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Use miles as business-boosters

SmarterTravel

You’re the owner/manager of a small business, fighting for your fair share of customers on the battlefield of free enterprise.

Your product line is the same as your competitors’, as are your prices. Your customer service and shipping are indistinguishable from theirs.

How do you, Mr. or Ms. Small Businessperson, break the tie, distinguish your enterprise from all those me-too companies, and entice prospects to buy from you instead of from the competition?

Often, and increasingly, the answer is: airline miles.

Eight of the 10 largest airlines (see table below) sell frequent flyer program miles for use by businesses in attracting new customers, or keeping existing customers coming back to make repeat purchases. Companies purchase the miles and offer them as rewards, in the expectation that the extra costs of the miles will be more than offset by the additional revenues they help generate.

Are Miles the Answer?

Before grabbing your checkbook and heading for the mileage supermarket, consider carefully whether miles are the best solution to your sales problem. While the airlines would have you believe that miles are the be-all and end-all of sales incentives, they may not be the most effective from a cost or a consumer-demand standpoint.

Cost

Since the minimum value of a mileage certificate is 250 or, more often, 500 miles, depending on the program, the merchant is giving up more than $5 to $10 per transaction. For a product that retails for less than, say, $50, even a low-denomination mileage certificate can be a profit-killer.

Note that while the nominal cost of the miles is $0.02 each in most programs, excise tax and “processing fees” can increase the real per-mile cost significantly?by 14 percent in the following example:

60,000 miles @ $0.02 $1,200
7.5 percent excise tax $90
Processing fee $75
Total cost $1,365
Actual per-mile cost $0.023

Consumer Demand

Not all consumers are mileage-driven. For some, an immediate discount is more compelling than the prospects of eventually, maybe, earning enough miles for an award. And for others, a traditional added-value proposition (sunroof and automatic transmission, at no extra cost) is the best deal-clincher.

Assuming you decide that airline miles are indeed an appropriate incentive for your product or service, there remains a host of questions to be addressed.

Which Airlines’ Miles?

Most airlines sell incentive miles. A summary:

AIRLINE INCENTIVE MILES PROGRAM COST-PER-MILE/MINIMUM PURCHASE
Alaska Premiums
800-984-9934
$0.02/60,000 miles [1]
American AAdvantage Incentive Miles
800-771-5000
$0.022/75,000 [1]
$0.022/500,000 [2]
America West Merit Miles
800-833-2292
$0.02/50,000 [1]
Continental Miles of Thanks
888-684-2657
$0.02/75,000 [1]
$0.02/500,000 [2]
Delta SkyRewards
404-715-9426
$0.02/60,000 [1,2]
Midwest Express N/A N/A
Northwest MilesAbove
800-469-6453
$0.02/50,000 [1,2]
Southwest N/A N/A
United Reward Miles
800-PICK-UAL
$0.025/60,000 [1]
$0.02/200,000 [2]
US Airways Dividend Incentives
800-883-1019
$0.02/50,000 [1]
    [1] Paper certificates [2] Electronic

In an ideal world, a merchant would offer prospective customers a comprehensive menu of airline miles, allowing the buyer to choose to be rewarded with miles from his preferred program. In the real world, it would be too expensive, and too great an administrative burden, for most companies to maintain stocks of multiple airline miles. So the question arises: Which airlines’ miles will I offer my customers?

The answer has everything to do with geography.

If you’re a bricks-and-mortar business with a single store in Minneapolis, your customers’ allegiance is bound to be overwhelmingly to Northwest (since Minneapolis/St. Paul is Northwest’s primary hub airport). So offering your customers Northwest WorldPerks miles would be both effective and efficient.

At the other extreme, a national chain, or an Internet business with a widely dispersed customer base, would have to consider how best to accommodate a hodgepodge of mileage preferences without investing the resources to warehouse a full complement of airline miles. A workable compromise would be to offer miles from the two or three largest airline programs (those of American, Delta and United), thereby addressing the needs of the most prospects with the fewest promotional ?currencies.”

How Many Miles?

While more miles may be better, they are also more expensive. The challenge is determining the “just right” number.

