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Should Company Stock Be the New Loyalty Reward?

Should Company Stock Be the New Loyalty Reward?

The airlines and hotels have covered a lot of ground in expanding the awards options available to members of their loyalty programs. Today, members of larger programs may convert their miles to other currencies and redeem them for all manner of travel services, merchandise, gift cards, and so on.

But the best value for program members remains the program operators’ own products. Because of the underlying economics of the programs, it will always be cheaper for an airline to give away its own unsold seats than to give away, say, a rental-car day or an Apple iPod.

That disparity is reflected in the price of the awards. Whereas it’s a simple matter to squeeze 2 cents or more in value from miles cashed in for flights, it’s all but impossible to get as much as 1 cent per mile when redeeming for non-flight awards. Which explains why consumers’ take-up of the non-travel awards has been tepid, and always will be.

Companies do have another resource, however, that so far they’ve been mostly unwilling or unable to leverage as a loyalty reward: shares of their own stock.

There’s only one precedent for stock awards that I’m aware of. In 2005, Atlanta-based Jameson Inns began offering customers shares of company stock through its newly launched frequent-stay program, Jameson Stock Awards.

Customers who stayed at a Jameson Inn or Signature Inn for three nights during a 12-month period received 10 percent of their room charges in the form of Jameson stock. The program’s tagline: “Invest While You Rest.”

As I said at the time, “the powerfully self-reinforcing aspect of such an approach to loyalty marketing should not be underestimated. Awarding customers with stock in a company vests the recipient with a compelling stake in that company’s success, which encourages the stakeholder to do more business with the company, which earns him even more shares, and so on.”

Jameson dropped the program after a couple of years, presumably due to lack of interest. But that doesn’t mean that adding company stock to the award catalogs of Delta’s SkyMiles or Marriott’s Rewards programs might not be a win-win for the companies and their customers.

If a small company like Jameson can address the operational and regulatory issues of offering stock awards, then certainly Fortune 500 companies like Delta and Marriott can as well.

Whether or not they should depends on consumers. As compelling as the idea may seem in theory, if program members don’t see real value in company stock, then it’s just another gimmicky addition to the novelty section of the award catalog.

Reader Reality Check

So what say you: thumbs up or thumbs down on stock awards?

Should company stock be offered as a loyalty program award?

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  • Benjamin Clark

    Offering stock as a award is equivalent to offering cash as an award from the customer perspective since it can easily be sold, but not from the company perspective since they don’t need to have the cash value of the stock in hand. This could potentially allow for greater than the 1 cpm value you receive with other awards. However, I would expect though that they would not be interested in doing this due to how much they make from breakage.

  • guest

    Sounds good in theory but think about the tax issues too. All the sudden you probably have income on issuance of stock (IRS deems miles as nontaxable but who’s to say stock issued would receive the same treatment). You’d also eventually have a capital gain or loss. Not worth it IMO.

  • Don Bit

    They ought to have discounts instead for stockholders

  • Paul Hebert

    Interesting that you’ve picked up on our application. Our company, LoyaltyShares ran the program for Jameson a few years back. The program was discontinued because the company was taken private NOT due to lack of interest. In fact, there was quite the uproar when the program was canceled.

    To address the issue of tax liability – at this time there is none. The company is not “issuing” stock as an award – they still issue the same award currency. Stock simply becomes a new redemption OPTION.

    Awards in incentive programs are taxed at issuance – not redemption – and at this time the IRS has classified awards earned through frequency programs as “rebates” not gifts so there is no tax ramification at this time. Think of redeeming for stock just like redeeming for a gift card – you don’t pay taxes on the issuance of the miles/points nor do you pay taxes on the gift card you get through a loyalty program (and that IS cash for all intents and purposes.)

    CYA TIME – we are not tax attorneys and you should talk with your tax adviser – we do and did.

    There is the issue of capital gain or loss as with any stock. But – if you’re truly loyal – and you like the brand – why wouldn’t you want to support that brand as an owner?

    The issue of breakage is an interesting one because in most instances the sponsoring company has to hold in reserve cash to pay the award should they be redeemed – in other words – they don’t really get to realize the breakage for a long while. Also, converting that cash liability into stock helps their balance sheet.

    You can read more about this unique award here:

  • Paul Hebert

    See above on tax liability. At this time taxablity is based on how you “earn” the points/miles – not how you redeem them. Same CYA provision applies here re: tax advice.

  • Paul Hebert

    Breakage could come into play assuming there are expiration dates. Some are removing that constraint and some allow you to “reinstate” expired points for a fee. Either way it would beneficial for a company to have their loyal members owning stock – just think how much more likely someone would be to “talk up the brand” knowing their investment could grow. There is no incentive with current points/miles programs as the points don’t increase in value regardless of how well the company does (actually points may decrease invalue due to inflation.)