Here it is summertime again, and if you’re like most of us, you’re probably spending part of your relaxing vacation worrying about your portfolio of miles. Because we understand your burning desire to keep in touch with your favorite programs during these lazy, hazy days, we’ve put together an assortment of interviews with some of the key players in the industry that you can read on the beach, the boat or the backyard porch.
But that’s not all. Next month, there will be more interviews to enjoy, such as Colleen Barrett, the first female president of a major airline (Southwest Airlines), and her take on how important customer service is to the success of the Rapid Rewards program, an interview with Robert Sahadevan, President of United Mileage Plus and also an interview with a manager of a leading frequent flyer program on what it is like to run one of these programs.
So, sit back, relax and enjoy our version of a little light reading.
Elliott Ng is one of the two co-founders of the original ClickRewards program which captivated a lot of eyeballs in the dot com era. Members earned frequent flyer miles for online purchases. The company changed directions, management and eventually crashed in bankruptcy court. While ClickRewards has relaunched under a new owner, we caught up with Elliott in the offices of his new venture — Loyalty Matrix, to talk about what went wrong.
InsideFlyer: During the last year, a lot of people were disappointed to see the original ClickRewards program discontinued. Many people had built up a lot of miles and point shopping on the Internet. At its peak, how many members did you have?
Ng: A little over 5 million members and a little over half had transacted at least once in the program. I don’t remember how many redeemed, but I know that at one time we had distributed roughly 3 billion miles.
IF: Three billion miles… that’s a lot of shopping out there. Does it kind of validate that the idea, the concept was right?
Ng: Yes and no. What we went after was this universal currency for the Internet, backed by this gold standard of frequent flyer miles, and I think what we discovered was that the gold standard for incentive points is frequent flyer miles, but we took sort of a one-size-fits-all approach and I believe the future holds a world where there are some large currency networks probably headed up by the airlines and hotel industries, and some smaller currencies that are much more customizable and with a smaller base of customers. I think that was the lesson that we learned.
IF: I take it with ClickRewards that miles were the number one aspiration out of that program?
Ng: The interesting thing we found was that it was bimodal; there were two groups of people. We had expected that travel and frequent flyer miles would motivate 100% of the world. It turned out that the gift certificates for products ended up being greater than our top airlines, which really surprised us. We had envisioned airline miles being the bulk of redemption. This feeds our belief that there will be these two currencies that focus on a narrower segment and people will participate in those, but nowhere near the breadth the airlines have already established.
IF: When ClickRewards was founded, your direct relationship and equity with the airlines funded it. They were really feeding you your first customers — yes?
Ng: I think most of the customers came from the participating merchants. We got some valuable customers from the airlines, but most of the customers came from our marketing activities and the merchants. I think that was part of the flaw in our business model. The cost of acquiring new customers for a stand-alone rewards program without accessing a large base, it was difficult to make the economics work.
IF: Do you think that’s what happened with the AOL/AAdvantage program, with AOL being a big media player? What’s your perspective on what happened there and why that program didn’t make it?
Ng: There’s always a challenge of using the data to personalize the service offering, and while I can’t say that was the particular problem for AOL/AAdvantage, both companies had the ability to make their own incentive currency. Maybe it was a matter of the two corporate agendas not meeting where they needed to.
IF: So what happened with ClickRewards? It had the investment of the airlines, and the gold standard of miles, as you say, and 5 million member’s sounds like a pretty big audience.
Ng: I think it comes down to how the merchants could use the incentive currency to generate revenue. We believe the value of an incentive currency is the value of the airlines or other sponsor to identify their most valuable customers and then personalize their service to that customer. I think that we didn’t see enough of that, and as a result, the merchants didn’t get the value that they could have out of it because they didn’t use the data to personalize and create a customer service offering to these valuable customers. So I think that the cost of the miles as an incentive currency, not for the airlines, but for the merchants, at 2-3 cents a mile, it became a very expensive currency.
IF: You went on to form a new company, Loyalty Matrix. What do you see in the future for companies like ClickRewards and also what are the big new ideas coming out?
