The new era of loyalty programs

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The latest loyalty programs are finding innovative ways to connect hotels with customers, but at what cost?

By Alicia Hoisington

Gerry Chase was working as a general manager at a full-service Marriott hotel in the early 80s when he was approached about his thoughts on the hotel industry introducing rewards and incentives for customers much like the airline industry had done.

“There was a concern that we would just be trading off people paying for rooms for getting rooms for free,” says Chase, now president and chief operating officer at New Castle Hotels & Resorts. “But what happened was that it really did change the industry in a way just as The Heavenly® Bed changed how hotel beds were viewed.”

He says that as hotel brand companies such as Hilton and Marriott expanded, consumers were introduced to the hotel industry in a different way that offered an introduction to a new generation of brands to the traveling industry at large.

Now, as brands continue to evolve – and new ones consistently are introduced – hotel loyalty programs have opened up new opportunities to hoteliers. Not without their costs, these rewards programs continue to find new ways to connect owners with their customers.

Benefits to owners
Chase says that guests are willing to travel an extra 20 miles to get rewards points at their favorite branded hotels, which can drive business to a property that it might not otherwise because those customers want to earn points.

“What they do with those points [such as redeem for a free stay]could be viewed as negative, but not really because it drives during shoulder periods getting people to those properties and those markets where they might not have done so in the past,” Chase says. “And even though you’re only getting the cost of the room if you’re not doing a full house, you’re actually introducing people who are experiencing your brand, your product, your market.”

Statistically, loyalty programs drive the most high-rated revenue business to hotels, according to Lara R. Latture, chief operating officer and principal of The Hotel Group.

“You are always going to find those folks bring a loyalty to the brand and your specific hotel,” she says. “They are willing to pay more for those rooms and amenities.”

Loyal guests can help the bottom line in other ways, especially when it comes to customer acquisition costs. Attracting a new customer can cost five times as much as keeping an existing, loyal customer, according to research compiled by Invesp. Likewise, existing customers are 50 percent more likely to try new products and spend 31 percent more than new customers.

Chase says that if managed correctly, hoteliers can drive rate during demand periods.

“And you probably need to [drive rate]to offset the cost of the programming,” he says. “Listen, we see people in our resorts who are so passionate about their points and rewards program, I don’t even know if they would travel if they didn’t have the points program, or certainly not to the extent they do today.”

He says people view traveling as a value when they acquire rewards points.

“We have properties doing, on the lowest end, 40 percent of our business with reward players, and it can be as high as 80 percent in some of our destination areas. In our company, it’s in the high 60s, on average, of people staying with us are on a rewards program,” Chase said.

Are there disadvantages?
Sources say there are some aspects of loyalty programs that owners can view as negative, but they encourage hoteliers to look at the bigger picture when viewing these.

First, Chase says owners should challenge their revenue management staff to properly manage during shoulder and demand periods.

“Because you don’t get a full reward, you get the average ADR (average daily rate) for those nights you are filled. And if you can match that ADR on a full house, you get a strong rate with redemption of those points,” he says. “If you’re even one room short of your goal of a full house, then you only get the cost of maintaining the room.”

For example, if a hotel has 200 rooms and 60 percent of the house is booked because of rewards redemption but full house is off by one room, Chase says the impact can be a difference of several hundred dollars in rate.

“So you have to make sure you hit that amount of occupancy each time you’re selling out,” he says.

Chase encourages owners to view rewards program as marketing programs, adding that if the programs are viewed any other way, owners will miss out on opportunities.

“Owners need to be conscious to that fact… and that it is managed as always creating a driving value for the owner because it is a substantial expense, but therefore a substantial return on investment,” he says.

Owners also need to be aware that urban and resort locations will bring higher redemption in points than their suburban counterparts, Chase adds.

“If properly managed, owners can benefit from the rewards programs, but if it isn’t properly managed it can give tremendous negative impact on values,” he says.

Latture says while there might be some downsides of hotel loyalty programs, she doesn’t see many. As a hotel owner, she might not always be fully on board with program promotions such as double and triple points, for instance. Or, a hotel in the portfolio might not always be a direct beneficiary of a program due to its location in a smaller market.

