Frequent Flier
In 1908 60-year-old James Spangler had a problem. After decades of working as an overnight janitor at a department store, his health had begun to suffer. His breathing was labored, and he was prone to sudden coughing fits. Suspecting that the carpet sweeper was the cause of his breathing troubles James got busy working on a solution. He mounted an electric fan motor and a soap box to a broom handle, and after some refinishing and tinkering finalized the design for his electric suction sweeper.
He gave one of his machines to his cousin Susan Hoover, who in turn showed it to her husband who owned a manufacturing facility. Within days William Hoover had purchased the patent from Spangler who went on to work with Hoover at the newly formed electric suction sweeper company until his death in 1915, at which point the firm was renamed…Hoover.
Hoover dominated the vacuum industry throughout the 20th century. After establishing a major base in the UK, the hoover name became synonymous with the term vacuum cleaner and vacuuming in the UK and Ireland. By the late 20th century, the product line had expanded to include virtually all household appliances. It was by leverage this broad array of products that Hoover came up with one of the most disastrous marketing campaigns in modern history.
In late 1992 the Hoover company offered two complimentary round trip plane tickets to the United States (worth about 600 pounds) to any customer purchasing at least 100 pounds in Hoover Products. The Company was betting that most consumers would spend more than the 100 pounds, and of those that did, few would follow through with the difficult process of redeeming the tickets. Hoover bet wrong.
Thousands of Brits snapped up hoover products. The promotion was perceived as two flights to the US for 100 pounds plus a free vacuum. The resulting demand was a tidal wave. Hoover cancelled the program after less than two weeks with millions of pounds worth of claims having already been filed. The financial fallout from the failed promotion led to the European division of Hoover being sold off to a competitor in 2005.
Hoover would not be the last company to dream up a promotion involving free flights. In 1999 Healthy Choice Foods concocted a promotion whereby a customer could earn 500 frequent flier miles to any program of their choice, by redeeming the UPC codes from 10 Healthy Choice Products.
David Phillips was a civil engineer with a passion for travel. When he heard about the promotion, he did what most engineers would do. He ran some calculations. Phillips determined that the value of each returned UPC code was about $1. Healthy Choice frozen meals sold for about $2, so the miles earned made up for a significant portion of the cost of the meal. Not a bad deal. The deal got even sweeter when factoring in the early bird bonus offered by which 10 UPC codes would net 1000 miles rather than 500, making the meals free in David’s mind.
Then, while shopping, David found Healthy Choice Soups for a price of just 90 cents. That’s when his mind started working overtime. At that price, it was cheaper to buy soup, than it was to buy plane tickets. This is the point David knew he had a good deal on his hands. It was at a Grocery Outlet in Sacramento that David realized he may have found the deal of a lifetime. Healthy Choice sold pudding for a mere 25 cents. By using his same calculations that meant that $2.50 spent on pudding would earn him $20 in flights. So, David did the only logical thing. He bought 12,150 pudding cups for a total investment of $3,037.50.
He cleaned out every Grocery Outlet in Sacramento, and had managers order him more. To divert attention, he told store workers he was stocking up for Y2K. They began calling him pudding guy. Unable to remove all the labels himself he recruited volunteers at the Salvation Army on the condition they could keep the pudding cups. This earned him an additional $815 in tax savings, lowering his total investment to $2,222.50.
When all was said and done David earned 1,253,000 frequent flier miles. He credited the bulk of them to American Airlines earning himself lifetime platinum status, a perk valued around $10,000 in the frequent flier community.
To their credit, Conagra Foods (owner of Healthy Choice) and the airlines honored his redemptions. In the end they gained more from the publicity than the miles and flights cost. Phillips continues to this day to exploit loopholes in frequent flier programs, earning points 5 times faster than he is able to use them.
Every spring, you file taxes. It’s a long laborious process that I think we can all agree, nobody enjoys. What you may not be as familiar with, is that every fall, you have an opportunity to exploit some loopholes in the tax code. This process is called tax planning, and if done correctly, it can save you thousands.
Similar to David Phillips, tax planning involves nothing illegal, or unethical, it is simply the process of understanding the rules of the system and finding ways to use them to your favor. Maybe for you that means Roth converting your retirement accounts now. Maybe it means only donating to charity every other year. Maybe it means building up enough savings so that when you retire you can keep your income low enough to get free health insurance.
The US tax code is a tad more complicated than a Healthy Choice Foods promotion. With that complexity comes even more opportunities to find the loopholes and opportunities. The only question, is will you take the time to look.