There’s a great deal of focus on loyalty programs in the hospitality industry today – and no wonder. Hotels face increasingly intense industry competition, and with the need to combat the growing impact of online travel agent (OTA) bookings, hoteliers are focused on ensuring that it’s their properties, their services, that are forefront in customers’ minds.
If you look at the numbers and growth, this focus appears to be working.
Which is why this question always feels a little controversial:
Do loyalty programs work for hotels, or are they a waste of time and money?
There is plenty of imperial evidence supporting that they do.
- The Center for Hospitality Research study of 50,000 hotels in North America found that once a guest signed up to a hotel’s loyalty program the frequency of stays booked by a guest at that hotel rose on average by 49% and accounted for a 57% rise in bedroom revenue.
- J.D. Power survey suggests loyalty programs do create a bond between a guest and a brand. Nearly half (47%) of the more than 4,600 hotel rewards program members polled said they had booked a hotel room within the past 12 months through the brand.
- A study by Kalibri Labs found between 40% and 60% of reservations in the upper-midscale, upscale and upper-upscale segments came through loyalty programs in 2016. What’s more, brands grew rewards memberships by between 30% and 40%.
So, on the surface loyalty programs can and do deliver positive results. But is the growth in your loyalty program the true measure of success or a false positive?
Flo Lugi, non-executive chairman of the Global Hotel Alliance, makes some interesting observations on this point. Here are some key takeaways:
- Loyalty is more than just numbers. Creating “true” loyalty is more about customer engagement and building an emotional connection with your customers.
- Increased loyalty membership is not a great predictor of customer engagement. Loyalty programs have continued to grow, but customer engagement has remained stagnant, with 54% of program memberships inactive (and 28% leaving a program without ever redeeming an award).
In fact, on their own, loyalty programs might just culminate in a race to the bottom. If a customer is there simply for a discount, then true engagement is unlikely to occur.
And if 60% to 70% of your direct bookings are already being driven by loyalty members, at what point do you reach the tipping point?
What do you think? The VXI team welcomes your feedback and questions about the ever-evolving challenges – and opportunities - to grow and retain relationships with your customers.