Ng: The huge change people will have over the next decade is really using currencies to generate data they can use in a way that is permission based to provide additional value to customers. And I think that people will launch a lot of currencies and a lot of them will fail, because they will think the reward will generate the loyalty, when in reality it’s the data that will generate the loyalty. The data and the personalized service and recognition.
IF: As a final note, what’s your perspective of where frequent flyer programs are today and where they’re going? You’ve worked closely with them and are now on the outside dealing with new clients.
Ng: I think the airlines have an opportunity to become a network and a shopping cooperative, so part of the CR vision that was valid was the idea of aggregating a large number of valuable customers and then being able to add that value back to those customers. I envision the airlines could use their programs in the same way as membership programs like AARP, organize buying opportunities and using the brand name of the airline to underwrite deals and better entrench those customers with the airlines. We’ll see what happens. I think a lot of merchants are following in the footsteps of the founders of the industry, and they are all going to need to adopt the philosophies of those founders.
IF: Any programs now that are on the right track?
Ng: I think that I would look for elements that are entirely without a points element whatsoever, like some of the casino programs, the guest profiles in the hospitality space. Very promising directions of comp that are scoring on customer without a currency, but by providing a reward for loyalty.
IF: So, perks are becoming more important than points, perhaps?
Ng: Yes, perks and customer understanding really driving one’s loyalty to a specific brand.
David Neeleman is the founder and CEO of JetBlue — probably the hottest airline in the U.S. today. JetBlue’s origins date back to 1993, when CEO David Neeleman sold his first airline, Salt Lake City-based Morris Air, to Southwest Airlines. It was as a founder and President of Morris Air that Neeleman proved that innovative, high-quality airline service coupled with low fares will attract a strong and loyal market. Now as a high-flying, low-cost carrier, he talks with us about JetBlue’s new customer appreciation program called TrueBlue. P.S. This guy is a winner. Having missed a phone call with us, he kept trying despite his very, very busy schedule.
InsideFlyer: What’d you learn from your own involvement with frequent flyer programs back in the late 80’s and early 90’s with Morris Air?
Neeleman: Well, I think we learned that in a lot of the things we do, we’ve taken a lot of pages out of Southwest’s book. We wanted to structure this as an online system, but not totally exclude people who aren’t online, and we also wanted to put some urgency to the program, not having credits that hung out there forever.
IF: It looks interesting that you’re not issuing membership cards.
Neeleman: Yeah, we looked at the cost of doing that to everybody, and we said, "that’s stupid." Everybody’s got so many cards in their wallets; we all have back problems anyway because our wallets are so fat. And so we just wanted something really simple, you can remember your number really easily, write it on a piece of paper and stick it in your wallet, or you can just go online and enter in your email address and it will send you your number.
IF: What we’re seeing today, is that just the start to the program?
Neeleman: Yeah, we just wanted to get something out there and start tracking people.
IF: It wasn’t that long ago that JetBlue started flying, so how far into it did you start to think you needed a frequency program, that low price isn’t enough, brand isn’t enough?
Neeleman: I try to take a flight a week, and when I’m on board I tell the customers I am on board and I try ask them what they like and this (a frequent flyer program) is what everyone wanted. We listen to our customers and I guess if nobody else had one in the industry it wouldn’t have been a necessity — it’s not necessary now, but we would not have done it had we not been the only airline that didn’t have one. We try to listen to the customers and do what they want us to do, but still within the confines of what we have, which is the low-fare carrier. We thought "Hey, if we can give something for it", I mean, we give five dollars off for booking on the Internet, and that’s a substantial cost for us. And if we can get a loyalty program going where people will still book online and we can maybe get rid of the dollar off someday, then it makes sense for us to do it.
IF: Is there anything else going on with TrueBlue? It’s getting a lot of good buzz to begin with. You’ve got a minimal amount of restrictions, as you say, you’ve taken some pages from Southwest. You’ve got some good marketing people, all the people from Virgin who’ve helped you out, it looks like a good program. Are you proud?
