Though the idea is simple enough, frenzied competition means that airlines are continually changing rewards and rules to outdo others in the market. Earlier in 1994, for example, British Airways doubled the number of points available for those who took a flight before a certain date; BA and American Airlines, keen to boost the lethargic German market, offered triple points to German travelers; Scandinavian Airline Systems offered business-class passengers starting from the United Kingdom a free overnight stay in a Scandinavian hotel; and Alitalia announced a similar scheme for flights from Italy to London.
This sort of feverish activity is not unusual. Clearly, frequent-flyer programs work. One survey estimated that a quarter of Europe's business air travelers decide on their carrier because of frequent-flyer points. Carlson Marketing Group estimates that there are 32 million frequent-flyer members in the United States clocking up huge amounts of free travel. American Airlines' Advantage scheme claims 16 million members.
From the point of view of the airlines, frequent-flyer programs offer the treasure at the end of the marketing rainbow: information. Airlines have historically been starved of information about their customers because only 15 per cent book direct with the airlines - the vast majority use travel agents and other sources. Frequent-flyer programs give airlines priceless competitive information so they can target their marketing more accurately and really focus on particular market segments.
Technology means that customer loyalty programs are becoming ever more sophisticated. When it comes to creating loyal customers, the database is king. When nappy makers introduced trainer pants to the United Kingdom they were relying on the power and accuracy of their databases to steal a march on their rivals. Procter & Gamble, Kimberly-Clark and Peaudouce each has a database which identifies families with children of potty-training age. The families were then deluged with special offers and various other inducements -Procter & Gamble's Pampers brand helped its publicity campaign along with an achievement chart ('I can poo in my potty' being the primary goal).
Databases mean that companies can target audiences more effectively. A DIY chain, for example, has a discount card which entitles holders to an annual payout - which comes in the form of a voucher to be spent at the shop. The details of the cardholders enable the store to send out regular mailings to customers giving them advance warning of special offers and giving them an extra 5 per cent discount on certain days.
Technology also means that one customer loyalty program tends to blend into another. Take someone travelling on business. They decide to fly with Swissair to boost their points. They might then transfer to Delta which has a reciprocal arrangement with Swissair. Having clocked up the maximum number of points, on arrival at their destination the manager surveys the massed ranks of car rental companies and plumps for the one with an agreement with the airline. They then drive to an hotel in an international chain which also offers discounts.
The cycle is never ending with loyalty to one product or service being bolted on to another,' says management consultant and author Tim Foster. The rapid expansion of customer loyalty programs is proof that if they are well thought-out then they can have a great impact. If they are poorly constructed, the effect can be disastrous.'
Some come dramatically unstuck. A leading airline recently withdrew from the Australian market. This left thousands of angry Australians stranded. They had faithfully collected points on the airline's frequent-flyer programme and. unless they paid to fly to Hawaii, had nowhere to put the points to use. The airline's reputation has been damaged, probably beyond repair. Hoover's offer of free flights to the United States is perhaps the best known disaster of recent times, costing the company tens of millions of pounds and senior executives their jobs.
As with any kind of promotion or marketing activity there are risks attached to customer loyalty programs. They can also be expensive. Producing a glossy magazine for customers throughout the world is far from cheap. Companies have, therefore, to carefully balance potential pay-offs with the actual cost of the program. In fact, putting the simple idea into practice has become increasingly complex. Customers are now more highly demanding and fickle than ever before. They are organized and use their lobbying power more effectively. Expectations are high, but companies are quickly realizing that customers with a conscience create new markets.
Companies are now developing loyalty programs which are directly related to the conscience of their customers. There are a plethora of products which pledge to donate money to help save the rain forests or support medical research, if you buy them. A supermarket chain, for example, gives customers vouchers which they can take to their children's schools to save up for a computer. Such loyalty building creates a situation in which all sides appear to win - though, of course, the supermarket wins the most through creating a loyal customer.
Customer loyalty programs are likely to become ever more ambitious. The potential for mutually beneficial link-ups is never ending. A credit card from General Motors would have been unthinkable a few years ago. Now it is the tip of an expanding iceberg. Some American supermarkets already give customers a 'smart card* which means the company knows the contents of each customer's weekly shopping basket.
From Green Shield stamps at service stations to smart cards at supermarkets, customer loyalty programs have come a long way. They have never been so personal, but whether they succeed in creating customer loyalty is something which only time will measure.
