Industry Update
Opinion Article 6 October 2021

Are hotel loyalty and rewards programs enough to keep customers loyal to the brand?

By Max Starkov, Adjunct Professor NYU Tisch Center for Hospitality and Hospitality & Online Travel Tech Consultant

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The best demonstration of brand loyalty in hospitality and travel, in general, is the share of repeat business. Travel consumers are buried under an avalanche of options and offers, and if they repeatedly choose your brand over the competing alternatives, obviously your brand has an appeal above and beyond the competition. This appeal is a result of the perceived value proposition of your brand and the travel consumer’s emotional attachment to your brand.

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Of course, not all consumers are brand loyal. Direct Marketing Association (DMA) defines four types of loyal customers: Active Loyals (43%) who stay loyal to brands for both routine and special purchases, Habitual Loyals (23%) who are loyal for routine purchases but shop around for special services, Situational Loyals (9%) and Active Disloyals (27%).

Obviously, the most valuable are the first two categories, especially the Active Loyals. Amazon, Apple, Google and Microsoft, the most valuable brands in the world in 2021, enjoy wide brand loyalty from the Active Loyals. In hospitality, marquee brands like Mandarin Oriental, Ritz-Carlton and Four Seasons are the ones that enjoy brand loyalty almost exclusively from the Active Loyals category.

For the rest of the "mass market" hospitality, it is impossible to nurture and maintain brand loyalty exclusively from the ranks of Active Loyals. This is why all major hotel chains use points-based loyalty programs with different membership levels in order to make their loyalty programs attractive to all four categories of loyal customers.

The major hotel chains also realized that awarding points was not enough of an appeal, especially to unmanaged business travelers and leisure travelers who typically belong to the Habitual and Situational Loyals categories. This was the reason why five years ago all major hotel chains began offering 5%-10% membership discounts to loyalty members when booking directly, in addition to the usual member perks and benefits. As a result, the loyalty programs ballooned. Marriott’s Bonvoy loyalty program now exceeds 125 million members, and Hilton’s Honors program exceeds 118 million members.

Loyalty programs with appealing membership pricing, perks and benefits are instrumental in increasing repeat direct business, lowering OTA (online travel agent) dependency and attracting a wide range of core and noncore customer segments, as well as new-to-the-brand customers.

In 2019, the last "normal" year in hospitality, the loyalty programs helped the major hotel chains:

  • Increase repeat business: Over 59.2% of room nights at the major hotel chains were booked by loyalty members, 62% at Marriott and Hilton (Kalibri Labs).
  • Decrease OTA exposure: The ratio of Brand.com versus OTA booked room nights improved to 2.5-1 and reached 3-1 at Marriott and Hilton.
  • The major hotel chains are taking their loyalty programs to the next level by introducing member-only mobile check-in, preselection of the hotel room from digital floor plans, "smart rooms" that automatically adapt their configurations as per the loyalty member preferences, etc.

What is the situation with independent hotels? Unfortunately, less than 10% of independents have any form of a loyalty program or guest appreciation program. This is the reason why at independents:

  • Repeat business is only in the range of 10%-15%.
  • OTA dependency is growing and the ratio of Brand.com versus OTA booked room nights is negative 1-3 in the U.S. and 1-4 in Europe.

So, do loyalty programs work in hospitality? I believe the question of whether loyalty programs in hospitality still work is categorically answered by the differences in the share of repeat business and OTA dependency between the major hotel chains and independent hotels.

*Article originally published in Value Penguin https://www.valuepenguin.com/travel/best-hotel-credit-cards.

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