Fast Facts On Loyalty
By Derek Gale, Associate Editor -- HOTELS Magazine, 3/1/2006
How do consumers rate loyalty programs? Millard Group, Peterborough, New Hampshire, put that question to 10,283 readers of Condé Nast Traveler identified as business travelers. They ranked the top-scoring frequent guest programs as follows in the magazine’s 2005 Business Travel Awards:
Africa/Middle East: Luxury Collection, 74.5; Park Hyatt, 74.4; JW Marriott, 70.
The Americas: Luxury Collection, 88.9; Westin 75.9; W Hotels, 72.
Asia, Australia & The Pacific: Marriott, 90.9; Park Hyatt, 90.5; Luxury Collection, 86.7
Europe: Luxury Collection, 83.3; Renaissance, 83.3; Marriott, 82.6
United States: St. Regis, 78.6; Park Hyatt, 77.4; Luxury Collection, 75.5.
How do they use their memberships?
- Free upgrade, 52%
- Free stay, 51%
- Express check-in, 46%
- Late checkout, 45%
- Other awards, from free flights to merchandise, 16%
- Discounted room rates, 15%
- None of the above, 21%
The 2005 Business Traveler Awards, based on input from a sampling of the magazine’s 60,000 readers, ranked Marriott’s loyalty program as the best hotel rewards program.
Loyalty On The Bottom Line
“Loyalty programs do put heads in beds. Would you be able to fill as many beds without points? Probably not,” says Thomas Corcoran, president and CEO, FelCor Lodging Trust, Irving, Texas. Corcoran says the investment in loyalty programs is worth it for owners. “Overall, they are a positive. People who travel a lot really appreciate the benefits of membership; they get what they want. That delivers repeat business.” Vicki Denfield, senior vice president of sales and marketing, Crestline Hotels & Resorts, agrees. “Loyalty programs are a driving force for the major-brand hotels. We manage many hotels that operate successfully within these programs and find them an effective way to build guest loyalty and drive revenue,” she says.
As loyalty programs grow, the larger question may be how to ensure that individual hotels continue to share in the benefits of loyalty. Some industry watchers express concern about a scenario in which hundreds of thousands of frequent guests cash in their loyalty chips. “I can take points I earned at one chain and use them for a discount holiday package that books me into a different brand. Where’s the loyalty in that? Hotel companies will have to account for that. It’s all undistributed debt. It will show up on the balance sheet somewhere, sometime—and that could mean an Enron-like disaster,” said Kevin Murphy, Langham International Hotels’ senior vice president, development, at a MasterCard Global Travel Forum.
Steven Sickel, senior vice president, Priority Club Rewards, InterContinental Hotels Group (IHG), Atlanta, contends that redemption is a good thing for loyalty program members and for hotels. “I do not see redemption as a problem. We encourage redemption,” Sickel says. His rationale: IHG’s Priority Club members spend 7%-9% more on average than the average guest; they stay more frequently, giving a 50% lift to occupancy; they have a propensity to book directly through IHG’s Web site, which saves on the typical 10%-15% commission from third parties; and they provide opt-in accessibility for cost-effective marketing and cross-selling initiatives. “The break-even cost for loyalty programs is a 6% lift. When we looked at activity before and after enrollment, we identified a 50% lift in room revenue. That is a lot of upside margin,” Sickel says.
Arthur de Haast, Global CEO, Jones Lang LaSalle Hotels, London, says that while points do matter—particularly for business travelers below the luxury level—they come with a price. “Points cost a lot of money. The biggest question is how are you going to redistribute money to the individual hotels. If the hotel normally gets US$300 a night and corporate is only reimbursing that property at a rate of US$100 a night, the hotel is the loser,” he says.
Brands are addressing that issue. “Most reimbursements are based an actuarial tables. They seem fair. I have not heard a lot of complaints,” Corcoran says. Expect more programs to have a tiered system like IHG’s: If occupancy is below 95%, reimbursements are calculated on a sliding scale against average achieved daily rate (ADR); if the hotel is 95% full or more, it receives full ADR for that night. “The goal is not to displace revenue,” Sickel says.
Structured correctly, loyalty programs should be self-funding, according to Adriana Toledo, manager, loyalty programs for Sol Meliá Hotels & Resorts’ Americas division. Each hotel has a per month quota on redemptions based on the number of rooms. “There are no restrictions (in terms of seasonality or availability). We have until the last room available to our customers is sold,” she says. “The hotel is charged for points issued at a reasonable rate and, when the customer redeems the room nights, the hotels are compensated at a reasonable rate for rooms that would otherwise be empty.”
Another option, like that rolled out by Marriott International, is to simplify redemption with an “everyday low price” approach to points redemption, and overlay the choice of spending extra points to override blackout dates. Paid loyalty programs, which attract a small but exclusive market interested in special services and amenities—open up new targets. “These programs will never be huge, but they are not going away,” says Holly Mendelson, director of marketing, Marriott Rewards.
Get the Points
More brands are adding lifestyle products and experiential rewards as an alternative to free nights and upgrades. Will that change how members spend points?
- “There will always be a small subset of people who want flexibility in how members spend their points. So, we will see lifestyle options. Is that what the majority wants? No.”
—Holly Mendelson, Marriott International - “We still find that 80% of our customers choose points versus the other benefits offered.”
—Sara Kearney, Hyatt International - “The take-up on lifestyle offers represents only a few percentage points of total redemption. The members who use this option most are those with larger balances.”
—Steven Sickel, IHG
Points versus Recognition
Luxury chains say loyalty is all about recognition. Sector-spanning brands say the best mix blends points and recognition. Which works best depends on the market.
- “People do not stay at Four Seasons to get points; they stay there because they want a Four Seasons experience. However, for the business traveler, points do build loyalty.”
—Arthur de Haast, Jones Lang LaSalle Hotels - “We believe that points-based programs build loyalty. However, it is important to make sure you differentiate your program from the competition and provide benefits that are appropriate to your key customers.”
—Amy Weyman, vice president, marketing, Hyatt Hotels Corp. - “There is a place for both hard and soft benefits in loyalty programs. The emphasis may change, depending on the preference of the audience.”
—Jill Noblett, vice president, loyalty and direct marketing, Cendant Hotel Group - “We will be re-launching our loyalty program—which formerly was based only on frequent flyer points—into a much more interesting and substantial package in the future. Extensive research and modeling with our hotels has shown this will be a significant factor in promoting customer retention and boosting sales. We believe in combining loyalty and recognition programs. The one does not have to exclude the other.”
—Hans Kennedie, CEO and president, Golden Tulip Hotels, Inns and Resorts - “When we considered the make-up of the Graves Preferred Guest Program (GPG), we first took into account the level of our hotels. Our 4- to 5-star service level and superior physical offerings quickly led us to the realization that we needed to launch a program aligned with the needs of our guests, while competing with the programs that are being offered by our competitors. Our guests have very high levels of expectations in these areas therefore it was easy to recognize that these expectations would extend to our loyalty program. We needed to launch a program that was compelling out of the gate. We therefore created an experiential and point reward model. The service levels increase as the spend increases. Additionally, guests who are enrolled are offered an online concierge that tracks preferences and allows the guest to manage his on-property experience before or after he actually stays with the hotel. This online guest-managed database is a component that we scheduled for rollout in late February. Only GPG members will have this service available to them.”
—Scott Fischburg, vice president of sales and marketing, Graves Hotels. Resorts.
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