“I always think you have to look big pictures,” Latture says. “Out of the 35 to 37 hotels in our portfolio, we look at it pretty broadly. We can look at it and say this hotel may not be benefiting, but two to three others in the portfolio are.”

She says one of the biggest disadvantages working against owners comes in the form of inconsistency in brands, perhaps due to underperforming hotels, which can cause brands to lose loyal guests.

“Brands have to step up, and they typically do because they know how beneficial [loyal guests]are,” Latture says. “You have to maintain the consistency in the product… to keep everything in line and on an equal playing field.”

Evaluating programs
When Chase and his executive team look to add a brand to the portfolio, he says the loyalty program can help determine whether it would be a good fit for them.

In evaluating rewards programs, Chase says he and his team look at the contribution of the program in the hotel’s market. They will look at the demand of the brand in the market, its RevPAR Index and then how much of that index is being driven by the particular flag. From there, they break down the value of the rewards program.

“Is the market going to experience more of the premium, the Diamond or the Platinum, just because it’s a market that typically drives that type of business, or is it generally the Gold and the Silver type programs that are going to come to that market?” Chase says. “All of which can be considered from a value standpoint in how much ADR you might be able to experience from that market.”

Latture agrees that looking at markets is a good starting point in program evaluation. For instance, a high-end urban hotel is going to have a different demand makeup than a suburban hotel when it comes to loyalty redemption. She says it won’t always be a Hilton or a Marriott that is best for the market because not all locations are great for those brands.

Latture and her team, then, often will look at percentages to evaluate a brand and its program in the market.

“We have a hotel that actually runs probably 80-plus percent in one of the brands for loyalty,” she says. “It’s an incredible property, and everyone wants to stay there. It’s hard to look at that and stack your hotels up against that.

“Having said that, you can still pull an Anchorage, Alaska, property or a Cleveland, Ohio, property and say, ‘Are my margins, are my percents in line with what we would get out of another brand?’ And then if the answer to that is yes, then are the costs closely aligned? And then does this brand still make the most sense in that market?”

In a perfect world, Latture says, she would put the loyalty program she likes best with a favorite brand. But because that’s not possible, she looks toward customer perception to help decide if a hotel loyalty program is a good fit.

“Our reality is their perception,” Latture says. “In our opinion, the loyalty programs that have the most flexibility and rewards would reward the guest that stays most nights in their branded hotel because it is proven time and time again that those are the best guests out there.”

Brand evolution
For their part, brands are continuously evolving their programs in response to consumer and owner insights. Over the past year, many brands have announced major changes or revamps to their programs as a way to stay competitive in an ever-crowded market.

In February, Hilton announced additions to its Honors program. Starting this summer, loyalty members will be able to use their points to purchase on Amazon. Beginning in late February, guests were given the option to use a combination of points and money to purchase stays at Hilton properties. And starting in April, loyalty members are allowed to combine their points with up to 10 other Honors members for free stays. Additionally, last month Diamond level members were given the option to receive a one-time, one-year extension of their status for any reason.

Hyatt Hotels Corporation announced late last year that its Hyatt Gold Passport would be replaced with its revamped loyalty program, World of Hyatt.

“It really is about a building of the community and engaging with our target guests, which are the high-end travelers, while engaging them while they are both traveling and when they are at home,” says Jim Chu, global head of select service and franchise strategy at Hyatt.

The tiers change from HPG’s Platinum and Diamond to three elite tiers in World of Hyatt: Discoverist, Explorist and Globalist. Some of the new benefits include:

  • Base Points will count toward tier status, including points earned for dining and spa;
  • A free night is given for staying at five different Hyatt brands; and
  • Suite upgrades at time of booking for qualified elite members.

“With insights from our members and our target guests, we found that customers are less likely to participate in loyalty programs that they feel are unachievable, where they can’t win,” Chu says. “We designed the program so more people can participate.”

But beyond guest insight, Chu says the program revamp also was inspired by hotel owners who suggested a change and a rebrand of Hyatt Gold Passport.

