Loyalty Programs
Ameniti Revisited: United’s “Vapor Service”
I was looking at my referrer listWeb pages from where people
clicked through to my site. for this site today, and have an interesting statistic for you: 25% of my search engine traffic comes from the search results for the word “Ameniti.” A few months ago, I had written a tiny article about the launch of the Ameniti Club by United Airlines, and some of the features it provided. I had, without reading the fine print, suggested that it was a good deal, and that it was worth considering.
Well, I was wrong.
Ameniti is essentially a simple, prevalent marketing scam, run by hundreds of companies around the world. It relies on three things to make its numbers and insane amounts of profit: 1) Annuity revenue. 2) Breakage. 3) Slick, beautiful brand marketing. They are purported by large, solid companies, and are considered standard business practice. They prey upon two things: one, a consumer’s tendency to overestimate product usage, and two, his inability to decipher fine print in the face of a glossy, beautiful brochure or Web site.
It hurts me to say this, because I am responsible for some of those slick, beautiful brand marketing messages. However, I have a simple theory around service offerings that don’t add value: great marketing for a bad product will just put you out of business faster.
Think of it in terms of a simple graph. On the X-axis is Adds Market Value. On the Y-axis is Gains Market Share. If a business adds a ton of market value, but doesn’t gain much market share, then it is ripe for a great marketing idea, and has unrealized revenue potential. On the other hand, if a business gains tremendous market share but doesn’t add much market value, at some point, the inflated value will correct itself—very suddenly, and very quickly. I call this a “vapor” service or product. The ideal situation is for an offering to add market value while incrementally gaining market share. No company better epitomizes this strategy, in my mind, than Google. One of the reasons for their explosive growth is that they continue to find ways to add market value while they gain market share in search. They do this by continually adding services that extend their brand proposition of bringing the world’s information to your fingertips.
So, why is Ameniti a scam?
Because it doesn’t work.
Let’s break it down. You start by paying a $295 fee per year, which is pre-paid. For that amount, Ameniti claims to provide several luxury travel services. The highlighted ones are:
- A free companion ticket every time you buy a ticket on United Airlines. (I know, that sounds fantastic.)
- Automatic membership in Starwood’s Preferred Guest Program at the Gold level.
- 25,000 bonus miles per cabin every time you book a cruise on select lines.
- 24/7 access to a “Global Concierge” service.
- Free membership in Hertz’s Gold Club.
They have a few other benefits, but for the sake of our analysis, these main ones will do. Let’s start with the one they highlight as the hero—a free companion ticket every time you buy a full fare ticket on United Airlines (economy and up for North American travel, business and first for international.) Now, at first glance, this seems like a fantastic deal. The marketing positions the proposition brilliantly, namely, taking your spouse or significant other on a business trip with you. This makes sense, since 90% of personal travel purchases within the United States are done using discount airfares; however, companies tend to sometimes allow the purchase of full fare tickets.
This is where the fine print comes in. Turns out that even on full fare tickets in Economy, you still need to make sure that your ticket is not under United’s E,M,U,H,Q,V,W,S or T Class. Which doesn’t mean much, right? So, I ran a little experiment tonight. I checked online fares on ual.com for a round-trip from Chicago to New York for this coming weekend. I got a price of $485 per ticket, on a W class ticket. I then called Ameniti and asked them what a full fare ticket would cost me on the same routing. The price was $1392. Finally, I asked my corporate travel agent what a full fare would cost me on the flight. She came back with $755.
I wanted to give the club the benefit of the doubt, and thought that perhaps it would be better for international travel booking. And so I went to UAL.com and checked on tickets from Chicago to London, starting September 6th. The price was $707. The same seat, full fare, would cost me $2495 to avail the Ameniti benefit.
Why do companies do this?
The economics of the vapor service are simple. Let’s say the acquisition cost per customer is $50. Revenue from the customer is $300 (rounded). Since the cost of running the club is limited to the personnel that need to service the customer and general G&A, the club has a relatively fixed (or scaling) cost structure. So, at 50,000 members, revenues just from subscriptions are now at $15,000,000. The cost structure to service this base is surprisingly small—less than $50 per customer per year. How? By outsourcing the call center to a professional concierge and call management company, and keeping a lean management team. That means, after $2,500,000 for customer acquisition, an additional $1,000,000 for general marketing, and $2,500,000 for servicing and G&A, the initiative makes an amazing profit of around $9MM per year. That’s a PBT of over 50%! This number only goes with up more customers signing up.
Also keep in mind that the consortium companies like United end up making higher margin sales as a result, because they encourage members to buy full fare tickets to take advantage of their membership. Other participating companies like Starwood have a steady stream of members into their SPG program, where they’ve proven to increase revenues by auto-granting certain members Gold and Platinum status.
