NASHVILLE, Tennessee—Parsing out the costs and benefits of brand loyalty programs can be a difficult proposition for owners and operators, according to sources speaking at the Hotel Data Conference.
During the “The true price and value of loyalty” panel, Dan Walsh, VP at CHMWarnick, said the massive sea of loyalty points can be intimidating when viewed as a financial liability.
“From an owner’s perspective, you’re looking at mountains of cash (brands) are sitting on to fund future liabilities, payroll and to administer the programs,” he said. “Owners don’t have any visibility into those programs and how that money is spent.”
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He also said individual hotels can suffer consequences from how those programs are structured on the back end. He noted one of his hotels went into a compression night oversold but due to various factors ended up falling just below the threshold for the highest level of redemption in its brand loyalty program.
“We missed that 95% (threshold) by six rooms, and it cost us $25,000,” he said.
Ankur Randev, chief revenue officer for Highgate, agreed that the brand loyalty redemption formulas can be frustrating, but those redemptions can be a boon for well-located properties in high leisure demand markets, noting his company accomplished just that with a branded property in Times Square.
“We’ve used redemptions to help hotels drive more to the bottom line … and have used the brand’s power to get redemptions over the New Year’s Eve night,” he said.
What is loyalty?
Panelists said one of the complicating factors in determining the return on investment for loyalty is the fact there is a difference between true loyalty and points-driven redemption programs. Dan Skodol, VP of revenue analytics for The Rainmaker Group, noted true loyalty is driven by great guest experience and converting guests into “brand apostles.”
“In the past it took multiple engagements to turn (guests) into brand apostles, but now it can be instantaneous after a single stay,” he said. “That first impression is so important.”
Many guests hunger for instant gratification when it comes to loyalty, but that can be hard to deliver given how little the broad industry knows about its guests, Randev said.
“We send multiple emails addressing guests prior to their arrival, but at check-in still ask if they’ve stayed with us before,” he said. “The point is we don’t understand the customer as an industry.”
Randev said his company is working on changing that dynamic, investing in an initiative that immediately rewards guests for booking directly by giving them things like free rides to the hotel through rideshare programs or airline Wi-Fi. But he can’t say how much those efforts are moving the needle yet because the data doesn’t yet exist to support it.
“I’m not confident in saying it works or doesn’t work,” he said.
Walsh said those efforts in instant gratification are likely to payoff for the industry.
“Certainly that’s going to cost less than the lifetime value (of those guests,)” he said.
Skodol said some of the hospitality brands that enjoy the strongest guest loyalty and the financial benefits of that loyalty—like Four Seasons or Nobu—don’t have redemption programs. Instead, he said, they have an elevated guest experience.
“Four Seasons doesn’t have a loyalty program but they have in it the form of service and recognition in terms of the personal attention they give you,” he said.
Direct versus third-party
Walsh noted there has been an uptick in direct bookings, but he attributes that more to brand book-direct campaigns than loyalty programs.
And while those programs spur more guests to sign up for hotel loyalty programs, that doesn’t exactly translate to true loyalty, Skodol said.
“You’re getting a discount for signing up, but that has nothing to do with loyalty,” he said. “A truly (loyal) customer should be willing to pay more, so a loyalty discount is almost an oxymoron.”
Randev said it can be difficult to factor in all the possible costs in guest acquisition due to competition to own the guest.
“We don’t view it as direct or indirect,” he said. “We just look at the cost of acquisition.”
And even if the brand gets greater control and visibility into those guests, that doesn’t necessarily filter down to the property.
“The brands control everything,” Randev said. “(Individual properties) don’t have any form of engagement, but you kind of buy that. Independent hotels have to get creative and have flexibility.”
Another complicating factor is online travel agencies are looking to grow points-based loyalty programs of their own, which can be compelling from a guest perspective given they are brand-agnostic, panelists said.
Those programs give guests “the opportunity to choose any hotel at that site at any time, instead of being limited to (one) chain,” Walsh said. “There’s definitely a headwind (for hotel brands), in that regard.”
Overall, panelists said guests are going to value points less and less in the future.
“Younger travelers want experiences and are ready to spend the money,” Randev said.