Who Is Your Customer?

The last few months have seen a bit of an uproar around Airmiles, a rewards program that is used by several retailers to try to retain customer loyalty. The company had decided to start expiring the points/miles collected, effecting giving them an “expiration date”. They backed off, but not after some considerable damage to their image, and new legislation in one province banning the practice. Basically, Airmiles may have overlooked who all their customers are.

Data Collection

Airmiles makes it money by having “member” companies pay it fees in exchange for Airmiles maintaining the customer data and providing those customers with rewards. The rewards themselves are provided by other companies, either as a way to get rid of unsold product, or as a way to promote their brand and image. Sometimes the rewards are provided by the same companies that allow you to collect miles using their services.

Collectors pay nothing up front to be part of the program. Today, you go on-line, fill out a form and they send you a card. You present that card at participating retailers, and the miles you receive depends on the price of the purchase. The more you spend, the more miles you collect. You can exchange those miles for travel, gift certificates or merchandise.

The point of the program is two-fold. First, it gives retailers a way of offering extra benefits for little cost (and someone else is taking care of the paperwork). That benefit may be enough to get people to choose one retailer over another (why stop at Esso, which hands out Aeroplan miles, when Shell will give you Airmiles?).

Second, it gives all the participating companies a bigger look at your shopping habits. So far, they haven’t done much to tailor their individual retail experiences to specific customers, but if they see there is a correlation between people buying gas at Shell and stuff at Staples, then Shell and Staples could look at cross-promotional deals to help themselves and each other. Without Airmiles, that relationship may not have been evident.

So, obviously, the retailers are the customers of Airmiles. They pay the company for two services: providing a rewards program (so the retailer doesn’t have to) and giving them access to a deeper and richer source of shopper data to help their marketing efforts.

The Other Customer

What Airmiles has learned the hard way is that they have a second customer, the people who collect the miles. Sure, those people didn’t pay money to get those miles. They have essentially received them for “free” from a pure dollar-cost perspective. And no, simply “buying something” isn’t paying for miles. You received the miles as bonus of sorts. You got the goods or services you would have received with or without the miles. Had the expiry taken place, it isn’t like the collectors are out money.

To understand the strictly monetary value of the points, take an example: what if Airmiles went bankrupt? The collectors wouldn’t qualify as creditors to the company, because the company doesn’t owe them money. The collectors didn’t lend them money, or provide Airmiles a physical good or service in exchange for miles. Looked at this way, the miles themselves, strictly speaking, would be worth nothing.

This was my original thinking in this case, and I wasn’t overly upset at the expiration, because they cost me nothing in terms of dollars and cents. As far as I was concerned, I got them for free. I wasn’t losing anything.

Well that may not be entirely true. The collectors did give Airmiles something: their data. That data has value, is intellectual property, and was given in exchange for receiving miles. The collectors “paid” for their miles by providing some insight into their shopping habits. There is a contract here: offer, acceptance and consideration. Airmiles offers reward miles to collectors in exchange for information, and collectors can redeem those miles for goods and services at a future date. The company received the information, they therefore still owe the reward miles and the things they can buy.

By expiring or refusing to allow use of the miles in a reasonable fashion, Airmiles could be seen as being in breach of contract. Calculating damages in that case is tricky, but not necessarily impossible. Even if all you did was take the MSRP of the cheapest reward along with the miles needed to purchase it,  you have a guide as to what 1 mile is worth in their system (and that is according to Airmiles themselves, since they set the price. This number is not forced on them). For example, if it takes 100 miles to buy a $30 item, then miles could be seen as worth $0.30 each.

Figuring Out All Your Customers

The bigger lesson here is overlooking who all your customers are. Airmiles was acting is if their only customers were the retailers that participate in the program. They are pretty obvious: they pay money to Airmiles, and provide them with purchase information. They have formal agreements which are reviewed and renewed (usually) from time to time. To make their business work, Airmiles first needed retailers on board.

But the collectors are customers, too. They “pay” Airmiles, not with money, but with information. Airmiles, in return, gives the collectors miles that they can redeem for something tangible later. Since you have to agree to the terms of the program, and all the conditions for contract are met, a formal and enforceable contract exists between Airmiles as vendor and the collectors as customers.

It can be important, and even critical, to your business to understand who all of your customers are. Sometimes, it is just the obvious ones. But if you aren’t careful, you can end up hurting yourself if you don’t make the effort to determine who else is a customer, even if they aren’t formal or obvious. Because if you annoy or ignore them, they can hurt your business as much or more as your “formal” customers.