MilesBuzz! - Should McDonalds introduce an elite program or should airlines become like McDonalds?

A very important part of McDonalds' business comes from 'heavy' and 'super heavy users' who eat 3 to 4 times per day in their restaurants several days per week. :eek:

These customers have self-inflected, er, self-selected into McDonalds' offering and clearly feel that their needs are being met with a fair value proposition. These customers do not have to be offered free meals for returning or for choosing McDonalds above Burger King or Wendys. They do not have to be able to go to the head of the queue when ordering, or be offered a special place to eat their meal or be given special recognition in the restaurant: "Good Morning, Mr. Lardass, in just a few more years we can name one of our millions served after you." Yet, they still keep coming, always pay full fare or just take advantage of promotions available to everyone else and are generally loyal to 'their restaurant' chain. When asked what they value, key criteria include "Familiarity", "Reliability", "Cheap/Value for Money", "Availability", "Fast", "Convenient", etc. Consistently.

Taking rational control of the entire farmer's-field-to-your-love-handle value chain and offering one standardized, disciplined, ultra-efficient business process to all customers alike allows McDonalds to meet the needs of and appeal both to occasional diners and to very, very frequent diners -- all while competing in a hyper-competitive environment and turning a "healthy" profit.

One of the most important reasons in fact that the 'heavy users' do not have to be courted with special additional benefits is because the benefits available to all are sufficient in meeting needs, are reliable and are available for the standard, fair uniform price. On the other hand, realizing how important frequent diners are to the company, McDonalds could introduce a loyalty program with various elite levels providing effective discounts on future purchases or free meals, a separately manned and less efficiently utilized order counter, a better, more expensive & less effectively utilized dining area for elites, etc. This might be successful in attracting and retaining even more heavy users. The question of course is if these new heavy users are really loyal to McDonalds or to the program, if the costs to attract them and retain them weigh up against the costs, if by offering better service to the elites the company will lose sight of the needs of the rest of their customers and finally, if the added complexity and decreased efficiency introduced into the business -- together with the inevitable distraction from the goal of meeting the primary mission of the business -- are creating economic value or actually destroying it.

Most major airlines have a significant investment in a FFP with elite levels. One of the key mental models behind these programs is
- the admission that the core product does not meet the needs of (any or) all customers, particularly of frequent travelers and that
- best customers can be identified through segmentation by frequency, recency and to a lesser extent, decency can help them attract, retain and more effectively serve the needs of '(super) heavy users' and that
- qualification criteria and benefits can be structured to encourage lock-in and longer term loyal behaviour (=customers have to be bribed to suffer through what we offer and/or to give us their entire travel share and/or to pay a premium and/or once we have them it is easier to keep them)

This has partly contributed to a situation where:

- the entire travel value chain has been neglected and is full of dramatic inefficiency in terms of costs but also in terms of unreliability;
- the core product has become unnacceptably poor;
- the business is much more complex, costly and difficult to manage than it needs to be with non-standard 'elite bandaids' masking the stinking wounds that the rest of the customers have to deal with;
- many customers are less and less loyal to airlines and more addicted to their programs;
- airlines have continued to b......ize the loyalty programs due to their addiction to the hard cash from third-party partners;
- etc.

Does it really make sense to continue to emphasize FFPs and elite levels and benefits or is what we really need to have the NAS and airlines to be re-designed to provide efficient, reliable transportation value for all?

Interesting thoughts, and I know you are trying to make a point about airlines offering something better, but most people I know wouldn't really care if they went to BK vs McD vs (whatever) - not even on the basis of price since your average sandwich costs the same everywhere. Also, a burger doesn't cost $250-$1000. And finally, in the restaurant chains that do have something similar to FPPs (punch-cards which provide a free sandwich, or something like that) the programs tend to become too overwhelming for the chain (see: many, many Subway franchises) due to the lack of control/management/tracking by low-level employees (something which is typically not an issue for airlines due to electronic management).

It seems that you are unintentionally suggesting that every airline needs to make their offering a big mac - some lowest common denominator that temporarily satiates most people, but isn't really good for them in the end. I mean come on, would you really want your FPP to result in what a "frequent eater" at McD's is rewarded with?

However, naturally, I do agree with what I believe is behind your comparison - airlines need to offer something more to keep me interested, and perhaps an airline who offered nonstop quality would win over one with lower prices/ff miles.

The problem with this analogy is that the 'prepared food' (to include traditional restaurants, fast food outlets and even food counters and prepackaged sandwiches/sushi/etc from grocery stores) market is so massive that segmentation is inevitable. McDonalds isn't competing against the restaurant at the Mandarin Oriental, or even Delifrance. OTOH, commercial air transportation products are aimed at a small number of potential passengers who don't have an awful lot of choice to begin with.
FFPs are but a manifestation of the lack of a true free market for air transportation, due to a number of reasons, the most important of which being limited demand (closely followed by controls/restrictions on things like slots and frequencies, and an even less-than-perfectly-free market for aircraft). Airlines are trying (and usually failing!) to be all things to all potential pax, simply because there are so few of the b*ggers!

