From the ground up - frequent-flyer award programs - Marketing

Nation's Business, May, 1996 by Peter Weaver

Rewarding customers with airlines' frequentflier miles is a sales incentive that's taking off at small firms.

For years, American Express, AT&T, Citibank, Hertz, MCI, and a host of other well-known major companies have been involved in airline partnerships through which their customers can earn frequent-flier miles.

Now, small businesses such as car dealerships, travel agencies, and retail stores are getting into the act with their own programs for awarding customers airlines' frequent-flier miles.

"We brought in a lot of new business with our American Airlines award promotions," says Tod Meier, president of Roger Meier Cadillac, a dealership in Dallas. "When you test drive a Cadillac," he says in explaining his firm's arrangement, "you get a 500-mile award certificate, and if you buy the car, you get 20,000 miles."

Meier's company purchased frequent-flier award miles for 2 cents a mile plus a modest service charge. Thus, the test-drive certificate for 500 frequent-flier miles costs the dealership just over $10, and the 20,000-mile car-purchase certificate costs about $400.

The program was advertised in a local newspaper and was promoted through a direct-mail campaign aimed at luxury-car owners in the Dallas area.

"While these award programs work well for many small businesses," says Randy Petersen, publisher of InsideFlyer magazine, "they're not for everyone. You have to have the right kind of clientele and the right kind of business to make it work."

If you're just attracting repeat customers, it won't pay off, according to mileage-award consultants. And in most instances, the product or service you are selling should cost at least $100 for the program to be cost-effective.

For example, at the Paragon Salon, a hair salon in Miami, owner Basya Kotlechkot says: "We tried using American Airlines mileage awards, and we didn't get any new business--just our regular customers. And we lost money."

But mileage awards are giving All American Travel, in New Britain, Conn., a competitive edge, says Kal London, the firm's president. Business is up since he started using airline miles purchased from American, Delta, and United.

To date, no other travel agency in the area offers frequent-flier awards, he says, and he's making the most of the situation by advertising his mileage-award feature in local newspapers.

"One new customer," he says, "drove 35 miles from another county to book a cruise with us so he could collect 2,500 award miles." It cost London $50 for the mileage award, but he got a $300 commission from the cruise line.

"We require a $200 minimum purchase to earn mileage awards," London says, but "customers can accumulate dollars spent with us." In that way, the value of a ticket costing, say, $130 can be added to the value of another purchase later on to total $200 or more, enabling the customer to qualify for free miles. The agency offers 500-mile awards to customers who book air tickets and vacation trips costing at least $500.

The key to making a mileage-awards program pay off is advertising. Says Bruce Chemel, American Airlines' managing director for marketing programs: "The idea is to piggyback on the airline's name and familiar logo to attract the kind of customer who tends to be a frequent traveler."

American provides small-business mileage-award customers with sample advertising copy that has worked for other small firms, and the airline also offers some coaching on how to use direct-mail campaigns, TV commercials, and radio spots.

All airlines require new mileage-award partnership customers to sign a contract that requires them to have all advertising designs and wording approved by the airline before they go into print or on the air. Even on-site window displays have to be approved.

"We only used a sign in our window and some smaller notices inside," says Daniel Crlencic, manager of Woodward & Maple, an antique and home-accessory boutique in Birmingham, Mich., near Detroit. Northwest Airlines had to approve the display, Crlencic says, "but it was easy--no problem."

If you're interested in finding out how your business might benefit from offering frequent-flier mileage awards to your customers, call the airlines. Before you take the plunge, however, make sure you have a product or a service that is priced right, and be sure your prospective customers have the money and the inclination to be frequent travelers.