Mass-funded services like Ameniti can, in fact, work. For instance, American Express’ Platinum card is an excellent example of a set of services for an annual cost that, if used well, can pay back massive dividends to customers. Of course, they run the same free companion ticket scam as well, but their additional benefits more than makes up for that treachery. The trick, as a consumer, is to make sure you sit down and do the math. Even if Ameniti’s airline costs gave you a small discount from buying two separate tickets, you still need to figure in the sunk cost of $295, plus the additional costs involved with using the service. For example, if you’re flying to London, and want to use Arrivals by United (essentially a tiny bathroom with showers, and ironing services,) does their “nominal” fee of $50 make sense? Instead, you should consider using that money for a nice meal, or use it go shopping. Now, if you’re really hell-bent on trying out Ameniti, use this link to a 3-month trial for $10. Please remember to cancel before the 3 months are up, or else you’ll get billed for the full $295.
Do they think you’re stupid?
In fact, they do.
Ameniti, in the end, is a marketer’s nightmare. It is ridiculously easy to sell that kind of stuff, because, you (dear consumer) are gullible as hell. You take marketing bait without thinking twice, and we count on you doing that. But when the product has no chance of living up to expectations that marketing sets forth, angst is sure to abound.
Like I said, great marketing is the fastest way for a bad concept to go out of business.
Love-Hate Loyalty
My wife just sent me this snippet, and the story amused me very much. It’s an excellent example of loyalty techniques that define a brand.
By systematically antagonizing its customers, Lush Cosmetics manages to earn their undying loyalty, reports Lucas Conley in Fast Company (July 05). The potential for ticking off its customers happens because Lush dumps unusually large numbers of weaker-selling items from its line to make way for new entries. That can make customers mad because some of them may have really liked certain of the dropped items, even if most other people didn’t. But the disappointed customers end up loving Lush because the company then periodically sells limited quantities, or “personal batches” of some of the discontinued items online, which makes its customers feel extra-extra special: “There’s this exclusivity,” explains Simon Nicholls, who manages the Lush website, http://www.lush.com”. Only 300 people around the world will have these products.”
Lush’s love-hate marketing strategy is actually a function of its larger vision to stay on top of ever-changing consumer tastes by ruthlessly replacing fading items with fresh ones. In fact, about “one-third of Lush’s entire product line” is dropped each year in favor of more offbeat and tantalizing ...goods.” The strategy is possible mainly because Lush stays so close to its customers (a.k.a. “Lushies") who swarm the company’s forums by the thousands to chat online” with ceo Mark Constantine, who clearly relishes the give-and-take. “We are far more challenged by our customers than we are by our competitors,” he says. Lush has gone as far as flying in some of its forum members to help manufacture products, although sometimes products will “start merely as words suggested by customers ... and they inspire products to match.”
At the moment, some of the words in search of a product are “smitten,” “whoosh,” “aurora” and “flitter.” Mark also has one of his designers working on taking toothpaste in “unbelievably wonderful and frightfully weird” directions, like “green apple, salt and charcoal,” for instance. “We reserve the right to make mistakes ... I believe that’s a great privilege,” he says. A certain quirkiness does seem to suit him. Back in the late ‘80s, when Mark was product-designing for Body Shop, he proposed “Bath Bombs—fizzing, aromatic balls that disintegrate in water.” Body Shop rejected the idea, but today Lush “turns out as many as 60,000 Bath Bombs a day, and they’re 40 percent of sales.” Having started out with just “one store in 1995, Lush has 320 today (21 stores in the United States and growing), doing $100 million in annual sales in 35 countries, with plans to triple in size by 2008.”
Ooh, I got something right!
I have this habit of sending ideas to senior executives in companies where I see a specific marketing opportunity, and over the years, have started collecting and organizing them into a specific folder, tagged with the company name and area of marketing that I was focused on. I browsed through the folder last night, and found a couple of interesting coincidences:
In December of 2001, I wrote this email to Douglas Hacker, then the President of United Airlines Loyalty Services.
Dear Mr. Hacker,
I’m a marketing strategist, but more importantly, have spent more than $162,000 with United Airlines this year. I’ve flown over 180,000 miles with you in the past eleven months, and it looks like I’m well on my way to making the 1K loyalty tier.
The problem, Mr. Hacker, is that you’re going to treat me exactly the same as someone who bought 100 short-segment tickets for $200 each, for a total of $20,000. You’re going to do that because the miles-based system has a major flaw in it. It doesn’t take into account that the same miles can be purchased for very different prices.