McDonalds has loyalty programs in some markets I know of.
With these you can get things like a free coffee with your meal...

Fast food restaurants do have loyalty programs. Subway has at various times had cards that you filled up with each sandwich bought, and then got a free sandwich. My wife loves Subway and would have chosen it anyway, but if it was just me, I could as easily have gone to KFC or Burger King, but the card fairly often induced me to go to Subway instead.

...the 'prepared food' ... market is so massive that segmentation is inevitable. McDonalds isn't competing against the restaurant at the Mandarin Oriental, or even Delifrance. OTOH, commercial air transportation products are aimed at a small number of potential passengers who don't have an awful lot of choice to begin with.

FFPs are but a manifestation of the lack of a true free market for air transportation, due to a number of reasons, the most important of which being limited demand (closely followed by controls/restrictions on things like slots and frequencies, and an even less-than-perfectly-free market for aircraft). Airlines are trying (and usually failing!) to be all things to all potential pax, simply because there are so few of the b*ggers!

Following the logic that the airline market is not in fact a free market (proven out also by the endless zero sum games of chicken always ending in tears, generous government subsidies, bailouts, what have you) then a very commercial FFP would certainly seem to be less appropriate than e.g. regulation of service and fares which would make up for the inability to create a market that works in the long term.

Developments in the airline travel market during the past two decades and in particular during the past 10 years would indicate that until now there has not been a shortage of poential pax. To the contrary, never before has such a large percentage of total population become air travelers and airline customers -- and never before have those who truly fly frequently in turn thus become such a minimal percentage of the total passengers.

Rather than go after the, relatively speaking, less and less important group of frequent travelers -- who insist on being incented and coddled -- why not instead go after the larger and growing group of occasional travelers and recruit them via what has proven to work (advertising, credit card fantasy games, reservation system tricks, low price and schedule) and retain them by actually delivering consistently or even exceeding expectations on personal service?

McDonalds has loyalty programs in some markets I know of.
With these you can get things like a free coffee with your meal... Subway has at various times had cards that you filled up with each sandwich bought, and then got a free sandwich.
The question was not should McDonalds implement limited, rudimentary, market specific frequency/discount programs, but should they introduce an elite program with differentiated product/service, and, more importantly, should the airlines continue to invest in FFPs or rather in value chain re-design and operational excellence?

An elite program works in a few ways. One is that it provides an incentive by offering the lure of better "stuff" if you are elite. Most fast food restaurants lack anything to offer in the category of better stuff, so there is no value there. The other is rewarding with free stuff, and they can do that.

But why? The key to the loyalty programs is to drive additional revenue at a cost that is below what it takes to operate and administer the program. For the airlines that is reasonably easy because the administrative overhead is relatively low and they rake in HUGE sums of money from third party organizations looking to buy miles and redistribute them (namely CC companies). The restaurants would never realize such margins/profits on their programs so that won't work. It certainly would not drive additional revenue above the costs required to administer the program.

There are a lot of differences between fast food and airlines that affect the validity of the OP's analogy. A prominent one no one has yet mentioned is that the fundamental reason for FF programs was (and to some extent still is) the fact that the FFP allowed the airline to use valueless inventory (i.e., empty seats on a departing flight) to encourage passenger loyalty, thereby realizing some value to the airline from the otherwise valueless inventory.

That's a much smaller part of McDonalds' business. Sure, there are probably some beef patties that are thrown out at the end of the day, but only a very small fraction of the day's needs. And it'd be a hard sell to get most customers to want to come back in at the end of the day to pick up a free "leftover" burger.

On the other hand, I've always thought that movie theaters are a business where a loyalty program could work, especially in conjunction with a reserved "first class" seating section that sells at a premium.

There are a lot of differences between fast food and airlines that affect the validity of the OP's analogy. A prominent one no one has yet mentioned is that the fundamental reason for FF programs was (and to some extent still is) the fact that the FFP allowed the airline to use valueless inventory (i.e., empty seats on a departing flight) to encourage passenger loyalty, thereby realizing some value to the airline from the otherwise valueless inventory.

On the other hand, I've always thought that movie theaters are a business where a loyalty program could work, especially in conjunction with a reserved "first class" seating section that sells at a premium.

Imagine how far we have come since the days the FFPs were innocently giving otherwise empty seats to frequent travelers as an extra incentive for loyalty -- to today collecting $2B from AMEX to sell fantasy miles to unsuspecting credit card holders and seeing every customer contact moment as a chance to fleece...

A local art deco cinema does offer "first class" seating in private loges, with big chairs and champagne included, but you have to pay for it rather than it being a perk. Local cinema chain offers instead "unlimited free movie passes" to all features at a reasonable rate for a minimum of 3-month subscription.

We don't see much unlimited air passes anymore, wonder why?

On the other hand, I've always thought that movie theaters are a business where a loyalty program could work, especially in conjunction with a reserved "first class" seating section that sells at a premium.

Movie theater loyalty program WITH a credit card tie-in here (http://www.scene.ca) and redeemable for VIP reserved seating at select theatres (http://www.cineplex.com/Theatres/TheatreDetails/A5227F31/SilverCity_Oakville_and_SilverCity_Oakville_VIP.as px?view=exclusive)

I thought of something else on this topic that I thought worth sharing.

