What Are The Types of Hotel Loyalty Programs?
A loyalty program aims to make its member faithfulness of commitments. By managing the customer experience and providing customers rewards, businesses can turn them at their advantages. In today’s environment there are different hotel loyalty program systems:
Points Loyalty Program
Customers earn points for any transactions, engagement or visits; however, those points are earned once the transaction is done. The objective for customers is to accumulate a maximum of points to redeem different rewards. The point loyalty program can be used to encourage direct bookings and attract brand ambassadors. Due to the change in customer’s needs, many points programs started to reward non-transactional behaviours such as following social media page, downloading an app etc. Even though many hotel loyalty programs are money-based systems, the hotel industry prefers booking-based systems or a mix of both.
Example: IHG Rewards Club offers points for stay, travel, shop, or diner within the group or partners. The points can be redeemed within a 12-months.
Tiered Loyalty Program
The objective of this program is to keep customers engaged by setting levels of rewards. Using gamification techniques shows to increase by 47% customer engagement, such as reaching the next tier status, and to increase by 22% brand loyalty. This approach mainly targets high-value customers with higher purchasing power and requires strong communication strategies.
Example: Wyndham rewards program provides different Member Level Perks such as Blue at enrolment, Gold after 3 nights booked, Platinum after 9 nights and Diamond after 24 nights.
Paid Loyalty Program
Fee-based loyalty programs are gaining more and more popularity, especially among millennials. The customers accept to pay an up-front membership fee to get benefits. Therefore, customers are guaranteed to enjoy them immediately. This approach allows collecting a large amount of data about valuable customers who are more likely to get involved. However, premium loyalty can prevent the average customer from entry.
Example: For $399 per year the Accor Plus membership provides exclusive accommodation and dining benefits across the Asia Pacific.
Cash-Back Loyalty Program
The system redirects a certain percentage of each pound a member spends to his loyalty account. Even though this program is easy to implement and avoids the stigma of “discounts”, this approach is not the preferred one for hotels as it is more complicated to keep members engaged, and it only involves financial rewards.
Coalition Loyalty Program
The coalition loyalty program is operated by more than one business and relies on strong partnerships. Customers can benefit from different partner’s rewards. The customer data collected are used by all businesses involved. This program is valuable to get access to a broader customer base, save on program costs and enlarge the possibilities of rewards. The coalition loyalty program focuses on enhancing a business’s value perception and not on limiting the rewards to the business core activities.
Example: The Marriott Bonvoy’s program allows all his members to redeem their accumulated points within the hotel group (based on their amount spent per stay) for one of its airline company partners’ Avios. Other industries are partnering such as car rental (Hertz, Sixt).
Why Are Hotel Loyalty Programs So Important?
The important role of hotel loyalty programs come at a moment where ensuring core business activities are not enough to compete on the market. Instead, providing an ‘augmented service’ becomes crucial to set a service apart from its competitors and impact the experience quality perception. Loyalty programs provide advantages to hotels such as:
Loyalty programs allow businesses to go beyond guest expectations and integrate customer recognition within their strategies. On top of adding value to the service, they can enhance the sense of trust and emotional affinity between the brand and customers, and be a key purchasing process factor. In the case of service failure, loyal customers are less likely to complain or claim complimentary gifts.
Program’s members can play the role of business ambassadors by promoting to their friends, family, personal acquaintance etc. Thanks to the word-of-mouth power and social media, customers can be a free marketing tool and help to increase bookings.
Hotel loyalty programs can increase guest retention and get better returns from repeat customers. Researches highlight that loyal customers are less price elastic, book more frequently, have a higher average spent per stay and a more valuable customer lifetime value than new customers. They are more likely to use different hotel’s outlets which can support a multi-stream revenue management strategy.
Hotel loyalty programs are more cost-effective when comparing the costs of retaining a customer to the costs of attracting a new one. Acquiring new customers can cost up to 7 times more than retaining them.
Boost Direct Booking
Repeat guests are three times more likely to book directly to the hotel rather than through OTA. Loyalty programs can limit OTA’s commission fees and bring the hotel’s acquisition cost per guest down.
Stronger Customer Database
Loyalty programs allow hotels to gain valuable insights into customers profiles. They can be used as an efficient Customer Relationship Management (CRM) tool to better interact with guests, better anticipate their needs and better develop profitable point of sales strategies.
Revenue Management’s Ally
While Revenue Management strategies optimize the hotel’s profitability, loyalty programs can help revenue managers to secure long-term gains. The combination of CRM and RM strategies can be a real forecasting tool as loyalty programs can boost hotel occupancy during low demand period.
Future Trends of Loyalty Program
Thanks to the power of social networks and technologies it is easier to communicate with customers, however, the challenge remains on identifying efficient loyalty programs to evolve loyalty beyond the stay. The Covid-19 impact on the Tourism Industry is a perfect example to what extent hotels need to retain their customers even when they are not able anymore to travel.
Hotel business will tend to be more present in and outside of hotel stays to deliver a more personalized and unique experience. Inspired by the coalition-based programs, the future loyalty schemes will find new types of rewards to support their customers not only during their stay but as well during their daily life. New rewarding activities could include going to the gym, shopping in a partner store, ordering online etc. Some hotel groups already adopted this concept such as Hyatt, with its World of Hyatt Credit Card allowing its members to redeem a certain amount of points per amount spent in gym, taxis, ride-share services or everything else!
Loyalty programs features would need to provide more flexibility and practical rewards than before. Introducing flexible change and cancellation policies would be a no-brainer to ensure customer confidence to book. While lots of hotels who automatically extended their members status and point expiration, post Covid-19 loyalty programs would need to support revenues and foster customer lifetime value by adopting long-term oriented strategy and proactive mindset. To consolidate members’ community, loyalty programs such as the one of Marriott and Starwood already designed non-travel rewards through social media to attract the younger even before they start to travel.
How To Avoid The Loyalty Programs Common Pitfalls?
Loyalty programs can be expensive and time-consuming if they don’t properly consider market needs. Their increasing use can be harmful to businesses if their lack of differentiation starts to irritate customers. Focusing only on achieving efficient customer retention rate may prevent businesses from answering customer’s needs and identifying new customers.
Adopt a Data-Driven Approach
Staying connected with customers across different channel service is a plus to influence their experience and collect more information. It is important to analyse the customers’ perceived value of hotel loyalty programs to determine the current relationship between the program and the actual loyalty. Thus, it provides a better understanding of the evolution pattern of the profit produced per guest.
Travellers can value differently their interaction and personalization needs depending on their travelling purpose, spending habits, geographical location and more. For instance, business travellers show to redeem more often their points than leisure travellers, and to prefer upgrades or other experiences rather than hotel nights or airline miles. Segmentation helps to identify which guest category will need extra cares, and therefore to better forecast retention costs. Customers can be segmented into tiers according to their profitability and provide revenue managers with greater flexibility to move away from the BAR price.
Develop a Tailored Program
Efficient loyalty programs consider the whole customer journey to create more personalized experiences around loyalty retention. At the same time those programs need to showcase their effort to build more trustful relationships regarding data privacy and improve transparency. Using both CRM and Revenue Management tactics helps to optimize guests’ value. Personalized pricing and marketing can entice customers to enrol to the loyalty program without overinvesting on high demand periods.
If you would like help with any aspects or your hotel sales and revenue management strategies, please don’t hesitate to contact us. Visit the Contact page to get in touch now.
We also offer a free revenue management audit on any topic of your choosing. We can review your current sales strategies and book a short call with you to discuss actionable improvements