Hotel Loyalty is Dead

March 29, 2016 Kelly Robb

Did I get your attention? Guest loyalty as a concept is not dead, but it is rapidly evolving. Points and redemption-based models are antiquated and failing to impress the modern traveler. Instead, hotels are more likely to have success building loyalty with today’s guests with more personalized surprise and delight experiences.

This shift is not unique to hospitality. According to research by loyalty-focused agency MBLM (2015), travel brands have the least loyal relationships with consumers compared to other industries. In other words, consumers don’t feel as loyal to travel brands and hotels. This is also supported by research from Wyndham which shows that the structure of many hotel loyalty programs leaves travelers “confused and disappointed.”

The shift away from points

Historically, many hotel loyalty programs have been points-based. But, these types of systems often fail to drive guest engagement and are costly to administer. Points are the domain of the largest brands, and often don’t meet the needs of small-to-medium-sized brands looking to make a more personal connection with their guests.

Recently, we’ve seen several small-to-medium brands moving away from points-based systems in favor of a more holistic approach. Some brands, such as Four Seasons Hotels and Resorts, have gone further and avoided loyalty programs all together.

This trend is partly driven by consumer behavior. For example, let’s look at mobile applications: the vast majority of consumers do not use, or even download, hotel apps. Therefore, as a hotel, you have a very small chance of your app being downloaded or used unless you’re a major brand. The same applies to legacy guest “portals” requiring proactive guest login and engagement – these are falling by the wayside.

In addition, most sophisticated points accrual and redemption management platforms have high fixed costs to administer, including software, design and marketing, which makes them a difficult investment without tens of millions of loyalty members.

The Millennial fallacy

There has been a lot of buzz recently about Millennials and loyalty, with the fallacy that Millennials don’t care about loyalty or participate in loyalty programs. However, I’d argue that they will care a lot, they just currently have less purchasing power with their age, particularly those 18-24 years old. As they grow up and have more spending ability, they will start to care a great deal about loyalty. For example, recent research from Software Advice, the reviews platform for hotel management software, shows that loyalty program participation is about 10 percent higher among older Millennials (25-34 years old).

Millennials are also more interested in unexpected, instant, and personally relevant rewards versus points. According to a Deloitte study (2014), 66% of Millennial travelers mentioned “unique rewards” as an important factor when selecting a loyalty program, versus just 43% among older demographics. All of this suggests that Millennials will care about loyalty, but in the form of personalized guest experience, service, and marketing.

Next gen loyalty

Given these dynamics, the next horizon for hotel loyalty is centered around identifying and incentivizing your best customers to come back, ideally through a direct booking. Instead of a traditional points-based system, consider focusing your efforts on segmenting and targeting your most loyal and active guests with personally relevant offers. You should consider targeting not only your top spenders, but also guests who share positive feedback, have large social media audiences, have high NPS scores, book direct, or stay across several of your properties, just to name a few potential segments. By personalizing the service and marketing to your best customers, you can differentiate and win your guests’ loyalty over other hotels and high cost 3rd party channels.

According to McKinsey & Company, traditional loyalty programs often fail to deliver value, for companies or customers: “Many new programs are simply copies of other programs … Innovative use of data will be a key to unlocking value in next-generation loyalty programs.” McKinsey goes on to assert that loyalty should be focused on your most profitable customers. For example, Southwest offers rewards based on the amount of money the flier spends, versus just miles flown.

In summary, loyalty is not dead at all but evolving fast, along with the modern traveler. While a loyalty strategy will look different for every hotel, many small-to-medium brands are starting to focus heavily on rewarding guests for their true value, and also on customizing the messaging these guests receive to drive more engagement and direct bookings.

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