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How Loyalty Programs Work and Why You Should Have Already Joined

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What are these loyalty programs that we’ve been mentioning, and how can all these credit card companies afford to give you such a great deal?

In this section of the Beginners Guide to Points, you’ll find out more as we reveal the ins and outs of loyalty programs.

Start by Figuring Out What a Loyalty Program Is

A loyalty program is a rewards program that a company uses to help market its product and retain loyal customers. All companies require customers in order to survive, but sometimes they’re hard to find!

The draw of these programs is simple: you earn rewards for using the business frequently, which makes the process itself a sort of game. Gamification is a proven way to increase customer engagement by making everyday things seem more fun.

By using a loyalty program, you’re actually helping these companies lower their cost of customer acquisition. You heard that right: joining a loyalty program benefits the company and yourself. So don’t feel bad about all the free flights you’ll get!

While loyalty programs have been around for hundreds of years, the first modern loyalty program (at least in the travel space) is accredited to the American Airlines AAdvantage program, which started in 1981.

After that, loyalty programs took off and the whole travel industry followed suit.

For you, the result of playing the card company’s game is getting rewards for your loyalty. These include varying levels of elite status, which give the customer a sense of pride plus access to benefits above and beyond normal customers.

Elite benefits range from free checked bags to upgrades and more.

Bottom Line: Loyalty programs are fun ways to earn rewards while the company develops a solid customer base. It’s a win/win for the credit card companies, the airlines/hotels making money, and the customers benefiting from great rewards!

So, How Do These Loyalty Programs Work?

Basically, loyalty programs provide an increasing level of benefits the more you utilize the company’s services.

Most loyalty programs have multiple “status tiers” that you can earn throughout the year. Some statuses are easier to acquire than others, but all of them use the same structure. From the companies’ perspective, they’re trying to:

  1. Get people into the loyalty program with a “title” of sorts and offer some low-level benefits.
  2. Hang some additional benefits in front of customers that they can earn with additional patronage…and watch the games begin!

It is hard to resist trying to reach that next status. In fact, many people will do “mileage runs,” where they will take a cheap flight and then immediately turn around and come back just to reach the next status level.

While this may seem crazy, if you know what benefits you’re earning by getting to the next level and how much they’re worth, then working your way up can absolutely be worth it!

Hot Tip: Read up on all the airline loyalty programs to determine the benefits, and continue to read more about what you can do with points to figure out what a mileage run for status could be worth.

Usually, your program status stays intact from the time you earn it (which activates the status benefits immediately) until the end of the next status year.

For instance, say you hit AAdvantage Gold this year in August. It would be good through the next year and until the following January (it used to go through February), essentially giving you Gold status for 17 months.

Bottom Line: Try to earn status in programs so you can enjoy the benefits for a long time! Obtaining status is an important, and many times fun, part of the overall points strategy.

Part 4 Man Pledging Loyalty
Loyalty is harder to get in today’s world, so these programs really aim to get customers’ attention.

Forming an Alliance to Expand Travel Possibilities

But what if you get stuck in one loyalty program and you feel cornered? Don’t worry; that problem was solved when travel companies started forming alliances.

It turns out that alliances are much older than loyalty programs in the travel industry, but both are important in the points world.

For the consumer, alliances help expand the number of companies you can spend your points with.

From a company’s standpoint, an alliance makes sense in the same way: it allows them to expand their travel network far beyond what they could do on their own.

Bottom Line: Learn the benefits of your chosen airline or hotel and find out more about your airline alliance to expand your potential benefits.

How To Earn Status in a Loyalty Program

So how does this all work for you? First, you sign up for a loyalty program and begin using services, such as flying on an airline or staying in a hotel.

Each time you use a service, you build up “miles” or “points” in their loyalty program through an account.

Your account will track all this, and after hitting a certain number of miles/points (or sometimes a number of flights/stays/nights), then you will advance in your status.

At each status level, you’ll receive additional benefits, like the ability to earn more bonus points or get free upgrades and other amenities.

While bonus points may not improve your status, they can help you earn more awards.

Here’s an example list of some of the benefits of a loyalty program in the airline and hotel industry:

American Airlines AAdvantage: 

  • Priority boarding
  • Free checked bags
  • Free upgrades or upgrade credits
  • Premium seating/ability to choose seats
  • Bonus miles earned

Marriott Rewards:

  • Late check out/early check in
  • Free internet
  • Lounge access
  • Free WiFi
  • No blackout dates
  • Check-in amenities (water, cookies, etc.)
  • 5th night free
  • Bonus points earned
  • Hertz gold membership

Bottom Line: It’s definitely worth it to get status; the best benefits are usually the bonus points and upgrades.

What if You Want to Change Loyalty Programs?

If you have a bunch of miles or points in a single loyalty program, you can do 2 things:

  1. Transfer those points directly into a partnered program*
  2. Use those points directly from that loyalty program on a partner’s services by utilizing an alliance/partnership.

