Great on Loyalty!!!!!!: Love Those Loyalty Programs: But Who Reaps the Real Rewards?

THis is a very good paper on Loyalty. This provides the two sides of the coin. Nestor

Via Knowledge.Wharton.com: Click to enter the mileage mall, a cyberspace bazaar where everything from flowers to golf clubs to cruises is bought and sold in the mall's own currency -- frequent flyer miles.

At American Airlines' AAdvantge e-shopping site, more than 200 vendors -- including Bergdorf Goodman, Home Depot and Petco -- offer bonus miles to shoppers. Like the currencies of countries, the value of vendors' currencies fluctuates as well. At the Apple Store, a dollar spent earns just one mile, while Hallmark pays 10 miles for each $1 in sales. Continental's OnePass program allows members to earn two miles for every $1 paid for electricity from Gexa Energy of Houston. Miles are even available for the civic-minded: Northwest Airlines' WorldPerks members can donate $50 to the Red Cross and receive 500 miles in return.

Since American Airlines pioneered its frequent flyer program 26 years ago, airline loyalty programs have blossomed into a unique and thriving industry, in part by teaming up with hotels, rental car companies and credit cards. These days, dozens of retailers are tied into the programs with their own frequent buyer schemes.

But while the programs are getting bigger, they don't always provide a big payout for retailers. For the most part, the partnerships have become a defensive measure as more and more retailers develop competing programs, according to Wharton marketing faculty. "The programs are growing but they are not necessarily successful," says Wharton marketing professor Xavier Dreze. Setting them up "is now just an added cost of doing business, not a true loyalty program. The retailer does not have loyalty from the customer; the airline has it."

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