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How hotels can avoid a loyalty death spiral

Not too long ago, one could have wondered whether loyalty programs would eventually face an industry death spiral.

NB This is a viewpoint by Blake Madril, revenue technology strategist, IDeaS Revenue Solutions.

The rapid evolution of the internet, advancements in technology and a growing generation of new travelers caused many hotels to question the effectiveness of their traditional loyalty incentives.

However, wherever there is a threat, there is also an opportunity – and hotels have been quick to transform and drive new loyalty initiatives. And quite frankly, they’ve done this with reported success.

What’s most interesting from a revenue management aspect is that this renewed push for increased guest loyalty is ultimately just a means to an end. Since these types of campaigns blend together marketing and revenue management efforts, they are indeed an excellent way to fuse together internal hotel departments.

But the objective is still the same as any other strategic revenue move – to produce better revenue results and higher hotel profits while elevating the guest experience.

When you evaluate the pros and cons of driving direct bookings through a loyalty program, there are distinct benefits and opportunities for developing an effective loyalty program.  In fact, one of the top perks of a successful initiative is that hotels don’t have to keep spending additional money to acquire their loyal guests. This alone can be worth the required time, investment, strategic efforts and dedication for many hotels.

If you look back to the humble beginning of these guest initiatives, fostering relationships with hotel guests historically involved a points program that eventually rewarded loyalty with complimentary hotel stays. Most industry insiders agree this system has had to adapt for today’s traveler, but there’s still a debate as to what the ideal loyalty incentive should actually be.

Some hotels take the approach of providing their guests with instant gratification, or in other words, instant discounting. While this may result in one immediate booking for a hotel, is providing an instant discount the best long-term strategy for increasing guest loyalty? Is a fairly nominal discount going to discourage a millennial from shopping around in the future?

Even more, what about your hotel’s already loyal guests – are they now getting an unnecessary unqualified discount to stay with you? Did you need to sacrifice room revenue when you could offer a different type of value that better enhances their experience?

Price may get them in the front door of the hotel, a personalized experience is what gets them back.

For example, think about a seasoned business traveler toward the end of their career. This guest has been loyal to your brand to a fault. They book their business trips directly with your hotel and leverage their various loyalty benefits to book direct for personal vacations. Since this traveler has very little price sensitivity, is offering an additional 10% off their stay the ideal strategy? What other options provide a better value-add and expression of appreciation to your guest?

Then there is everyone’s favorite, the up-and-coming millennial traveler. Unlike the seasoned business traveler, they are at the infancy of their career and that means decades of business travel ahead of them. The potential lifetime value of this guest is extraordinary, making them a prime candidate to convert into a loyal consumer.

Is the instant gratification of a 10% discount – for a rate they won’t be paying for out of their own pocket – enough to capture a lifetime of loyalty? Or will this one-time rate simply secure them once at the discount before they shop around for the next trip or, perhaps worse, turn to alternative means for accommodation?

While a loyalty program is without a doubt a revenue management initiative, it needs incentives that go beyond discounts to provide true value to the guest experience. If it doesn’t, it loses out on the strategic components that have begun to make today’s loyalty programs so successful again.

NB1: This is a viewpoint by Blake Madril, revenue technology strategist, IDeaS Revenue Solutions. It appears here as part of Tnooz’s sponsored content initiative.

NB2: Image by BigStock

 

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About the Writer :: Sponsored Content

This is the byline under which Tnooz publishes articles that are part of our sponsored content initiative.

 

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  1. ioannis

    Nice article.
    But there are other loyalty programs apart from
    providing a discount for loyal guests like the affiliate
    loyalty program. Apart from that, the issue is the large
    Online Travel Agencies contribute to almost 60% of the bookings
    nowdays. Therefore, there should be another approach, the one
    that takes advantage of the network of these OTAs that hoteliers
    can take advantage, and thus, drive Millennials to their websites.
    I have recently read here one synopsis of an OTAs contrarian strategy in order to take advantage of loyalty programs so as to drive guests to the hotel’s website. https://easyonthego.com/reports/hotels/2017/05/Loyalty-Programs-for-Millennials/

     
  2. Peter O'Connor

    Hi Blake,
    I could not agree more.
    Giving a discount to a supposedly loyal customer is a waste, unless your objective is to artificially boost your loyalty club figures (at the hotek owners’ expense) so you can make you brand look better by claiming that you have more (millions of) active loyalty club members than the competition!
    But in reality what this does is dilute your loyalty database with opportunistic new members – ones who can be easily tempted away with the next new big shiny thing.
    Instead of offering unnecessary discounts, brands should focus on insuring that each and every stay exceeds customer expectations, thus building real rather than artificial loyalty.
    Regards

     
 
 

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