Part of what makes my job interesting is the opportunity to hear guest speakers and experts at other conferences. A few weeks ago I had the good fortune to hear Dr. Xavier Drèze, Dr. X as it were, from UCLA talk about his theories on loyalty programs. Turns out a coffee shop frequent drink card that requires 10 cups for the next free one is more loyalty inducing if the first two drinks are already pre-stamped than a card requiring eight purchases to get the free cup. Of course in both scenarios the same amount of coffee has to be bought, but that is just how the human mind works. Dr. X also shared some of his findings from the Southwest Airlines frequent flier program, which he was asked to help redesign. The fatal flaw of the original program was that revenue or profits played no role in the award. The system was simply: Fly eight times and you get a free flight. Obviously travelers gamed the system and flew eight US$49 advanced fares within California to get the free full fare transcontinental flight to the East Coast. So earlier this year the system was redesigned to allow for points based on revenues and presumably profitability. So far, so good. But what changed in addition to the equation of revenues to points is that Southwest wanted to add transparency to its pricing structure and hence the point awards. To this end, each flight now only has three (count them: three) fares: the usual advanced discount fare, the regular fare and the premium fare with an early boarding group and drink coupons. Awards points vary depending on price paid. Get the full story at