I’m something of a snob when it comes to frequent flyer points: My points redemption is focused on travel and I try to make sure that I’m getting the absolute best value for those redemptions I possibly can (within certain parameters, of course). I don’t always redeem for long-haul premium cabins but my focus is on maximizing the value I can get based on the trip I need/want to take in any given year. So when a loyalty program starts talking about the power of their low-value redemptions I generally am a bit suspicious. And then I remember that there are a lot of other types of people out there and I’m at least willing to listen to what they have to say. For United Airlines it seems that the low-value redemption options are actually increasing loyalty for the MileagePlus program. That’s not at all what I was expecting to hear.
At the 2014 Airline Information Mega Event held last month United was represented by Shunt Madanyan, Senior Manager Air Redemption Programs, who presented a session regarding the breadth of the redemption options MileagePlus offers and how those options appeal to the various demographic groups within the program’s membership rolls. Sure, there are members who focus on travel redemption for their points but many members want other options. Madanyan spoke about passengers such as the road warrior who has tons of miles but who doesn’t want to get back on a plane again once work gives a respite or the slow accumulator who never really has enough points for a travel award. It is these sorts of members the MileagePlus program is focusing on more than ever, and with good reason: it is smart business for the company.
The cost to the carrier for non-travel awards is arguably higher than for travel redemptions; the award seats are generally considered spoiled inventory anyways while there is a real world cost to delivering the retail redemption options. Some of that is easily accounted for by accounting valuations of the points in various circumstances but there’s a surprising part to the analysis: United says that the retail redemption customers are some of their best. Offering the small redemptions makes those customers happy and it brings them back into the program rather than losing them once the transaction is complete. As Madanyan explained during the presentation:
What we’ve found is that members who redeem miles will earn miles at twice the velocity of those who do not redeem their miles. And this is across all levels, from people who burn a very small amount of miles to people with massive values. We want to keep this cycle going but it is from the perspective of getting people to burn their miles because they’re going to come back and keep spending money.
In other words, the MileagePlus members who redeem points are the more valuable ones. Even for small redemptions. These are the customers who feel the “rush” of getting that free sprocket or whatever and who want more of that. So they work to earn more points so they can have the feeling of “winning” again with their next redemption.
And, despite concerns from some in the industry that low-level redemptions will lead to a “cash-out” from the program United doesn’t see that behavior. Even if it is just a few miles redeemed for a song in the digital media store or tickets to an event those customers see a value in the points such that they go out of their way to come back and earn again.
What we found is people are coming back. They redeem and a couple months later they come back and redeem again.
And that’s the type of customer any program wants. Madanyan was quite clear at the beginning of the presentation that he recognizes the role of the program to drive additional business to the airline and to its partners. By offering up more choices for redemptions at a wider variety of price points the MileagePlus program is delivering on that goal for United Airlines. Even if they are a bunch of awards I’d never get anywhere near.
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Of course they are not going to tell you the truth. I don’t buy it, those redemptions are a really bad deal, but people do it. I have seen people people redeem MR at such bad values. I can’t imagine miles will be any different.
I agree with Nic. That said, when the program changes to all rev $$$ for earning miles next year on flights, most folks will be earning far less and those miles will (in my opinion at least) become much more valuable.
Also given the purchase price for Award accelerator, it’s right now 115.00 for 5000 miles, a side car (on your screen shot) retails for 14.00 / 2000 miles.
I have to imagine people seeing over this charade from UA,
I’m confused (and was on your podcast, too). If United’s studies show that their business travelers want to redeem points for something other than travel, how does allowing them to redeem for food in an AIRPORT help further that goal? Perhaps the conclusion is that these business travelers are using points while traveling for work, but if these people are traveling for work, then presumably their expenses are paid.
I have so internalized the game of maximizing loyalty programs that I forget some people consider miles to be found money. I immediately convert miles and points to a cash equivalency. This weekend I tried to convince the clerk at my local wine shop to give me the 20% off black friday/saturday case discount and let me pay with 24 $10 transactions. He told me the system wouldn’t allow that many splits so I had to settle merely 8% back (buy 12 get one free). I got upset that he was ripping me off, and then I remembered it was all free money (Amex).
The redemption values on the menu don’t even make sense – a 17$ chocolate stout for 1,000 miles; or a 13$ escargot appetizer for 4,500 miles? What!
Just how stupid does United think its “overentitled” customers are?
They basically profit when you redeem for these low value options. Ideally they want the mileage business to be profitable in its own right. That doesn’t happen when you redeem for partner awards earning via cheap tickets. I suspect revenue based earning only gets them part of the way there and they still need to make partner redemptions more expensive.
United wants to sell miles. People who do not redeem miles make more money for United. But they aren’t a rapidly growing segment. When you have a growing segment you can spend money today that you project you will have in five years because in ten years you will have so much more.
I have always wondered what United’s definition of the elusive “Business” flyer is and how they determined who fits their definition given the information they collect. I can not imagine someone who pays for their Business travel or who is a Business flyer who also does non-Business flying naive enough to spend their miles on are anything else than award trips. I can see economic arguments for not doing so. I can’t see the economic argument for using a credit card with miles as an award versus cash or any other method of accumulating miles aside from ancillary flying.
United is making a significant amount of cash from selling miles. Much more, I imagine, than from selling box or sandwiches on board. I they don’t keep the award miles river flowing they are very foolish to think they can keep selling miles to Chase and individuals at the rate they do today to the few who are happy to redeem miles on items other than war flights.