“The feedback with our owners has been very positive. They appreciate the focus on our high-end guests,” he says. “Owners are also excited that we are moving the tier qualification from nights and stays to nights and points. It better rewards the guest engagement across our portfolio from luxury to select service, so there’s that common thread that we want to have.”

Chu says that Hyatt did a lot of back-end work to ensure that new systems wouldn’t be needed at the hotel level, and he says there is no added cost to owners as the loyalty program transitions. The transition was completed March 1.

Mergers and acquisitions are another issue when it comes to transitioning brands’ loyalty programs. For example, Marriott International completed its acquisition of Starwood Hotels & Resorts Worldwide in September, bringing its brand count to 30. Once the transaction was completed, loyalty members were able to link their accounts. For these linked accounts, each Starwood Preferred Guest Starpoint is equal to three Marriott Rewards points.

Meanwhile, the executives at RLHC are no strangers to M&A activity. In October 2016, the company closed on a deal to acquire Vantage Hospitality Group. The acquisition added more than 1,000 hotels to the portfolio. Now, the RLHC team is tasked with a seamless transition of systems.

However, once that transition is complete, owners will benefit from RLHC’s Hello Rewards program, which Chief Marketing Officer Bill Linehan says is much different from the competition’s points-based programs. Rather, he says the program is “recognition-based.”

“With Hello Rewards, it’s about instant gratification where consumers aren’t hoarding points to climb tiers,” Linehan says. “Instead, the system recognizes them as a valued guest and surprises and delights them on every single stay.”

He says that the recognition-based program is one-third the cost for owners than the points-based system.

“It’s quite less operational time than the traditional model,” Linehan says. “Points are paid for by the hotel owner. The bonus points and all those additional tier points are paid by the owner. In our model, we have this as program fee for all the total rewards, and it’s built into marketing.”

Ramsey Pruchnic, vice president of relationship marketing and data management platforms at RLHC, says that the 2-year-old program has enjoyed incredible growth, with a 49-percent year-over-year jump in membership.

Part of that jump in membership can be attributed to RLHC’s partnership with online-travel-agency Expedia. Guests booking RLHC hotel rooms on Expedia are able to book at loyalty-member rates. But to book at those rates, they are required to sign up for the Hello Rewards program.

Linehan says this partnership is a great benefit to owners.

“If a company or a brand is promoting a rate for members only, but restricting the rate on particular channels, they are forcing their consumer’s hand to book a certain way,” he says. “Many people argue that we want them to book on our channel. I agree, but we don’t want to twist their arm. We want to accommodate them.”

Now, that guest has been accommodated and owners have acquired information for a new customer that they can use to offer promotions and specials.

“It’s an economical model to win them over,” he said.         ■

Top hotel loyalty programs by membership count

Brand company Program No. of members
(in millions)
Noteworthy
InterContinental Hotels Group IHG Rewards Club 99 “Your Rate by IHG Rewards Club,” a preferential member pricing initiative, is driving growth in enrollments and doubling in the growth rate of direct channels with no negative impact on ADR, according to and IHG trading update.
Marriott International Marriott Rewards 85 Once Marriott’s acquisition of Starwood was completed, members were able to link loyalty accounts. For these linked accounts, one SPG Starpoint is equal to three Marriott Rewards points.
Hilton Hilton Honors 60 Hilton announced in February that loyalty members would be able to use points to shop on Amazon; combine points and money for stays; pool points with up to 10 people for free; and Diamond members can receive a one-time, one-year extension for their status for any reason.
Wyndham Hotel Group Wyndham Rewards 46 Wyndham Rewards was named the best hotel loyalty program by U.S. News & World Report last year.
Best Western Hotels & Resorts Best Western Rewards 30 Best Western recently launched a refresh of the loyalty program, which offers instant rewards and low redemption thresholds.
Choice Hotels International Choice Privileges 25 Last year, Choice rolled out changes to its program, including FlexRewards; allowing members to keep their points as long as they complete an activity once every 18 months; and more.
Hyatt Hotels Corporation World of Hyatt 20 In March, Hyatt replaced its Hyatt Gold Passport program with World of Hyatt, which has three elite tiers instead of the previous two.

 

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