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The struggle for loyalty

Recently, hotel chains were grateful to their loyalty programme which managed to maintain a solid block of clientele in the middle of the crisis by securing the link with their best clients. For some brands, the .card bearers” account for up to 60% of their occupancy rate and their expenses are larger than those of the .regular” clients. Therefore, it is vital to maintain and stimulate loyalty. But when all the major chains have a loyalty programme how is it possible to be really different? And if loyalty is a good way to save on expenses to gain new clients, it has also its own cost, yet pretty heavy. Is the result worth the effort?

“We have seen a great increase in the demand for redemption room nights and, since we have also reduced the number of points required in the top three highest categories, this is also showing an increase in demand. We have introduced a Points & Cash alternative for members who want to go away but do not have enough points. Mixing the two means that the opportunity for a room night is within reach of more members. At the hotel front desk, we have also extended the range of instant Express Awards, so that members can use their points quicker at lower levels for a range of services from Pay TV to room upgrades and dining 2 for 1”.What results for Loyalty Program strategy?We are currently witnessing a veritable trench war… Perhaps we should see it as a diverted effect of the crisis, but relations between hotel groups became tense around a sensitive target: their most loyal clients. Hilton’s announcement that it would revise its loyalty points scale resulting in a 20% devaluation of this precious cash sparked things off. Not that such as practice was rare. Written in black and white in the general conditions of all programs, hotel groups regularly put this tactic to use to adapt their rewards to hotels’ activity levels and the program’s very expensive imperatives.Indeed, at the beginning of the year, Starwood and Marriott also modified their scales without any consequences. And Hilton highlights the fact that it had not revised its system in six years. “Most of our competitors had long since increased the level of points and it is necessary, for any program whatsoever, to periodically adjust the scale. We notified our members well in advance, offering a free night to some of our best members,” defends Jeff Diskin, Senior VP Global Customer Marketing at Hilton Worldwide. But the timing was clearly wrong for announcing a significant loss of these advantages earned by major travelers. Within a context of crisis, what could otherwise have gone unnoticed wound up in all the papers. Hilton’s competitors all leapt on the opportunity to draw up tactical offers to snare frustrated participants in their nets.By inviting Elite members of other programs to join Best Western Rewards directly at the same level of privilege, the “Status Match, No Catch” offer by Best Western, reserved for North America, reveals its goal with barely veiled words. “Road warriors facing loyalty programs that have been devalued at certain hotel chains may benefit from Elite status at Best Western Rewards, which will allow them to win benefits such as upgrades or early check-in at our hotels even faster,” pleads Dorothy Dowling, senior VP Sales and marketing for the American hotelier.Best Western was not the only one to raise a hue at HHonors. IHG went very far with its «Luckiest Loser» competition in order to attract the cream of the Hilton program. The offer is tempting. The member of both HHonors and the IHG program who is able to demonstrate the biggest loss of Hilton points will receive millions Priority Club points, or 80 free nights! 20,000 other "lucky losers" will be able to win 20% of their HHonors portfolio in Priority Club points, an offer that is nonetheless limited to 20,000 points. “Some of our clients, particularly those with whom we are in relation via social networks, asked us if we could do something to help,” tells Tom Seddon, managing director in charge of marketing at IHG, who makes a gentle poke at its competitor: .if you want your loyal customers to support you during hard times, then it is vital to show how much you appreciate them and that you valorize them. No more, no less. It comes as no surprise that reactions to this devaluation were so negative.”This tactic seems to have born its fruit. If one reads the benchmark forum Flyertalk, a meeting place for avid collectors of airline miles and hotel points, many HHonors members benefited from the godsend, be it just to collect the 1,000 points offered to participants… all potential clients come to join IHG’s CRM database. In a country where advertising by comparison reigns, this very direct marketing promotion was hailed. “It is absolutely brilliant,” declares John Q. Public, from behind his pseudonym. “It temps me to increase my business volume with them, just because of this publicity! The sad part is that Hilton has the ability to be the best of all the programs,” underlines 777 Global Mile Hound, an