Neeleman: I am. And especially if someone books online, we have a lot of weekly flyers, I think those guys are really going to benefit. It’s really a flight-gratitude program, to thank people for doing business with us. It’s not made for the guy who flies us once or twice a year, it’s made for the really frequent flyers, and I think those people will really like it.
IF: It seems the program truly reflects what JetBlue is about today and that is "We’re going to have some fun flying you around and we really, really do appreciate your business."
Neeleman: I think that’s it — a recognition of those people who do fly us all the time and we can give them some priority on seats, and some other things as we roll that out a little bit later. If someone flies us every week, they deserve to have an aisle seat every time they fly.
IF: You’re really not going head-to-head with Southwest; you’re really going against American and some of the other guys. Is your program designed to compete against American, or is yours JetBlue and they can do what they want?
Neeleman: That’s it. We took some pages from their book, because they had some good ideas, double credit and miles spoilage, but we just did what was best for our customers, but within the confines of what we can do and what will provide the best return for our shareholders.
Guy Booth is the Director of the LatinPass frequent flyer program which was made famous three years ago when they sponsored a promotion granting a one-million mile bonus to members who flew and used a combination of partners in that program. From a planned "several dozen" members who might have qualified — the program got its 15 minutes of fame and the ‘LatinPass run’ was born. Guy talks with us about what might have been and hints at things to come.
InsideFlyer: So what is going on with the million-mile promotion?
Booth: It was a success in terms of putting LatinPass on the map. But I think we also had some negative comments obviously from slamming the door and putting some restrictions on it. With Marriott the program agreement was brand new and we had to shut them down and they agreed. Hilton unfortunately did not. The agreement with them was all in one, Hilton stays and HHonors Reward Exchange, and they said we could not cancel one part and not the other. The transfers out to Hilton obviously have hurt financially. But it was a success. Looking at all the pros and cons, there were definitely more pros than cons.
Though you know it was a costly promotion, but of course, everything had been agreed upon with the airlines ahead of time. Under an expansion of LatinPass we have a little bit of control over our own destiny; with LatinPass obviously everything was agreed upon a committee when that promotion was created.
Our recommendation was to put some restrictions on it, let’s hire an outfit that does sweepstakes, etc., but they said no, let’s just go with it. So this was a decision made by the airlines, and they of course know now that the cost was quite high.
IF: The best part about it was to see that some of those airlines really are some of the best in the world.
Booth: They got tremendous publicity. We kept clips of everything that was mentioned out there, the amount of stories that came out in so many different publications. That was pretty incredible. We obviously also had some legal problems. We caught a few guys double dipping! There was this couple and they were claiming naivete. They also claimed that they were given certain incorrect information by the service centers. And we would have never told them that. So now the state of Kentucky is on that one.
IF: Tell me, how many millionaires did you make?
Booth: We had just less than 400 winners, but of course almost half of them were half a million milers, and the other half were million milers. So pretty much there are about 300 million miles out there in bonus miles. Obviously, when they redeem these miles on the airlines we do not have a problem with that. We made a deal with the LatinPass shareholder airlines, so we’re not paying for that.
So what happens when they redeem or transfer the amount to Hilton, that’s the killer. With US Airways and KLM we do have a form of payment with them. But we settled that and it hasn’t affected us that much. But Hilton definitely has and we had to put a restriction of 30,000 miles a month. And the first week of every month there are 30/40 guys who send in their 30,000-mile transfers. We’ve been caught considering putting another restriction once we fold it over to an expanded LatinPass. But that’s something I don’t really want to do.
Chris Lynch is the Vice President in charge of the American Express Membership Rewards program and one of the real bright guys around. While MR struggles in the shadow of redemptions into airline miles with it’s estimated four million plus members, it is a program and brand that many find no wrong with — until they are late with a credit card payment. We found Chris in New York being a little leery of answering our question about a potential new airline partner.
InsideFlyer: What’s new out there?
