Does loyalty pay? - A Hotel sector perspective

A loyal customer is one who, forsaking all others, will choose your brand and would even be prepared to pay more for the privilege.  So, how does this definition apply to the hotel sector? A reward hunter, perhaps belonging to more than one competing programme, is perhaps better described as “frequent”. Do the programmes so prominent in the sector really reward "loyalty"? And, how can brands leverage this to enhance their bottom line?

Forsaking all others?

BVA BDRC’s 2019 Hotel Guest Survey shows that half of the 56% of business travellers who belong to “at least” one programme do actually belong to only one.  As many as 16%, though, belong to three or more – a trait more prevalent among frequent and international travellers. This means that as well as the desirability of having a frequency programme, there is also an element of danger in not having one – particularly in a market where many others do.

Choice

And these programmes do have a reasonable amount of influence.  In 2017, HGS found that (of those belonging to programmes) three-fifths of business travellers and two-fifths of leisure travellers had at least one of their stays in the prior twelve months influenced by their membership.  (Bear in mind, too, that the mechanics of hotel distribution and availability make 100% practically impossible, even for the largest chains).

A driver of price premium?

As a general rule, members of a loyalty programme assign a higher price premium to a brand than non-members.  This does, however, vary by the tier of hotel brand, with those in what’s known as the “upper full service” tier (think Hilton, Marriott, Crowne Plaza and suchlike) actually showing a marginally lower uplift among members than non-members. A possible explanation for this is that the largest brands in this tier tend to be the best known, meaning there is likely a greater degree of knowledge of the ‘product’ amongst all travellers, not just programme members.

This suggests that the rewards a programme offers have value to customers – although that is, of course, determined by the benefits that can be acquired by those points.

A recent trend has been to put loyalty programmes front and centre of marketing efforts.  This also solves a problem as brands have become more widespread and fragmented – the programme becomes a tidy umbrella under which brands of all shapes and sizes can sit.  Marriott and Accor are perhaps the biggest examples of programmes leading from the front.  Not only is Accor Live Limitless (ALL) the shirtfront sponsor of PSG, a visit to accorhotels.com is now met with a message telling you that…

…while the logo displayed on Marriott.com is no longer the group’s corporate badge, rather that of their Bonvoy programme.

What’s the point?

With the expansion of these programmes and the variety of traveller profile they are now targeting, has come the imperative to offer more than just the ability to secure a discount of sorts, usually unspecified and subject to availability, against a future stay.

What about the commercials?

There’s no denying that loyalty programmes have caused tension between hotel brands and owners. The latter point out that on top of franchise fees and marketing fees, the cost of participating in a loyalty programme can make ‘direct’ bookings less attractive than those made through intermediaries.  Managing the relationship between their corporate interests and those of their franchisees is a challenge for those brands that largely operate on that model.  This is particularly the case at hotels more often used for ‘burning’ points than ‘earning’ them.

In response, of course, those brand owners can point to the benefits of increased recognition, propensity to choose and (in most cases) the potential financial uplift (although that more often manifests as a defence against downward price pressure than it does as a driver of increase).

There are also two other very powerful examples of the corporate benefits a strong programme can bring:

Hilton’s cashpoint

In the belly of the coronavirus crisis, Hilton was able to bolster its cash reserves by a cool billion with a pre-sale of points to its credit card partner, AMEX.  Of course, with a billion quid comes potentially a billion quo, as our head of hotels pointed out in industry media: https://www.hospitalityinsights.com/content/value-loyalty-questioned

SPG - Starwood’s price grew

When Marriott acquired Starwood in the hotel sector’s most recent mega-merger, the appeal of Starwood’s loyalty programme, SPG, was a key driver of value.  The transaction ultimately cost Marriott in excess of $13bn

You can get in touch with James with any comments or questions regarding loyalty, or hotels in general. As a Northampton Town fan, he's experienced enough to know about loyalty in a difficult situation.