HHonors points millionaire.HHonors, in fact, is still considered – and rightly so – a very generous program by most members who have remained loyal. According to these members, IHG’s initiative has nonetheless not been in vain. Priority Club was able to boast and establish itself as a plan B, an exchange solution for when there is no Hilton at a destination or the property offered by the group does not meet one’s needs. In fact, the multi-membership is one of the other keys to the loyalty game. In the United Kingdom, according to BDRC, of the members of hotel programs, 59% are card carriers and 41% belong to two or more. In the United States, according to Colloquy, households are members of an average of 14 loyalty programs while they are active in only 6.In 2009, loyalty programs in the tourism sector totaled 556 million members of which 161.9 million are in hotel programs. The rapid growth of this figure (+26% with respect to 2007) reveals another area for groups to face off. Recruitment is going in all directions. In 2009 alone, IHG attracted 7 million new members. Anything goes when it comes to seducing miles enthusiasts, who abound among businessmen – particularly Americans – to such an extent that Hollywood seized the subject for the plot of the film “Up in the Air”. To address them, hotel groups have long since perfected powerful and innovative appeal. Hilton invented the “double dip” through which it possible to earn both hotel points and air miles for a single stay. Thanks to a partnership with American Express for a system of prepaid cards, IHG’s “any hotel, anywhere” allows members of the Priority Club to spend points… even at the competition! Starwood banished “black out dates" and Marriott multiplied its partnerships to offer its clients innovative solutions for spending their points (charities, department stores…).Nonetheless, the competition concurs on these best products. Marriott and Hyatt eliminated “black out dates” in 2009, and many others are following suit making them increasingly rare. Partnerships with players outside the hotel industry are also becoming more widespread, with interesting offers for pleasure or Christmas shopping... The programs are gradually tending towards uniformity as may be seen in the summary table of the most important loyalty programs in the sector. As the leading programs, which have achieved maturity, play tricks on one another and poach in neighboring waters, groups like Accor that launched its new, free and multi-brand program A|Club eighteen months ago are pushing to rapidly grow their list of members. For the moment they constitute only 11% of the clientele of the French group’s hotels versus more than 30% at some of its competitors. But making this figure grow rapidly is one of the French group’s clearly posted goals.But why this arms race? The advantages of such programs are well-known. As the investment to acquire a client is far greater than that of retaining it, their goal is to create a strong involvement with a brand or hotel group while generating increasing numbers of nights. “We have asked our members, and one in five would have stayed at the competition if we did not offer this incentive. Our program generates 20% more clientele and members of Choice Privileges stay in the network 3 times more than non-members,” demonstrates Laurence Deblonde-Buisson, marketing and communications director of the Choice Hotels Europe subsidiary. “The role of loyalty programs in the customer’s selection process comes after service elements such as a good room or the presence of Wi-Fi. On the other hand, when you study brand performance, these programs play an enormous role in customer appreciation for designating preferred brands,” observes Esther Reynal de Saint Michel – Richardot, Senior Research Executive at BDRC.The current crisis made it possible for hoteliers to check these postulates. Several hoteliers were able to observe a bigger drop in activity among non-members than card carriers. “The share of SPG card carriers staying at the brands W and Le Méridien remained stable throughout 2009, which is not true for other clients,” explains Eva Ziegler, the brand leader of the two Starwood Hotels brands. “And their spending level is 20% higher on average than that of normal clients.” “Thanks to our program, we have maintained a certain volume of reservations. We have also increased the promotional offers addressed to these clients, by, for example, doubling the points received per stay,” explains Laurence Deblonde-Buisson. Among other examples, Starwood did the same with its “More nights=more rewards” offer just like Carlson/Rezidor which offered a progressive bonus for any stay in January-February 2010, which could be for up to 50,000 Goldpoints for more than five stays during the period. At the same time, the best clients benefited from these free benefits, which are very useful when it comes to taking a holiday during these hard times.The most impressive example is that of the American top executive who, fired from his job and sent out of his house, used his points to keep a roof over his head. Associated