Of course, creating a new tier based on more miles is not going to solve that issue. What is going to make me feel special is if you were to treat me and others like me, who fly the miles and spend the bucks a bit differently. Let me explain:
What if you were to mine your Mileage Plus data, and pull out a list of the top 10,000 individual revenue generating customers per year, based on ticket prices paid. Then, what if you created an invitation-only club for these customers that gave them all the benefits of 100K flyer, plus a lot more. Here are some potential benefits:
- Dedicated 800 line, accessible globally. No wait time, period.
- Free upgrades, priority placement.
- Booking privileges on overbooked flights.
- Instant Star Alliance Gold Status.
- Full-fare business purchase on international flights auto-upgraded to first, based on availability.
- Partnerships with other exclusive clubs (like American Express’ Centurion.)
- Heavily subsidized membership into the Red Carpet Club.
- Partner-flying coupons.
You should make it clear to the invitees that this is because they have not only flown a lot with United, but spent a ton of money with you, and that this exclusive membership lasts just one year. You should have special cards for them (I like American Express’ Black Card concept) and a special name for the club, like the Global Services Club or United Elite.I promise you, the numbers will work out—they have to. I can’t imagine I’m the only one who spends as much with you. We’re out there, and you should find us.
Warmly,
--krish menon
At the end of 2002, United Airlines sent private invitations to 25,000 high-revenue customers, inviting them to a new club that they called Global Services. The New York Times published an article about it this year, where they talk about United’s bid to create a black card concept like American Express’ Centurion card.
I never heard back from Mr. Hacker, but it’s nice to know that he had similar thoughts.
Things I Want
I want my dry-cleaner’s to barcode all the clothes I send them, and scan it in every time it comes in. Eventually, I’ll have an online repository of all my suits and shirts, and information on when I bought them, and how often they’ve been cleaned. I can add notes on special care for individual garments on the secure page provided by the dry cleaner, and as a result, will not go anywhere else, ever again, for my cleaning. If I move, a consortium of cleaners could have access to my data, and I’d only want to move within that network, because I don’t want to lose the information on all my clothes and their care. Purple Tie does some of this in the northern California, but not enough.
I want Starbucks to mine its cash card transactional data and create a premier-customer line between 8:00am and 10:00am for high value customers, in select stores, reducing the wait time for these customers to get their coffee. Value could be determined by a combination of frequency, longevity and margin (some drinks make more money than others.) This will increase sales of the cash cards, where they’ll get better margins because of breakage, and it’ll push morning traffic to stores that can handle them better. Of course, all of this has to be done under some kind of new Starbucks loyalty program umbrella, and have other benefits as well. I’d recommend creating a program construct with only a few national benefits, like the coffee premier-customer lane. The rest of the benefits should be administered at the local store level, with benefits coming from neighborhood vendors who want to share in Starbucks’ traffic.
I want my local home improvement retailer to start a replenishment program so that I don’t have to go buy lightbulbs or filters anymore. I want a subscription to my every-week home necessities. Come to think of it, they could also send things like garbage bags, disinfectants, laundry detergent and toilet cleaner. I want to be able to manage my subscriptions online, and turn them off when I go on vacation. And when I move, I want to be able to go to my local home improvement retailer, punch in my new address into a kiosk, and have it spit out data on how often the house needed replacement bulbs, filters and other essentials.
I want my wireless carrier to have a push-button option that allows me to upload all my phone numbers to some secure network location that they host. That way, if I ever lose my phone, (and I don’t backup my phone numbers to my computer,) I can use a simple push button with the same provider to download my numbers again. I’d pay for this service, but if I were my phone company, I’d give it to me for free—because with all my 600+ numbers stored securely on their network, I’m not going anywhere.
Cultural Context in Loyalty Initiatives
Some brands are cultural phenomenona. They serve not just as the counduit to a product or service, but fulfill a deeper, greater need that customers have, one that satisfies a more intangible yearning. In the book Trading Up: The New American Luxury, Neil Fiske and Micheal Silverstein conducted a survey of “New Luxury” buying habits, and categorized those intagibles into:
- Taking Care Of Me: Goods that make them feel better about themselves immediately.
- Connecting: Things that make them feel more attractive, connected, and foster a sense of belonging.
- Questing: Experiences that make the consumer feel like they’re venturing out, and pushing personal boundaries.
- Individual Style: Goods and services that provide self-expression and signaling.
Loyalty initiatives by companies that provide these intangibles can’t afford to follow the traditional mold of rewards, points and unrelated merchandise. It’s vital that they focus on extending the overall brand experience into their loyalty services and benefits. I call this moving from Transactional Loyalty to Relationship-based Loyalty.