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The Evolution of Loyalty Programs

Following the deregulation in 1981, American Airlines became the first airline to launch a frequent flyer program. Since that time, other companies both inside and outside of the industry has followed. Today, U.S. frequent flyer programs comprise 100 million members; each carrying on average four to six loyalty cards. These programs intend to foster passenger loyalty and collect marketing fees from mileage accrual at program partners. The fees constitute a significant part of an airlines overall revenue, although only one-third of all miles actually get redeemed.

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The financial services industry has also aggressively grown a variety of loyalty programs. In 1985, the Diners Club Rewards Program launched as the first credit card program. Five years later, American Express created one of the most successful and popular loyalty programs for the business traveler – ‘Membership Rewards' – without direct access to airline capacity. Their success motivated others such as Capital One and Citibank to follow. Some of these programs even began to leverage evolving technology. Ernex, a subsidiary of the Royal Bank of Canada, operates a credit card loyalty program in tandem with a real-time loyalty points program. Built around a central database that tracks member spending in real-time, the responsiveness for a so-called point of sale program is unmatched, providing coupons, messages or prizes immediately in the form of a printed receipt. These new trends increase the complexity and ultimately the cost of loyalty programs.

The model for managing loyalty programs has evolved from a proprietary program to a multi-merchant program, as have the rewards themselves. What began as travel awards has evolved into a portfolio of experiences. Even the touch points have transformed from a simple help desk to a variety of channels and CRM technologies.

The future management model will most likely be a variation of a themed coalition program. The rewards will be an individual experience based upon a unique profile. Such programs offer simple access and personalized interactions through multiple touch points in real-time.


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