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In 1978, the Airline Deregulation Act passed, and the federal government of the United States relinquished control of the cost of fares. Suddenly, US airlines had to compete for their customers. Texas International Airlines took an innovative approach and launched the first ever frequent flyer program.
You go on a flight, and you get abstract frequent flyer miles. You collect enough of these miles, and you can exchange them for a very real, free flight (or upgrades and discounts on whatever). Even if a particular Texas International flight wasn’t the best deal for you, you booked it anyway, because otherwise, you weren’t collecting miles.
Unfortunately, Texas International lacked the resources of larger airlines, and it died out early in the era of airline competition. One competitor, however, took the frequent flyer concept to new heights. (See what I did there?)
In 1981, American Airlines introduced AAdvantage, a frequent flyer program supported by then cutting-edge computer technology. Competitors launched similar programs, and before long, airlines were tempting potential customers with offers like double and triple miles. Flyers certainly didn’t mind all the new freebies.
AAdvantage was a milestone, and its legacy extends far beyond aviation. It was the first viable points-based loyalty rewards program. Almost 40 years later, points-based loyalty programs remain the norm. Different systems, however, have popped up in that time.
Which leaves us with the question: is it better to stick to the tried and true, or does points-based loyalty have its shortcomings?
The biggest thing going for points-based programs is the model’s inherent simplicity. Get points, redeem points. 99.999 percent of first-world inhabitants know the drill, and if they’re satisfied with their initial purchase, and the promised rewards are good, they’ll be interested in signing up.
But things can get even simpler. Brands can give consumers a reprieve from even thinking about numbers (oh brave new world, with such people in it!). For instance, T-Mobile Tuesdays offers weekly rewards (usually discounts on goods like movie tickets or clothing) to its customers on a weekly basis. No points needed, you just get your stuff.
Points-based rewards programs also come with great flexibility. The Kroger Plus program, for example, operates on a point-per-dollar-spent basis. But say Kroger wants to promote its in-store pharmacies. It can simply double the points awarded for filling prescriptions, and that particular promotion would require no adjustment to the program at large.
We’re beginning to see the limits of such flexibility, however, with the rise of personalization in the industry. To my knowledge, there is no program that awards points based on an individual shopper’s stated preferences. Such an offering is, of course, conceivable, but a brand would need to devote massive amounts of time and plenty of resources to set it all up.
Which brings us to one final drawback with points-based rewards programs: they’re expensive to set up and, if they need to be drastically restructured, that’s expensive, too. That said, points-based programs remain the norm, and in some cases, a program is an institution. Look at Loblaws’ PC Optimum program, which has a third of the Canadian population enrolled.
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