Loyalty is big business for hotels: an analysis across the top five publicly traded hotel companies that report loyalty program participation, the brands had 375 million members combined in 2018, with reported growth of 4 million members per month.
Despite the raw interest, the average consumer rarely redeems loyalty points. A study by PcW on modern loyalty for hotels found that most leisure travelers (58%) didn’t redeem points once this past year. For business travelers, that figure was 30%. This low redemption rate leaves a large liability on the balance sheets, causing consternation among CFOs and CEOs. These balances also represent an opportunity to bring these customers into the fold for revenue-generating stays.
PcW report showing how often travelers redeem their loyalty points each year.
In a recent whitepaper on loyalty, Deloitte points out the primary challenge for hoteliers: Identifying which guests are the ones that will deliver on the promise of the high-value repeat guest.
“The tipping point that converts episodic guests into dedicated loyalists is the place where a hotel’s loyalty program transforms from a cost center to a revenue engine. The challenge is finding it—and knowing how to drive your most important customers across the line.”
The design of a hotel loyalty program defines exactly how a brand expects to make this transformation from “loyalty as cost center” to "loyalty as revenue engine.”
To prepare for success with your hotel’s loyalty approach up for success, first decide which type of loyalty program you want. Next, outline the steps necessary to either pivot or create that program. Finally, plan at least 12 months of detailed promotions to deliver the promise of your hotel loyalty program. Cost centers have far different structures and support systems than revenue engines, so plan accordingly.
Business versus leisure
The distinction between business and leisure loyalty is familiar to most hoteliers: business travelers are less price sensitive and more status oriented. While this is generally true, there's an emerging trend towards alternative types of loyalty. Some OTAs now have their own loyalty programs, such as Hotels.com’s “stay ten nights, get one free” and Expedia’s extensive Expedia+ rewards program.
Hoteliers should be concerned about these programs because they disincentivize loyalty among leisure customers, who may not travel often enough to be brand loyal.
“A customer who becomes actively loyal to a portal that provides consistent low prices is not likely to have any loyalty left over for a single brand, especially if the portal’s enticements are “portable” from one brand and one stay to the next.” -Deloitte
There may also be some leakage for business travelers, who may have less choice when it comes to which brands are bookable via a corporate travel tool. An OTA offers a wide variety of global supply across hotel types and price points. This can be quite appealing to business travelers as well, especially those that are unencumbered by a corporate travel policy.
A survey from Phocuswright/Acxiom bears this out, showing significantly higher penetration for OTA loyalty programs among business travelers than leisure travelers. The low rate for leisure travelers is a positive sign for hoteliers, as there’s much more of a membership base to activate.
The gap between business and leisure travelers when it comes to loyalty membership. [source]
When orienting your loyalty approach towards these two demographics, be surgical. Not all business others are the same and neither are all leisure travelers. Leverage your data to deeply understand your hotel’s appeal to different guest profiles. And then create sub-campaigns to more precisely target those needs.
Hotels have been encouraging loyalty program adoption by offering exclusive rates to members. Initially, this promised to drive more direct bookings, as hotels train travelers to visit their websites first for a “best available rate” guarantee. Now, these rates are being distributed in some cases to OTAs -- the very channels hotels were looking to circumvent. In other instances, rate parity becomes much more complicated to manage successfully. If members can’t see these lower rates when searching on third parties, there’s a reduction in impact since members never a clear view into the members-only benefit outside of the hotel’s ecosystem.
Today’s reality is complicated; shifting channel mix isn’t as simple as promoting direct booking rate as “best available.” Hotels must also add sweeteners to boost adoption, such as free WiFi, late check-out, complimentary bottled water, and discounts on rooms when booked direct. Technology is also a differentiator: Hilton’s Connected Room initiative aims to use app-based room personalization as a member benefit.
“When a hotel brand uses analytics to pry insights out of the massive customer data available to it, it can identify and target different types of customers to get them to the tipping point more quickly.” -PcW
In addition to enrollment efforts, loyalty must be marketed comprehensively and thoughtfully. The goal for a “revenue engine” approach to hotel loyalty is to be the only stop in a member’s search. Loyalty benefits must be made top-of-mind regularly so the member recalls these benefits before starting their next search. Data is how to get to the sweet spot. Know your guests, target intelligently, and deliver personalization that offers a clear benefit to each of your segments.
An alternative to members-only rates is to expand the number of opportunities to convert an episodic guest into a repeat one. Some tools help deliver these touchpoints, such as StayWanderful, RocketMiles, and TheGuestbook, which offer data-driven solutions to increase direct bookings, encourage loyalty from new audiences, and reduce reliance on discounted members-only rates. Since these solutions integrate with existing booking systems, they become complementary to ongoing loyalty efforts by contributing to a “loyalty as revenue engine” approach.
Look to retail and restaurants
Per a 2017 study by CrowdTwist, retail and restaurants are the most common loyalty memberships of consumers. The common sense answer is that consumers earn points more often due to purchase frequency across many outlets, and thus have more benefits to the consumer. Personalization and cost savings are also appealing when it comes to retail and restaurant loyalty. In these cases, consumers don’t mind trading behavioral data for those benefits.
Travel and hospitality underperform, especially with 18-22 year-olds. [source]
Even so, hospitality has been encouraging redemption of points in non-travel outlets, such as hard goods with retail partners (the “sky mall” approach). In surveying customers, credit card brand Discover found that 26% use their points for non-travel purchases. This behavior actually works against the “revenue engine” approach to hospitality,
If you approach loyalty as a cost center, then it makes sense to reduce points liability by encouraging members to spend points in many channels. However, with loyalty as a revenue engine, then it’s advisable to limit redemption opportunities to channels with direct incremental revenue benefits. It’s a fundamental difference to account for at the plan design stage. To maintain the perceived value of earning in the program, it’s important to carefully manage redemption channels as well.
Bringing it all together
To get top results with your hotel’s loyalty program, use a “revenue engine” approach that encompasses the following:
Segmentation. Don’t paint your guest with broad strokes. Narrow and segment so that you can target loyalty promotions and inititatives more effectively. Guests expect it -- and the revenue upside is worth the time.
A data focus. Always rely on Data to drive decisions around segmentation, promotions, and optimization. Design your operations software and train your staff to support your ongoing loyalty efforts.
Experimentation. Try new things! Technology moves rapidly, as do consumers. You won't know if something is a revelation without a structure that supports small experiments. Test and learn should also apply to loyalty marketing.
Analytics. Thread a practice of analytics throughout each layer of your loyalty program. Measure the results, and codify the things that work best. Continuous improvement makes a loyalty program lucrative.
As Sloan Dean, COO of Remington Hotels said in a recent conference session on the ROI of loyalty, success is about leveraging personalized and channel-specific promotions to grow revenues -- and maintain relevancy:
“Partnerships with Uber, for instance—a free ride immediately. The highest loyal guests will give you 10 times return, and are by far your most profitable revenue stream, so you have to continue to innovate. Like anything, our old loyalty schemes will die out.”