Retaining existing guests costs less and has higher profit margins than attracting new guests.
While the tourism industry is still growing, the real question for many owners is whether or not we should hold our assets through the next downturn.
The economy looks strong on paper and might continue its strength for another year or two, but let’s review strategies for success in a late-cycle environment. Consumer confidence, a continued strong job market and generally favorable statistics might lead one to believe we will have another great year—and we might! However, warranting caution are fading tax cut benefits, trade talks and tariffs, last year’s robust global economy and this year’s unsteady ship.
Last year, we discussed the importance of surrounding ourselves with a quality team, and that remains true for 2019 as well. In Kim Scott’s “Radical Candor,” we read that one must put “care personally” and “challenge directly” together. Ergo, care personally about your team but challenge them directly on critical issues. In 2019, it is time to turn to customer loyalty to ensure we don’t lose guests—they are expensive to replace, and we need to preserve capital. Let’s challenge our team directly about this. Research done by net-promoter-score inventor Frederick Reichheld of Bain & Company concurs, finding that increasing customer retention rates even by 5% can increase profits anywhere from 25% to 95%.
So how does cultivating loyal customer relationships translate into cost savings? Let’s compare the cost of saving a long-standing guest to the cost of attracting one. Return guests who have a strong relationship with our brand will often refer others to our property and may even pay higher rates to stay there rather than switch to an unfamiliar competitor. According to research done by PwC, guests are on average willing to spend an extra $25 on their preferred hotel brand. Meanwhile, the Harvard Business Review revealed that acquiring a new customer can be anywhere from five to 25 times more expensive than retaining an existing one, depending on the industry. In our experiential, service-driven industry, it is safe to assume that courting a new guest falls on the higher end of that estimate.
To best implement cost savings through guest loyalty, here are a couple steps to consider.
Develop a team of loyalty leaders by identifying underperformers
Our No. 1 asset as owners are our employees, and there are some key tenets for success that are clearly required in building the right team, including persistence, hard work and honesty. Furthermore, it is time to review each and every team member to make certain they are aware of the potential consequences of losing guests and understand they must be held accountable for guest quality scores. Performance reviews will reveal our bottom 10%, which allows us to shift our attention to focused customer-employee relationship improvement.
Measure desertion management
We must be prepared to spot guests who do not return and then analyze the information they provide. This “deserter” is an early warning signal to a service or product shortfall. Training must teach employees the importance of observing deserters and taking actions to respond to guest needs. If we do not respond to guest needs at the point of interaction, we are likely to find out via TripAdvisor or other social media.
Create an allure of personalization and exclusivity by reallocating marketing investments
Today’s hotel owners, with limited budgets, need to make website visitors feel vested in the brand as soon as they enter the site. It must be an intuitive, pleasing site that provides for personalized messaging without breaking any GDPR or CCPA laws (General Data Protection Regulation in Europe and California Consumer Privacy Act). This first customer touchpoint should show visitors exclusive content and rates, making a strong first impression and laying the foundation for a long-lasting relationship.
In addition, by creating an email list of our own, we can bypass rate parity issues that allow online travel agencies to offer exactly the same deals we do. While users may receive hundreds of emails daily, sending specific content for which they have opted-in will likely increase our percentage of opens and resultant bookings. We can also retain current guests by utilizing social media channels to post relevant promotional offers.
The idea is to create and maintain brand loyalty. Retaining existing customers costs less and has higher profit margins than attracting new customers. Loyal guests will give us their business as long as they continue to feel valued and their experiences are seamless and memorable. So in this upcoming year, let’s create customer-retention incentives for employees, continuously monitor guest feedback and shift marketing resources toward programs that make every guest feel special and important.
Robert A. Rauch, CHA is an internationally recognized hotelier, Hotel Guru, CEO and founder of RAR Hospitality, a leading hospitality management and consulting firm based in San Diego. Rauch has over 35 years of hospitality-related management experience in all facets of the industry.
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