Loyalty programs present both opportunities and challenges on-property, and it’s up to revenue experts to figure out how to make the most of them.
NASHVILLE, Tennessee—Loyalty is a complicated and important part of the overall hotel revenue puzzle that is a large value driver from brands but also sometimes a difficult or frustrating force to try to control on-property.
With hotel brands touting ever-growing loyalty programs, revenue experts are tasked with incorporating the best of those programs into their overall revenue strategies while navigating around their drawbacks.
Lloyd Biddle, director of revenue management systems at Hyatt Hotels Corporation, said loyalty programs should be a linchpin of any hotel company’s revenue strategy.
“From Hyatt’s perspective, it’s central to everything we do. … It’s the umbrella,” he said. “It’s the identity that drives customers in. So, you’re protecting your brand.com. You’re protecting your CRS, your reservation services, all that. But it’s central to any revenue strategy to get (guests) signed up to your loyalty program and have that repeat business.”
The power of brand loyalty seems to come back to the benefits of direct bookings over third-party channels like online travel agencies.
Chris Cheney, VP of hotel performance and analytics for Stonebridge Companies, said loyalty programs have become increasingly tied to direct-booking campaigns, which sometimes overlooks a more traditional interpretation of the value of loyalty.
“We’ve transitioned, over the last probably five or six years especially, from loyalty really being focused on being loyal to the product and the brand, and now all the discussion is around loyalty being focused on loyalty to a channel,” he said. “You can have a customer who’s very loyal to your property that doesn’t book through a brand channel, and I think sometimes they’re getting lost in the fray.”
Ashley Manco, director of room revenue, business planning and analysis for 21c Museum Hotels, noted her company has historically not enjoyed the benefits of a loyalty program, but with its pending acquisition by AccorHotels, 21c’s properties will soon be plugged into AccorHotels’ distribution systems and loyalty platform, which she believes will be positive for overall performance.
“We have strategies in place in lieu of (loyalty) to try to retain guests … but also (to) convert guests from third-party bookers to direct bookers, because we do have a decent base of repeat business,” she said. “I’m looking forward to (becoming part of AccorHotels’ program) … and I think it will open us up to a number of new clients, for sure. I’m anxious to see where that goes and how quickly that’ll come to us.”
Any experienced revenue manager will tell you that loyalty redemption rates and redemption thresholds are extremely impactful to overall hotel performance. Garrett Henke, director of revenue management for the Turnberry-managed Hilton Nashville Downtown, said reaching redemption tiers can have a massive impact on revenue.
Reaching or missing a redemption threshold “can make or break a night or make or break a month depending on what’s going on in the market,” he said. “You’ve got nights where you have like $20,000 or more in potential incremental revenue, and if you miss it by one room, it’s gone.”
That incentivizes individual properties to offer last-minute discounts, which erodes pricing power across an entire market.
In dropping rates to generate last-minute bookings, “you’re not creating demand; you’re just pulling it from other places,” Henke said. “Is that going to be more profitable for you at that time or is it going to hurt you further down that road?”
But Johnathan Capps, VP of revenue for Charlestowne Hotels, said on-property revenue managers shouldn’t be blamed for last-minute discounting, because they’re simply doing what’s right for the people they answer to.
That revenue manager’s “loyalty is to the owner, not the hotels around him,” he said. “I’m sure there’s a day where there could be $5,000 worth of conversion on the line.”
Capps said strategic thinking is required to establish a game plan ahead of time on how best to tackle those sorts of situations. Even for independent hotels, including those in Charlestowne’s portfolio, understanding how brand loyalty affects revenue decisions on-property goes a long way, he said.
“You have to think, ‘Alright, they’re doing that for a reason. Is that really the market value or is it the value of a room for that hotel right now?’” he said. “Those are two different things.”
Henke said hoteliers also should be careful about how they approach last-minute discounting.
“You also don’t have to change your customer-facing prices,” he said. “You can change something opaque to try and help a little bit even though you take a little bit more of a hit.”
Several participants said guest expectations for what’s included in loyalty platforms are quickly evolving. For years, hotel loyalty has relied on the points-driven pattern of earning and then redeeming free roomnights, but now more guests expect to be given some immediate benefit for loyalty and some enhanced experience due to their loyalty status.
“With World of Hyatt, although it’s still about points, it’s more about … driving amenities,” Biddle said. “So in Hyatt’s select (service) brands, Hyatt Place and Hyatt House, we’re giving them a free breakfast.”
Helga Buszta, VP of revenue management and e-commerce for Filament Hospitality, said that sort of experience-driven loyalty is also key for independent hotels.
“This ties back into that communication and the education from us as a property to the consumer of what we can do to enhance that experience for them, what we can do to provide that additional service level that they may not have … received for any of those other properties if they had made reservations there as well,” she said. “That to me is a different spin on the typical loyalty conversation … I don’t think the membership carries much weight anymore.”
Jason Freed, managing editor for Duetto, agreed that from his company’s perspective there seems to be a shift in thinking about hotel loyalty that’s more tailored to individuals.
“It’s all based on your theoretical value to the company,” he said. “If you spend at (food and beverage), if you spend at spa, you get sort of a personalized offer that’s just for you.”
But Jay Hubbs, SVP of e-commerce for Remington Hotels, cautioned to not overcorrect and assume the heavy users of the traditional loyalty points systems are no longer a factor.
“I think your road warriors are absolutely (still loyal to brands), hands down,” he said. “Each of the top brands say there’s a huge percentage (of business) that comes from this sliver (of loyalty membership). So that group is absolutely loyal; there’s no doubt about that. They would stay on the other side of town to get their points.”
At the same time, Hubbs acknowledged that hotel brands are turning loyalty programs into experience platforms to compete with companies like Airbnb, which build their brands on local experiences.
“Those sorts of things that Airbnb has done, I think they have pushed the brands to say, ‘Hmm, we should be able to do that, too,’” he said.
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