*Note: transferring typically only occurs between an airline and hotel, or a bank rewards card and an airline/hotel. You cannot transfer airline to airline or hotel to hotel.

The biggest airline alliances are: Oneworld, Star Alliance, and SkyTeam.

Partnerships also expand beyond these formal alliances, and many airlines have direct alliances with each other as well as hotels. For example, here are the lists of partners for Starwood Hotels, Marriott Hotels, and Hilton Hotels.

Beyond that, big hotel chains are like an alliance already; they include multiple different brands of hotels with unique styles under one big name. Your status with one hotel in the chain offers you benefits across all the different brands.

Similarly, each airline alliance has its own “status” that can be used interchangeably with benefits of other partner’s loyalty programs.

For instance, American Airlines Gold is equal to Oneworld Ruby. Both of these are equal to British Airways Bronze.

Bottom Line: Earning airline loyalty in one place is like earning it on all your partner airlines as well!

Part 4 All Kinds of Partners
Even if you earn all your loyalty points in one place, you can still utilize the partnerships that exist between so many of the airlines to take rewards flights or get free hotel stays!

Advanced Loyalty Program Strategies

In the future, we will be providing a guide you can use to maximize the value of loyalty programs and alliances. There are so many ways you can transfer or share your miles, and it can get confusing. Stay tuned!

For now, check out the airline and hotel loyalty program reviews.

Part 5: Beginners Guide to Miles & Points >>

Photo Credits/Credit/Copyright Attribution:
Loyalty Dial Featured Image: donskarpo/Shutterstock
Man Pledging Loyalty: www.BillionPhotos.com/Shutterstock
All Kinds of Partners: Rawpixel.com/Shutterstock

Chase Sapphire Preferred® Card

Chase Sapphire Preferred® Card
  • Earn 50,000 bonus points after you spend $4,000 on purchases in the first 3 months from account opening. That's $625 toward travel when you redeem through Chase Ultimate Rewards®
  • Named Best Credit Card for Flexible Travel Redemption - Kiplinger's Personal Finance, July 2016
  • 2X points on travel and dining at restaurants worldwide & 1 point per dollar spent on all other purchases.
  • Earn 5,000 bonus points after you add the first authorized user and make a purchase in the first 3 months from account opening
  • No foreign transaction fees
  • 1:1 point transfer to leading airline and hotel loyalty programs
  • Get 25% more value when you redeem for airfare, hotels, car rentals and cruises through Chase Ultimate Rewards. For example, 50,000 points are worth $625 toward travel
  • No blackout dates or travel restrictions - as long as there's a seat on the flight, you can book it through Chase Ultimate Rewards
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FAQ

What is a customer loyalty program?
Used in marketing, a loyalty program is a type of engagement program that utilizes various status benefits to improve customer retention.

The program works through gamification of their business, encouraging you to stick with one company to improve your chances at obtaining status.

By using their business, you will collect “points” or “miles” that can be redeemed for rewards from the company. Your status also entitles you to basic benefits you couldn’t otherwise get, such as upgrades and free services.

Why start a loyalty program?
Loyalty programs are important for companies because they improve customer retention. For the consumer, you benefit by being able to earn many different perks from various partnerships available through shared customer bases.

This site focuses on airlines, hotels, and credit cards, which can be considered a type of loyalty program when offering rewards points.

When was the first loyalty program created?
Loyalty programs have been around for hundreds of years in one form or another, but inventing the modern loyalty program is usually credited to American Airlines, who created AAdvantage in 1981.

Which loyalty program is best?
That is very subjective to your own needs and desires. Each program offers many of the same benefits as others in the industry, but there are also slight differences that may push you toward one or the other.

For you, the “best program” may be the one with a business you already utilize frequently, one that is nearest your home, or one that provides rewards you enjoy the most. There are many, many factors.

To learn more, check out our airline and hotel loyalty reviews.

Are there loyalty credit cards? Which loyalty credit card is the best?
Airline loyalty cards and hotel loyalty cards both exist, and they are offered through the major U.S. financial institutions. They allow you to earn points in the loyalty program by spending money on the credit card.

Which card is best is subjective, and depends on your needs and spending patterns. Each card offers a variety of different benefits and earning potential, so you will have to look at our card reviews and determine what is best for you.

Key factors to consider could include where you spend the most money, which fringe benefits are the most valuable, or even what cards are available to you at the time. (Using the Card Match Tool will help you find that out.)

Also note that while many cards are specific to hotels and airlines, most credit card companies have their own cards with loyalty programs as well.

These include Chase Ultimate Rewards, AMEX Membership Rewards, and Citi ThankYou.

Which airline loyalty program is the best? Which hotel loyalty program is the best?
As we’ve explained in our above answers, this is very subjective to your needs and goals. Each program offers slightly different benefits and rewards, and caters to different types of travelers.

Do some more research in our reviews to learn more.