first  documented use of consumer loyalty programs here in the US.   Over the last 200+ years companies have experimented with a range of loyalty incentives including certificates, trading stamps, and coupons.

As a kid, I remember my mother collecting trading stamps which she traded for dishes, linens or even appliances.  She could acquire these items for “free” as long as she continued to shop at that particular store. Gas stations, grocery stores, restaurants  and other entertainment venues continue this practice today.  But when I think of loyalty programs, the one I always think of first is the free miles offered by the airlines.

Particularly when I was traveling regularly for business I would select an airline, not based on the price or travel time, but whether or not I was enrolled in their Frequent Flyer program.  This was part of the payback for all the time I spent on the road.  I could earn miles to take my family along, or apply to a unique family vacation. Event today, I appreciate the free trips.

These programs are costly to administer and create a substantial liablity on the airline’s balance sheet.  But they maintain them because in a competitive industry, these programs do two very important things:

They keep customers coming back.
They help the airlines identify their most loyal customers.

Lets face it, not all customers are equal.  Loyalty programs allow the airlines to offer little extras – preboarding, free upgrades or free beverages as an inexpensive way to say thank you.  Lately, I think the airlines have forgotten why the offered the programs to begin with.  Case in point:

My brother was flying United Airlines from Newark to Indianapolis a few weeks ago.  He was stopped at security because he had a souvenir package of olive oil in his luggage. Now he should have known better, but he had flown from Lisbon to Barcelona and Barcelona to New York with the oil in his carry on bag. It didn’t occur to him the rules would be different here in the US, but they were.

Faced with choice of throwing the oil away or checking his bag, he opted to check the bag.   While he was frustrated knowing he would spend extra time on the ground in Indy, he thought it would be nice if I actually got the souvenir oil instead of simply a picture.

He approached the United counter with his ticket, his frequent flyer card, and bag in hand.  I should mention my brother is a Frequent Flyer, with multiple US trips and one or two international flights annually.  He racks up a significant number of miles each and every year.

None of this seemed to make an impression on the agent who was simply interested in collecting the $25 baggage fee.  With a few keystrokes the agent could have pulled up his record, acknowledged all the money he had spent with them and made an exception. She chose not to. Again, my brother considered snapping a photo and tossing the oil, but he had invested so much in the process of getting it for me, he decided to keep going.

He paid the fee, grudgingly, but as he turned to leave he noticed the Southwest Airlines gate across the way.  They now fly to Indianapolis, don’t charge for bags, and have the best on-time record in the industry. His miles don’t really go as far as they used to (travel that once cost 25,000 miles now costs 60,000)  and United clearly doesn’t seem to care about going the extra “mile” for their loyal customers. He no longer has a good reason to fly with them.

The airline got the $25 fee, but lost thousands of dollars in the process.

Think about your own business.  Do you offer loyalty rewards.  Do you take care of your best clients so they keep coming back?  If not, perhaps your competitor will.

And as for me? The olive oil is lovely and I will probably buy some for my brother when I am in Spain this fall.  Oh, and I will be flying Delta to get there.