Lynch: Miles will continue to be the gold standard for the core traveler, but I’m starting to change that to rewards are going to be king and, if you just look at what’s happening overall in the credit card industry, the number of credit cards that have any type of rewards program attached to it has been growing and will continue to grow so I see the rewards currency continuing to grow. You just have to look into you mailbox to see the whole range of different programs that are out there being marketed. The programs that have the airline miles, those tend to be the fee-based programs, those are the most valuable programs. A lot of the new ones that come up are free based but don’t have the availability to convert to an airline mile, so the market is going to be that rewards are going to be all over the place and the fee-based programs are going to be such where you can earn an airline mile and a lot of these programs where you can earn reward points for a lot of other things. So what we’re looking at with Membership Rewards is that people just love these points. Credit card customers are realizing that if they are going to use a credit card why not earn rewards. So we continue to encourage our customers to link all their different AMEX credit cards into one Membership Rewards account.
IF: Your program is mature now, have you seen the average charge volume increase over time or are you at a point where it’s pretty even year to year? In short, are people becoming more creative in the way they build up their rewards?
Lynch: Yes, I think people are getting creative and overall charge volume has increased because people are wanting to put more and more of their spending onto their credit card. If you’re going to the grocery store and they accept American Express, use your American Express card and earn the points and build up the point balance a lot more. So we’re seeing our long-tendered card members continue to spend more as more categories are opening up and accepting American Express. The new customers that come in are spending right away when they get into the Membership Rewards program. The overall spending tends to go up every year as people are migrating over from cash and checks to credit cards.
IF: You guys have the most unusual promotion going, why would you offer a 10 to 20 percent bonus to have people basically convert away from Membership Rewards points into Delta SkyMiles?
Lynch: We are encouraging people to get more involved in the program and redeem and we are doing that in lots of different ways. We put a lot more effort into this year’s program guide and talked about how to redeem and how the programs works and try to get people to use their points more. People are building up all these points and we would like for them to have a very positive experience by using the points. So we are testing a magalog, it’s a cross between a magazine and a catalog, this catalog will highlight certain partners and it talks about ways to redeem and it’s meant to educate our customers more. And the Delta one was a very positive promotion.
IF: What was one of the goofiest things you were thinking about doing with Membership Rewards but never put into production?
Lynch: One thing that we did, we did a three-year lease, a convertible, it was a huge point balance, but we got some point reduction for that. It was goofy because if these people have enough points to redeem this promotion they have enough money to get a car, but it sounded like fun, a red convertible. Our program is on such a huge scale that we do try to come up with whole new different ways for our customers to redeem their points. From the stand point of new categories, the kind of thing we’re starting to look at is the lifestyle rewards and the perfect example of that is what we just recently launched — a whole dining and entertainment category where you can use your points for movie tickets, restaurants and tickets to concerts. This promotion is still new, but people like a wide range so we’re thinking of whole new categories to offer our customers. And people love to use their points for electronics, we want a whole lot of options for our customers to redeem from.
Our range of point levels has widened, for 25,000 points there is a whole lot of gift certificates you can get with merchants. So we have people that want to buy the smaller stuff and people that are banking up for the bigger stuff.
IF: Anything else going on you want to tell me about?
Lynch: Yes, we’re going to continue to add name brand partners, Banana Republic, Spa Finder; we’re going to continue to find brands that fit with our program.
IF: It’s been awhile since you added an airline program.
Lynch: We’re always looking. We are happy with the partners we have, we have great coverage, but we will continue to look for other options.
Tom Evans, president, and Angelica Carey, vice president of Corporate Marketing, of Official Payments Corporation are two sharp people. Paying taxes and other municipal fees with credit cards while charging a fee has really taken off ever since these two decided to embrace the greed for rewards that many credit card holders have. Fact is, you may be the only one not earning miles next tax season if you don’t soon find out about their plans. Our favorite quote is from Tom regarding paying taxes with a credit card, "It’s an agreeable way to do a disagreeable thing."
InsideFlyer: Do you continue to take tax payments later on for late filing?