It’s a trade-off, balancing a sufficiently generous allocation of miles to generate extra sales without wiping out profit margins in the process. Most businesses have adopted a mile-per-dollar standard. So purchasing a $100 item would earn the buyer 100 airline miles. Assuming the real cost of a mile to be $0.025 (including tax, fees and miscellaneous related expenses), the mile-per-dollar offer amounts to $2.50 worth of miles, a 2.5 percent rebate.

For higher-priced items, or where there’s no competitive pressure to offer one mile per dollar spent, merchants can offer a set number of miles.

Mileage Certificates or E-Miles?

The larger programs offer a choice of formats for the administration and delivery of incentive miles.

All programs offer mileage certificates?paper coupons, typically in denominations of 500, 1,000, and 5,000 miles. The merchant gives the coupon to his customer after the qualifying transaction. The recipient then fills in his name and membership number and mails the coupon to the program service center, where the miles are deposited into his account.

The larger, more technologically advanced programs offer a second option: electronic delivery. In this case, the process begins with the merchant collecting the name and membership number of the customer earning the miles. The member information, plus the number of miles awarded, are then communicated to the airline, either via a website interface, an e-mail transfer, or a snail-mailed diskette. The miles are then added to the recipient’s account and deducted from the vendor’s account.

The electronic version has the advantage of allowing businesses to award miles in the quantities they choose, rather than in the pre-established denominations imposed by certificates. If, for example, you opt for a mile-per-dollar-spent promotional scheme to support your business, you’ll have to go electronic. And from a customer-service standpoint, electronic miles are auto-deposited into the consumer’s account, without his having to fill out forms and mail in coupons.

The chief downside of electronic miles is the minimum purchase, which tends to be significantly higher than the minimum coupon purchase. There’s also an additional administrative burden imposed by the use of e-miles, requiring merchants to capture?manually or otherwise?the customer data necessary to award the miles, and then to insure that the data is downloaded into the airline’s database.

Miles for All?

As the airlines have discovered, mileage bonuses can be expensive and inefficient, since many customers earn incentives unnecessarily?they would have flown the airline anyway, even without the lure of extra miles. Their solution: require passengers to pre-register to receive bonuses. The requirement serves to insure that extra miles are only given to those who are genuinely responsive to them.

Small businesses would do well to follow suit. In its simplest form, this form of “tactical mileage marketing” means that the miles are offered to anyone who requests them: “To receive your miles, request special offer ABC.” Those who do not seek shall not receive.

Communicate the Offer

A mileage offer?no matter how generous?must be communicated to be effective. Whether it is via a Magic Marker poster in a store window, a full-page ad in an airline in-flight magazine, or direct mailers to the business’s “house list,” a small business must have a communications plan, and the resources to implement it.

Results, or Else

As a final how-to thought, small businesses should adopt a “show me” attitude toward miles, as they would toward any expensive promotion campaign.

If the miles aren’t having the desired effect, first consider the possible causes?weak offer, wrong audience, deficient communication. Make adjustments and, if sales still don’t improve, try a different promotional approach, one without miles. It might take you further.

The Fine Print

Certificates generally are valid for 12 months from the date of issue. Some airlines place a cap on the number of incentive miles that can be awarded to a single program member. United, for instance, allows Mileage Plus members to receive a maximum of 20,000 Reward Miles per calendar year, while Delta allows 50,000 miles.

One potential complication that should be borne in mind by would-be mileage marketers is preexisting relationships between the airlines and competing mileage-purchasing businesses?especially full partners?that guarantee exclusivity. If, as an example, you’re a cruise line looking to reward customers with miles, you might well find that another cruise line has a mileage-buying contract in effect with that airline which precludes the sale of mileage to other cruise lines.

Beyond Sales

We’ve focused on the use of miles as sales incentives, but it should be mentioned that miles could be used for other purposes as well. Among them:

  • Employee rewards (meeting sales or operations goals, perfect attendance, etc.)
  • Partner appreciation (recognizing key suppliers and distributors)
  • Fund raising (miles for donations).

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