Reader Jed asks,
In the distant future when travel through space is common, do you think that there will be frequent flyer programs like we have now? Will one billion miles get you a free trip to Mars (two billion for a lie-flat seat)?
Although I won’t make any claims about what the future of space travel will look like (I’ll leave that to @BoredElonMusk) there will absolutely be loyalty programs in the future in substantially the form that we have now.
Loyalty Programs Are the Fundamental Marketing Insight
As long as there are products and services that consumers freely choose to purchase, there will be marketing. And frequent flyer programs are the most successful marketing vehicle that has ever been created.
If the core of marketing is figuring out who your customers are and finding more people like them, frequent flyer programs allow amassing significant data about your customer base — from past transactions, to payment patterns, and across multiple platforms. It’s not just flying, but staying and renting and buying. These are huge big data operations that allow for micro-targeted marketing, amongst a large potential customer base that has given permission to be e-mailed.
What’s more, the fundamentals of any system that encourages repeat business are precisely the core tenets of frequent flyer programs: recognize and reward. Elite programs, and rebates — and rebates in the perfect form, products that are cheap for a loyalty program to provide (spoiling inventory) that are highly desired by the target market (aspirational travel).
These are the fundamentals of frequent flyer programs that I’ll suggest are more likely to be emulated across other businesses than they are to be scaled back.
Which isn’t to say that miles and points will be earned in the same way, or the same proportions, that they are today.
Credit Card Rewards Will Decline in Importance
I believe that credit cards will be less important in the future than they are today. Because frequent flyer programs are such powerful motivators, they become the preferred rebate currency that banks use to incentivize transactions using their products across their preferred payment networks.
But in the future the margins on credit card transactions will shrink so there won’t be a role for incentivizing transactions to the same degree, or at the same level of expense. It simply won’t make sense for banks to buy so many miles to reward credit card customers once their margins shrink.
There simply isn’t a future for 3% merchant fees for accepting credit cards. New technologies will compete down the price of processing payments. Those technologies may not be bitcoin, or even block chain-related. But new payment technologies, over the next decade, will cause American Express, MasterCard, and Visa margins to shrink.
No bank will buy a mile for a penny, or rebate 2%, in world where merchant fees look more like 1% than 3%.
Rewards debit cards have pretty much become extinct (at least in any way where they drive real value) as debit card interchange fees fell to near-zero. In that case it was because of legislation (the Durbin Amendment to Dodd Frank financial reform). A similar thing will happen over a long period of time to rewards credit cards, because of competition.
Space Travel Will Be Possible
As for redeeming miles for space flight, US Airways used to have a 10 million mile redemption for suborbital flight (American Express Membership Rewards wanted 20 million points for the same thing). Virgin will let you enter a drawing for 2 million miles.
Clearly there are ‘tailored travel’ rewards where if you have enough points the provider will buy you whatever you wish at a poor value per point. That will probably come first.
However, if there’s frequent space travel there will be space travel rewards. And if people are regularly traveling to Mars on a commercial basis, there will be rewards and free trips as well. It won’t just be Venus envy.