with cash payments, the man still has a few months respite, according to ABC News, before he’s in the street. Clearly, members of loyalty programs have not always been spared by the crisis. According to Colloquy, the average participation of frequent travelers in the world of tourism dropped by 31.2% since 2007, with the use of 1.5 programs versus 2.18 during their previous research. In road warriors’ mind, the equation is simple: less travel means fewer possibilities for reaching interesting status levels in a variety of programs. The result: they concentrate their strengths on a single program.In such a difficult context, the financial cost of these programs is all the greater. While HHonors members may have been disappointed by the recent devaluation of their points, it is likely that the financial manager of Blackstone does not share their sentiments. Because in order to handle their clients’ demands for compensation, groups are forced to put significant sums down as liability in their balance sheet. Thus, at the end of 2008, Marriott spent 1.5 billion dollars for Marriott Rewards, Starwood 662 million on SPG and IHG 471 million for Priority Club. These debts are partly compensated for by the participation of properties in the programs’ budget (see box).And yet, will there be a return on investment? Loyalty programs have a defensive aspect– since everyone has one, I have to too–that is not so negligible in such a competitive world. As programs that reward, they seem to fulfill their goals in terms of retaining clientele. The Elite statuses integrated into many programs, with particularly appreciated bonuses, constitute an additional step towards the recognition of the best clients… as long as participating hotels play the game and recognize the real value of their customers. Sometimes, this is not always the case if we are to believe certain internet users with scheduled, but not automatic, upgrades, uncounted points or hidden black-out dates …But do these programs produce what they were supposed to, meaning real loyalty, a very strong commitment to the group or the brand? This question remains unanswered. According to a study involving 70 managers made in 2007 by Lars Meyer Waarden, only 46% think their program is efficient. “Loyalty programs do not necessarily have an excellent return on investment. And yet, today they are indispensable for managing the customer portfolio,” underlines this professor at Strasbourg’s university and management school. The CRM software solutions are increasingly powerful, while social media offer new tools that will help hotel groups continue their quest for programs that combine experience and personalized rewards…How does it work?According to the rules of accounting, hotel groups must pay large sums of money in advance of future demands for free benefits. But they are not the only ones paying the price of loyalty programs. These budgets are partly fed by properties in the form of commissions on the lodgings revenues generated by card carriers, a remuneration that generally falls between 4 and 5%. “Upon billing, our system calculates the number of points that need to be credited to the client who is identified as a member of Choice Privileges and also calculates the commission to be paid by the hotel. At Choice, this system finances 75% of the program,” explains Laurence Deblonde-Buisson. Within its franchise contracts, Golden Tulip also requires a minimum guarantee and a percentage per transaction. But other formulas exist such as at Accor where a percentage is billed to hoteliers that varies from brand to brand.Within these free nights, groups reimburse properties, sometimes even fully at a rate of 100% as in the case of Louvre Hotels and Golden Tulip. Once again there are several schools of thought. Accor redistributes a fixed sum that is “generous – and not tied to the hotel’s occupancy rate,” explains Cedric Gobilliard. Another possibility: a system that is variable with respect to OR and ADR of the client’s night, which is the solution preferred by Choice Hotels Europe. Other groups take a middle road, with a fixed sum up to a certain level of occupancy and, if the hotel is almost full, a variable compensation in function of the average rate on the date in question, thereby covering any loss incurred.Motivating teams on the field is primordialCédric Gobilliard, direct sales and loyalty development for the group Accorr“A|Club helps us know our clients, recognize their value, create a specific level of service and communications. The motivation of teams on is primordial. In addition to the points, the client seeks recognition, attention, to be heard. Our teams must be pro-active. A|Club aims to develop a long-term relationship with customers as well to optimize customers’ experience. Loyalty development is part of the director’s daily work, as is the quality of breakfast or customer satisfaction and cleanliness of rooms.”Crisis : an increase for redemption nightsJohn Kennedy, VIP Marketing and Customer Relationship Management Rezidor Hotel Group

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