buyer's market

How the Dutch Invented Elite Flyer Status Competition — With Figurines

The business genius of KLM’s collectable, booze-filled blue houses.

Photo: DSB/Getty Images/iStockphoto
Photo: DSB/Getty Images/iStockphoto

It’s a weird thing: If you fly intercontinental business class on KLM, at the end of the flight they will give you a little, blue-and-white porcelain house, filled with booze. It’s a souvenir gift from the airline, but more importantly, it’s a status symbol. If you have a row of them in your home or your office, it serves as a tasteful announcement that you fly KLM business class a lot.

This week, KLM announced the release of the 100th unique version of the so-called Delft Blue houses, to coincide with the airline’s 100th anniversary. Old houses are not discontinued; flight attendants present a tray with a variety of houses on each flight, and customers can use an app to track which houses they already have and which ones they need to collect.

“Every single house of a senior business executive in Holland has these somewhere,” says Aaron Holmes, an American lawyer who formerly lived in Amsterdam.

Airline elite status programs work in part by providing tangibly valuable rewards to the most frequent flyers. If you devote more of your business to one airline, you’ll get award tickets and free upgrades, free drink vouchers and free checked bags. But these programs also work by offering more subtle emotional reinforcement: Devote more of your business to one airline, and the airline will send messages about how much you matter. Ideally, those messages will be visible and audible to others. You’ll get to board first, and you’ll walk across a special carpet behind a special rope when you do so. You’ll get luggage tags announcing your status. Airline employees will thank you for your status, naming the precious metal associated with that status as they do so.

Most of these practices have been invented and refined in the last few decades. In the 1980s, U.S. carriers introduced mileage rewards programs and elite status tiers based on mileage traveled per year. These programs have grown more complex and more stratified over time; for example, Delta’s program has grown from one elite level (you were either Medallion or you weren’t) to four levels ranging from silver to diamond, plus an invitation-only program for extremely high-value customers called Delta 360.

But I think KLM’s porcelain houses, first introduced in the 1950s, should be thought of as the physical, low-tech precursor to the status designations we see today. Long before airlines had smartphone apps with bar charts showing how far you had traveled this year — and how much farther you would have to go to be considered truly important to the airline — KLM was giving passengers the figurines they needed to form a physical bar chart demonstrating their importance to KLM.

And this is a powerful customer loyalty mechanism, as customers are motivated to buy more KLM international business class tickets to collect the figurines they need to extend the bar chart — even if KLM does not offer the most convenient itinerary or the lowest price.

“I admit that I will go a little bit out of my way and will spend a few hundred dollars more to fly KLM, just to add to my collection,” says Ryan O’Malley, a native South African living in Edmonton, Canada. The houses are not KLM’s only advantage when seeking O’Malley’s business — KLM is the only carrier that flies year-round to Europe from Edmonton — but since O’Malley’s final destination is often another city in Europe, the airline must still compete with other carriers that can offer a one-stop routing to his destination through Canada or the United States. The ability to price “a few hundred dollars” higher than a competitor and retain O’Malley’s business is an impressive return on a figurine.

One reason a figurine could have an outsize effect on a customer’s willingness to pay is that a lot of business-class passengers aren’t paying for their own tickets. This is the logic behind a lot of premium-class product improvements: Customers may be especially willing to pay extra for a bigger seat or a fancier meal when they’re paying with someone else’s money. But using figurines further improves on this strategy: You increase the customer’s willingness to spend someone else’s money, and the thing you give the customer in exchange isn’t even expensive.

Of course, there’s nothing stopping other carriers from introducing their own business-class tchotchkes to compete with KLM. (Or at least, there’s nothing stopping them anymoreKLM ascribes the alcohol-filled nature of the houses to regulatory arbitrage, saying at the time of their introduction, airlines were prohibited from giving gifts to customers, as these were seen as rebates of regulated fares. Since the houses are filled with Genever – a Dutch variety of gin – they are technically beverages, not gifts.) But making the tchotchkes is the easy part. The hard part is convincing customers to see significant value in them.

For this purpose, KLM has a few things going for it that other carriers would struggle to replicate. One is history: KLM has been offering the houses for decades, which makes collecting them feel like a Dutch cultural tradition, rather than cheap, gauche trinkets. Another is scarcity: The large, existing back-catalogue of houses encourages customers to keep flying to collect them. Yes, you could buy the houses on eBay, but that feels like cheating.

All of which is to say: A brand-new collection of, say, Lufthansa half-timbered German house figurines would fail to re-create the appeal of KLM’s houses. Even if crafted with similar quality, they would feel like knockoffs.

But there is a broader lesson that competitors can learn from KLM’s quirky loyalty strategy. Customers want to feel an emotional bond with the brands they buy from. Sometimes, like with Nike, that takes the form of a shared statement of values. Sometimes, like with the former Starwood Hotels, that comes from an intense devotion to accurately tracking the preferences of frequent customers. In KLM’s case, it comes from an offering of gifts whose lack of tangible value suggests a sentimental meaning behind them — while also serving as a visual reminder to others of just how close a personal friend KLM considers you to be.

How the Dutch Invented Elite Flyer Status Competition