Carey: We do, it depends on whether your filing state or federal on which particular tax we collect, but, for example, for the IRS we are collecting balance due estimated, extension, installment and delinquent. We actually just started out with the IRS in 1999 collecting balance due taxes and they’ve added new tax categories every year for us as they’ve seen how the program is working.
IF: What percentage of your business do you think is linked to the idea that there’s something coming back from the use of credit cards?
Carey: We know that there are three reasons why people use our service. The first is the convenience factor. These are the people that at 11 o’clock on tax day don’t want to drive to the post office, they would rather pay the convenience fee than write the check and go to the post office. The second reason is cash management. They don’t have the money. They want to play the float until they have the incoming receivables that can cover the credit card. Or they would rather put the amount on their credit card and pay it off on their own time, rather than going through a payment plan with the government or taking out a loan from a bank. The third reason is the reward program; when I say it’s the number three reason it is actually the number one reason as far as the majority of dollars that we process and what we believe comes from the people that do it for the frequent flyer miles.
IF: United has a nice bonus.
Carey: Yes, 5,000 bonus miles to pay your taxes. I’m stealing a line from Tom; "It’s an agreeable way to do a disagreeable thing." We have a dedicated department of people who do nothing but talk to taxpayers who are charging over $100,000 in taxes. We get quite a number of those taxpayers. Those are our high balance taxpayers. We treat them with kid gloves and make sure they get everything they need from us. If somebody is charging $100,000 to their credit card they feel more comfortable doing it with someone rather than doing it over the Internet.
IF: I noticed you’ve created an ad campaign this year specifically for reminding people about earning rewards off of credit cards. How big has it become? Would tax payments be as big without this?
Evans: Probably not. Half the money we collect is from people who are interested in earning points or miles or whatever the cc companies are offering. It probably is less than half of the total transactions, but it is a lot because most of the larger transactions we’re doing have been more rewards-oriented.
IF: Do you see this continuing, or do you think there’s a kind of plateau coming? You’ve got a nice bell curve going, is it a faster ramp up?
Evans: You’ve got a better idea of the frequent flyer mindset than we do, but we see this continuing, people are very mindful of earning miles and which card they can put it on to earn the most miles, we see a continuing ramp up.
IF: Next year should be a bigger year, because this year Visa got into it very late in the game, so most of the tax season was over. The addition of Visa should have a major impact on your program.
Evans: Correct. You’re absolutely right. Even though they did get in by March 20, they didn’t put in the major Visa marketing muscle that we think will come in future years. So, we think that Visa in the program and marketing it to make the consumer aware will help.
IF: We contemplate on the IRS, but more and more of your business is below that line to the states and the other things. Where’s that business with you now?
Evans: That business is growing, particularly our property tax business, moving violations and parking tickets business, but particularly property tax and real estate tax area. Right now, we’ve got 1,200 government clients, including 21 states for whom we process payments and then the agreement with the IRS. Down the road in a couple years we’re told the IRS is going to add business taxes to the payments we collect.
IF: How far away is that?
Evans: We’re not sure, but possibly 2004 or 2005.
IF: Any other categories on the horizon that would be of interest to people?
Evans: Sure, we’re getting into the utilities business, childcare, we’re getting into tuition payments — those are the growth areas we’re seeing
IF: It sounds like you guys have a gigantic grand slam here, the growth over the last few years and with Visa coming on, reward cards are just a portion of what you’re doing.
Evans: There are three conveniences; there’s the convenience of credit cards, the cash management component, and the reward component. Depending on the taxpayer, that person’s financial situation and needs, all three work, but certainly the frequent flyer miles are a large component of that.
Tim Halden as Director of Partnership Marketing at Dollar Rent A Car has seen it all (he was also an analyst for the American AAdvantage program some years back). While he held his tongue when we asked about Hertz dropping out of frequent flyer programs some years back, he did offer up a great perspective on why these programs work for Dollar and gives us just a hint on how well frequent flyer programs and their members are renting cars after the events of 9/11. Well, renting from Dollar anyway.
