With increasing pressure coming from online travel agencies (OTAs), the sharing economy, and a proliferation of brands, loyalty programs within the hospitality industry have become ubiquitous and much more competitive – with good reason. A report from Kalibri Labs shows hotel loyalty programs can in fact work, and research from MIT Sloan Management Review found that consumers who participate in loyalty programs are 80 percent more likely to choose a brand over its competitors, and twice as likely to recommend it to others. The challenge for hoteliers lies in figuring out what their loyalty program perks should look like, whether the program value outweighs its costs, and obtaining and analyzing data to help measure the success of their loyalty programs
The Evolution of Hotel Loyalty Programs
One of a hotel’s primary goals in creating a loyalty program is to shift share away from competitors and OTAs to direct bookings. Today, loyalty programs where guests earn points for free nights have become almost universal. But there are two significant issues with this model: dilution and a changing loyalty paradigm.
The standard points system has made “loyalty” almost synonymous with “discount.” However, your truly loyal customers are actually willing to pay more. They are already accustomed to paying a certain price to stay with you, but now, as a loyalty member they receive discounted rates. As a result, you experience rate dilution from those customers who may be willing to pay full price.
Changing Loyalty Paradigm
The second issue regarding points-based programs is that they are no longer as effective as they once were, particularly among millennials, who are used to the instant gratification world that social media and digital technology have created. Today’s guests care as much about a hotel making them feel special and recognized as they do monetary benefits – with 79 percent of customers preferring highly personalized loyalty program benefits.
According to the 2017 J.D. Power Hotel Loyalty Program Satisfaction StudySM, hotels achieve higher guest satisfaction when program members can redeem rewards for lifestyle-based experiences like high-end dining, immersive cultural activities, retail purchases, and access to exclusive events.
The Key is in Your Data
As loyalty programs become more sophisticated, savvy hoteliers are capturing and leveraging data at a microsegment level to create differentiated loyalty program promotions, upsell and cross-sell offerings that are more likely to attract and retain guests. And you don’t necessarily need an extensive customer database of past booking and shopping behaviors to create a customized loyalty program experience. You can anticipate what guests are likely to purchase on property based on attributes of their stay, such as market segment, booking lead time, length of stay, and rate plan purchased.
Evaluate Program Costs
While direct bookings allow you to avoid those high OTA commissions, it’s just as important to compare OTA fees with the costs associated with your own direct booking and loyalty program. This analysis can get complex because it may involve multiple channels based on the customer segments involved. You want to look at the transactional value for your hotel at a highly granular level – revenues net of all brand fees and program marketing costs – in order to optimize your overall channel mix and understand whether your loyalty program is profitable.
Understand Total Guest Value
When it comes to creating personalized loyalty perks, traditional hotels have much to learn from their casino hotel cousins. Casinos segment their data in ways that shine a light on guest preferences, demographics, historical stay, and spend patterns. They generate a clear picture of total guest value that includes where and on which ancillaries guests are spending their money. They can then deliver highly targeted, personalized promotions that ensure valuable repeat business, direct bookings, and higher profits.
Create an impactful and cost-effective loyalty program by implementing a technology system that allows you to access and analyze essential data. The right tools will help you develop strong, enduring relationships with your most valued guests and ultimately benefit your bottom line.