There are restaurants out there that have an "elite" program for their frequent diners, whether they publicize it or not. It is called being a regular. I'm a regular at a couple places here in NYC, and there is definitely a different level of treatment that I am afforded thanks to that. Whether it is getting a table without a reservation (guaranteed seat availability), a free drink at the bar (lounge access??) or an occasional comp dessert or something (upgrade), there are ways that they reward my loyalty.

But, as I noted above, the costs to do so are lower than the revenue they realize from me. I do not believe that a chain such as McDonalds can realistically implement any such program and do so with any reasonable cost/benefit relationship.

Fast food restaurants do have loyalty programs. Subway has at various times had cards that you filled up with each sandwich bought, and then got a free sandwich.
McDonalds' frequent sweepstakes games are basically loyalty programs, as they give free food/drink in addition to the chance for prizes to people who eat there frequently.

I can think of few retail businesses, from fast foods to independent "boutiques" serving niche markets, which do not offer "customer loyalty" incentives in one form or another. Every day, my mailbox contains one or more examples (of which, currently, office supplies seems the most "anxious")

Our collective problem here is an arrogant assumption that all those folks who run airlines are gross fools, absolutely incompetent to oversee entities for which they have been prepared by education and experience to manage. I'll admit that, as with GMC, the airline management teams do occasionally appear to have risen to blundering incompetence, but I suspect that, deep down, they understand the broader situations far better than any of us can see beyond the narrow blinders of our own perspectives. Besides, if their views are not broad enough or "on target", their hallways are filled with consultants soliciting contracts and dropping pearls of wisdom in the corporate ears as "incentives" to gain favor and a piece of the business.

Add the input of the hundreds of travel writers, all of whom "know better", whatever the subject, especially air travel. I wouldn't want to travel with most of the writers I've read or whose TV shows I've watched. Why should I conclude they are wiser than I or the various airline managers in diagnosing the ills of the companies and airlines in general?

Next, we'll be assuming that we know more and understand better the role of the TSA and all those infantilisms foisted upon us by the cretinesque bureaucrats thereof. But then, we've never quite comprehended that the TSA is not designed to make FFs safer, or even to improve the security of the air traveling public, but to salve the tender political emotions of the voting (and opinion-making) public out there, 75% of whom rarely if ever enter an airport, much less fly. There are considerably more "Joe Sixpacks" out there than there are of us. For Joe (mostly rarely traveling), the bottom line is formed by the number of airplanes flying into tall buildings since 9/11 and the diminishing frequency of news stories about shoe bombers or folks getting on flights carrying 6 ounce jugs of nitroglycerin (in clear liquid or gel form). For Joe, TSA equals peace of mind, therefore any excesses or imbecilities are acceptable, since Joe rarely ever goes through the line to experience them.

At least the airlines (aside from catering to politicians) don't have to worry about much beyond a spectrum of travelers, one end of which is formed of folks who fly every day, the other by folks who save up to fly once in a lifetime (discounting those who never fly at all, but whose relatives ship them home in coffins, post mortem).

...And therein lies the problem. We see the airlines as needing to serve us - the FFs - better. Meanwhile, up on the management floor, successive series of new marketing VPs put forth the virtues of serving the market segment of the day, the week, of the CEO's conscience, etc.

At the end, the big equation always comes into play, and is always answered by another sloppy compromise....Whose loyalty is more important, that of 1,000,000 travelers who fly 50 times a year, or the 50,000,000 who fly once a year (plus another 100,000,000 or so who haven't flown yet, but just might)? The answer is "none of the above", and the results are continued use of scatter-gun marketing techniques, a little something for everybody (but not much, and less and less as costs rise), marketing positioning to straddle all markets, in the long run diminishing appeal to segments, especially segments inflated with their own sense of self-importance.

First...why have elite programs. Well the shortest answer tends to be the right one.

To encourage people to utilize their airline for their travel needs.

Airline ABC offers a program for passengers to board first if they fly with them the most

Airline XYC doesn't. Everybody boards the same way.

When making my next reservation, who will I pick if I am part of ABCs program.

Thats the beauty of it.

Trust me. McDonalds would do it if they had a probelm with loyalty. Thing is....don't need loyalty with a Dollar menu. Nuff said.

Airline ABC offers a program for passengers to board first if they fly with them the most

Airline XYC doesn't. Everybody boards the same way.

When making my next reservation, who will I pick if I am part of ABCs program.

Thats the beauty of it.


I am glad you get to board first.
For me, the beauty of it is when everyone's in their seats, the monitor's displaying final call and I am stumbling (or, even better, being driven!) to the gate in a state of mild intoxication from the free alcohol at the lounge!

Clearly a case of different market segments. :p

Airline ABC offers a program for passengers to board first if they fly with them the most

Airline XYC doesn't. Everybody boards the same way.

When making my next reservation, who will I pick if I am part of ABCs program.
Hmmm... come to think of it... Which one will I pick if I am NOT part of ABCs program and all other things are equal? Just a thought...