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.
How Loyalty Programs Work and Why You Should Have Already Joined
Table of Contents
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.
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:
- Get people into the loyalty program with a “title” of sorts and offer some low-level benefits.
- 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!
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.
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.
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
- 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
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:
- Transfer those points directly into a partnered program*
- 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.
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.
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!