Question

1. Airlines and hotels have many frequent-flyer and frequent-visitor programs in which individuals who fly the airline or stay at the hotel receive bonuses that are the equivalent to discounts.
   • Give two reasons why these companies have such programs rather than simply offering lower prices.
   • Can you give other examples of such programs?
   • What is a likely reason why firms whose employees receive these benefits do not require their employees to give benefits to the firm?

Answer 1

Two reasons why these companies have such programs rather than simply offering lower prices:
1. Proportionate rewarding and profit margins - The customers who fly more, or who stay more at hotels, get the most benefits. In that way, the proportion of revenue is equally more for the hotels or airlines as more flying/hotel bookings would generally mean more loyalty points for customers.
2. Promotion of customer loyalty/marketing strategy(word of mouth marketing) - This aspect helps airlines and hotels in the long-run as they won't have to compromise in prices. Hence, profits are also better for two reasons - Customers know they are being valued,so their willingness to pay is not affected e.g.- room upgrades, flight seat upgrades, flight miles, free meals,etc; and companies earn revenue on the basis of customer loyalty.

Examples of other such programs -
1. Netflix gift cards
2. Prime membership for Amazon
3. Customer/Pre-user referral codes
4. Starbucks rewards program.

##A likely reason why firms whose employees receive these benefits do not require their employees to give benefits to the firm is that,such employees are often regarded as lowest priority on the basis that they are "non-revenue" users. Hence, a user or normal person who pays for his/her service is likely to get higher priority than an employee who would want a company sponsored service.