The Difference Between Loyalty Programs and Loyalty to a Brand
By Alan Young, President of Puzzle Partner Ltd.
Loyalty is earned, and certainly not given, and there is a definite difference between loyalty programs and a guest's loyalty to a brand. Hotel loyalty programs might seem ubiquitous today, but nearly 60% of guests still don't belong to one. During the 2019 Skift Tech Forum, industry experts agreed that today's travelers seek more than just opportunities to earn points - they want experiences. Mind you, that doesn't mean it's beyond reach. Hoteliers must work a little harder to understand precisely what factors drive guest loyalty in the modern age. Which brings us to the ultimate question — what makes guests loyal?
Hoteliers, I'll give you a hint. It's probably not your loyalty program. In such a competitive market, you need your guests to feel like they're part of something more personal and provide them with the opportunity to really interact with the brand.
The ROI of guest loyalty
Despite the fleeting nature of customer loyalty, however, retaining customers has never been more critical. In the world of hospitality, every guest, whether a first-time guest or a repeat traveler, represents value to a hotel. This is an important sentiment to keep in mind; everyone who steps foot on your property should be treated like a VIP, and be provided with the guest-centric, personalized service that defines great hospitality today.
However, loyalty is still an integral piece of the puzzle. Why? Because although each reservation offers the same amount of revenue regardless of the nature of the guest (loyal or otherwise), cultivating a community of happy, repeat customers serves hotels in the long-term.
Here's why: An article published in Harvard Business Review indicated that "acquiring a new customer is anywhere from five to 25 times more expensive than retaining an existing one." Even further, research shows that increasing customer retention rates by 5% increases profits by 25% to 95%, while PwC found that guests are (on average) willing to spend an extra $25 on their preferred hotel brand. It's also important to consider the revenue lost to OTAs, a battle which many hoteliers hope to win through the utilization of loyalty programs and direct booking perks. Last year, direct bookings accounted for around 49% of U.S. hotel and lodging online gross bookings, versus OTAs at 51%. While that trend is projected to reflect a 50/50 split come 2020, hoteliers still have room for improvement when it comes to forging more direct relationships with guests.
Beyond the revenue advantage, repeat guests contribute to positive word-of-mouth awareness. In this regard, they become ambassadors for your hotel brand. Let's not forget that in this digital age, social media promotion, and positive rhetoric surrounding a brand, will contribute undeniably to its success, so the bottom line is simple. Keeping the right customers is extremely valuable.
The problem with loyalty programs
Contrary to popular belief, it's not guest loyalty that has gone by the wayside, per se. Instead, it's guest loyalty programs as we've traditionally encountered them. Remember those "points for stay" incentive programs? Those are loyalty programs of the past, not the future. Leveraging data and the insights from these programs, on the other hand, is the future.
As a veteran of the hospitality technology space, I travel quite often. Admittedly, I find it incredibly painstaking to be a part of so many different loyalty programs, in which I see very little return. Simply stated, I am far more likely to visit a hotel based upon its location, service, and price than to book a hotel in accordance with its loyalty program. Unsurprisingly, I'm not alone, as research shows that the structure of many hotel loyalty programs leaves travelers "confused and disappointed." However, there are two sides to this argument. I have been a Hyatt Gold Passport member for 15 years, and there are only two things that I request as part of my profile: high floor and away from the elevator. I would say that 90% of the time they get it wrong. Why? Because the person allocating rooms doesn't take the time to look at the area within their CRS or PMS where my preferences are located.
Ultimately, the primary purpose of a loyalty program is to make a guest feel special, appreciated, and rewarded. Guests want loyalty programs to be easy, convenient, and to give them more control over their stay. Unfortunately, with most points or redemption-based models, they have become so common or — to be frank — mediocre in their appeal, that they no longer make guests feel truly 'special'. Rather, it feels like a tired system, one which has been around for years but no longer truly excites anyone. Further, we encounter the issue of hard-to-redeem systems, in which guests are expected to engage in a painstaking process to actually put their accumulated points to use in a meaningful way. This is a familiar plight. How many of us have been eager to redeem credit card points for flights, only to realize we can't book any of the trips we want? Whether flying to a destination or staying in a hotel, the process to redeem points and rewards should be seamless. Otherwise, is it truly a valuable rewards system? Is it truly helping you to establish a more personal connection with guests? Or is it doing more harm than good?
Essentially, one-size-fits-all loyalty programs are failing to impress travelers, and no one should be surprised. We have, after all, long since been introduced to the 'Age of Personalization.' Personalization is, arguably, one of the most prominent industry buzzwords making the rounds of every major tradeshow, conference and meeting across our network. As such, should it really be a surprise that personalization is the key?
Guest engagement leads to guest retention
A strong emotional connection with a brand is a stronger driver of loyalty than factors like 'ease' and 'effectiveness,' according to an annual benchmark published by the advisory firm Forrester Research. Research by Rosetta Consulting, for example, found that engaged customers are five times more likely to buy only from the same brand in the future, and highly-engaged customers buy 90 percent more often and spend 60 percent more per transaction. With credit to new-age technology and cutting-edge management platforms, hoteliers now have more access to guest data than ever before. This creates the potential to forge more intimate, meaningful relationships with each guest. However, if that potential isn't capitalized on, guests are likely to take their business elsewhere.
Hotel loyalty programs should shift away from a run of the mill point-based model and instead center around the provision of personalized experiences, derived from guest preferences and data. What do your guests really want? What features, upgrades, or perks will they value most? What gestures will contribute to a truly memorable experience, one which they readily share with others? Understandably, the answer to these questions varies across each guest, which is precisely why a one-size-fits-all system simply isn't adequate. The focus on experience rather than 'free stuff' is especially important, as reports indicate that the primary drivers of loyalty program satisfaction are the experience elements, not the points. Hoteliers, does your program offer guests a more personalized, relevant experience in a seamless fashion, or just the occasional room upgrade or free night added to their stay?
It is also important to expand beyond the' book for points' model by recognizing other guest actions including, but not limited to: positive reviews, spend, social media influence and perceived lifetime value, booking behavior, and more. With the help of digital technology — namely, mobile apps — loyalty rewards and experiences can become more accessible to guests, and readily communicated to ensure qualifying details are never lost in translation.
Loyal guests are not a dying breed; modern expectations are higher. Today's travelers are savvy and accustomed to a consumer-centric model of business, and it's time for loyalty programs to rise to the occasion. When hoteliers shift away from a plug and play redemption model, and instead use data derived from new technology to cultivate personalized experiences and relevant offers for loyal guests, everyone wins.
Alan E. Young is the President of Puzzle Partner Ltd. and co-founder of Next Big Thing Travel & Hospitality. Previously, Alan has held executive sales and marketing level positions with startup companies such as Newtrade Technologies, (acquired by Expedia), Hotel Booking Solutions (acquired by IBS Software) and TrustYou.More from Alan Young
About Puzzle Partner
Puzzle Partner is the most trusted marketing agency focused exclusively on complex B2B initiatives for the travel and hospitality technology industry. We are experts at combining strategy and tactical execution in a way that doesn't just maximize a company's potential; it redefines it. By delivering influential content, marketing services, and public relations rooted in the skills of our team and tested through real-world experience, we help our clients gain visibility, raise their profile and ultimately increase their sales revenues. To learn more visit puzzlepartner.co.