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The Argument for Hotel Loyalty Programs

By Alex Gaggioli, August 3, 2015

An interesting debate took place on LinkedIn last week about the topic of Hotel Loyalty Programs. There were many good points for and against creating a program to incentivize your most loyal guests. Creating a loyalty program is a smart business move because it shows guests appreciation and offers added value to an independent property. But, there are many things to consider when deciding whether or not to create a loyalty program. We explore the pros and cons below.

Pros:

Show guest appreciation. One of the foremost goals for a loyalty program is to show appreciation for your most loyal guests. Some would agree that loyalty programs are great if kept simple. Large chains with loyalty programs, such as Hilton and Marriott, change constantly. Constant change leads to a complicated experience for the guest. If independent hoteliers build a loyalty program, they need to ensure members know what to expect.

Loyalty programs can show appreciation by offering surprises, special rates, and enhanced experiences.

Draw back previous guests. It is no marketing secret that it takes a lot more money and effort to obtain a new customer than to entice a previous one to come back. Hoteliers dramatically increase their ability to target guests when they already have guest contact information. But, you can increase your marketing efforts even more if guests join a loyalty program. A loyalty program adds another touchpoint for a guest. A hotel can offer loyalty members special offers unavailable to the general public. Hoteliers are able to bypass rate parity agreements when marketing directly to guests. (We’ll touch more on that below).

Skyrocketing OTA Commissions. OTA commission rates are skyrocketing and rate parity agreements make it difficult to offer varying rates across different platforms. However, there is one (legal) way of getting around these agreements. If a customer already exists in a hotel’s marketing database, hoteliers can offer them different rates. Hoteliers can do this through a variety of marketing channels such as email, social media, phone, etc.

Rate parity agreements have been in the news a lot lately as Europe put pressure on the major OTAs. Regulators in Sweden, France and Italy have eased rate parity clauses in contracts with Italy allowing hoteliers to change their rates more freely.

Loyalty programs also drive direct bookings, helping hoteliers reduce OTA commission fees. Targeting loyalty members with special rates and packages deters those same guests from researching other options.

Hospitality Net reports that it costs between 1-5% of room revenue to create and manage a loyalty program. However, the commission taken from OTAs and the marketing costs associated with obtaining new customers ends up taking the same if not a larger percentage of room revenue.

OTAs are good and necessary for the hospitality business. They drive new business and offer hoteliers and guests alike a lot of value. However, it is always a good idea to get more direct bookings.

Increased Customer Data. Loyalty programs offer hoteliers the ability to understand a lot about their guests. Hoteliers can use information about past, current, and future visits to target those guests, and guest like them, in future campaigns. Understanding consumer habits is invaluable and can offer hoteliers a lot in the long run.

Cons:

Loyalty is Gone. Even beyond the hospitality industry, many believe that brand loyalty is dead. In the era of infinite information, it is true that customers are aware of their many options. In the end, a consumer will choose the option with the most perceived value.

That said, a loyalty program can be the selling point that drives guests to book. A perk, rate, or upgrade available to a guest from a loyalty program could be the difference between booking one property over another.

People Don’t Revisit Hotels. According to some, guests simply do not return to hotels after one stay. If all your guests are first-time, one-time customers, then it definitely does not make sense to create a loyalty program.

However, data shows that many customer segments do, in fact, regularly revisit hotels. Sure, there are many who only intend to stay at a property once, but what about families and business travelers? These two consumer groups often seek familiarity, and would be perfect markets to target with loyalty programs. The New Yorks times reported on hotel brand loyalty and business travelers. Business people, who are on the road close to 50% of the time, find value in familiarity.

Added Expenses. As mentioned above, there is an obvious expense to creating and maintaining a loyalty program. Costs associated with setting up and marketing a program may seem high. But, if done correctly, they will be offset by increased direct bookings.

Hotel loyalty programs often have expenses.

However, The Centre for Hospitality Research reported that once a guest signs up for hotel’s loyalty program, the frequency of stays booked by a guests at that hotel rose on average by 49%. It also found that loyalty programs accounted for a 57% rise in bedroom revenue.

Alternatives

A hotelier could also consider a private customer loyalty program. Without telling guests, a hotelier can implement a private program that surprises guests opportunistically. Then, when a guest does get upgraded or receives a special rate, it doesn’t feel calculated or expected. To me, the idea sounds fun. But, evidence shows that public loyalty programs offer a lot of value to guests, especially in the purchase process.

The conclusion:

There are both pros and cons for an independent hotel to implement a loyalty program. Looking at the data, we conclude that loyalty programs are worth the investment for independent hoteliers because it can drive direct bookings and offer guests a lot of value, among many other points that outweigh the negatives.

What’s your take? Do you believe independent hoteliers should offer their guests loyalty programs? Or is it too much of a risk in a fight against huge hotel chain loyalty programs? Sound off in the comments, below.

 

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