InsideFlyer: Where is Dollar going, given that they have put most of the marketing budget into buying frequent flyer miles for their best customers?
Halden: We don’t have our own in-house loyalty program per se. Like …what is the perfect drive or the purpose of an award. We really have relied on the frequent flyer programs to provide that component for our customers. With that said, what we have done is try to penetrate the programs as deeply as possible. Not just with marketing, but even into the scope of reservations. We have a direct link with Southwest Airlines where customers can make the reservation. And with the partnership with Southwest we tend to pop up a little more often than others do. So we try to penetrate into the frequent flyer programs. For example we are going to partner up with United and are one of their preferred Silver Wing partners. And we incorporate awards with America West and their small business program. Let’s see what else are we doing… I can’t think of them all off the top of my head. But basically we have been busy in areas like these. To make the most of the programs.
IF: In the earlier days of frequent flyer programs, you could be one of a few car rental partners, but now you are pretty much competing with literally everybody out there with four wheels.
Halden: That is true. It’s hard to make a niche for yourself. But we are always confident that once we can get someone to try our product they are really going to fall in love with it. We really have a very simple rental process. There’s not a lot of fluff attached to our product. It’s basic car rental. And by doing that we do offer the lowest prices out there among the major car rental companies.
IF: And you’re still at the airports.
Halden: And we’re on airports.
IF: That makes a big difference. I know that through the years Dollar and Thrifty have been the most aggressive programs out there… Why is that?
Halden: Probably for a lot of reasons. We are small; our market share is not as great as some of the big players so we aggressively promote to these people, because we know they are travelers. So if we can make a difference with miles or offer them a great rate, odds are we are going to pick up a lot of respondents.
IF: Speaking of miles, I’ve got to ask you about the 100,000 miles Sweepstakes you’ve got going on right now. That’s a pretty big deal out there. And I don’t think that you even have to rent to be eligible. How does that work?
Halden: It’s going really terrific at this moment. Anyone can actually get a game piece at any of our locations of course. But when you rent a car with us we will provide you with a game piece. You actually go to the sweepstakes location at http://www.Dollar.com, enter in the promotion code and hit enter, and it’s either going to tell you that you won 100,000 miles or one of our smaller prizes which is 1,000 miles, or, unfortunately, try again.
IF: Now, how does Dollar get a partnership with Japan Airlines? Especially with JAL being more international and Dollar more domestic?
Halden: Everything at Dollar, or at least a large portion of our business, is leisure travel, as you know. Being a leisure based car rental company, obviously there are certain areas of the country where we have a very strong presence. Florida, Nevada and I think we have 24 locations in Las Vegas alone. Especially in the major hotels. Southern California, Arizona, but Hawaii is also one of our big destinations. We’re the only car rental company that has a location on every island in Hawaii.
IF: And because Hawaii is a big area for Japan visitors… But your partnership with Hawaiian Airlines probably plays into that as well.
Halden: Definitely, and Aloha. So we do try to get the Japanese visitors to get to use our services and products when they’re there. And that has paid off for us. It has been making a lot of sense for us.
IF: So you are pretty confident that the frequent flyer programs work for you?
Halden: They definitely work for us. If it takes miles to shift/move the needle we have succeeded. Even after 9/11 our frequent flyer transactions never really hit a low. As a matter of fact, we are in the first quarter of this year and we had more frequent flyer transactions than any other first quarters over the last five years. And I believe our March numbers were our biggest numbers ever.
IF: Do you see anything different in the future with you or the airlines? Any day dreams?
Halden: Not really. You know the airlines are all in a state of flux right now and it is anybody’s guess what’s going to happen. If I could have my dream come true, I do think that I would like to enter a more preferred status with some of the frequent flyer programs. Certainly there is a lot of opportunity within all these programs. Not just within the mileage programs, but call transfers, branding opportunities. I would like to explore that. Not being an international car rental company per se can be a hindrance to us. But you know we are still very strong effectively in all of Nort