Loyalty programs; popular trend or return on investment?

Nowadays it is almost a must to have a loyalty program within your hotel business. They encourage frequent guests to be more than a hotel guest. A study from the Centre for Hospitality Research (CHR) in Cornell discovered a profit growth, during a participation in the loyalty programs. Different hotels choose for a loyalty program because the competitors also have one. According to the CHR this is not the right motivation. The competing hotels have to observe if their programs give the result they desire (Bergevoet, 2014). In this blog I describe the requirements for the hotel industry to achieve a return on investment by using loyalty programs.

customer-loyality-jpg-1395-03-29
Source: sorooshpardaz

Loyalty programs are suitable for companies who are active in a competitive market. We all know the hotel industry is a very active market, so almost every hotel have a loyalty program to ‘differentiate’. But how differential is a loyalty program if your opponent uses the exact same strategy? If the loyalty program measurable helps the organisation achieve its goals the answer is probably yes.

Let us take Hyatt Hotels as example. They offer their clients a so called ‘Hyatt Gold Passport’ so they can enjoy exclusive benefits, such as: free nights and late check-outs. The members can earn five points per eligible dollar they have spent in the Hyatt Hotels. The return on investment for Hyatt Hotel is stable. In 2015 it was 3.8% and in 2016 2.4% (CsiMarket, 2016).

Although each loyalty program should be custom made for the hotel that is exploiting it, there are a few basic requirements that you should consider when developing a successful loyalty program:

  1. Map the core values of your organisation and compare to your competitors.
    What is your value proposition and how does this differentiate to competitors?
  1. Define your focus group.
    Who is your focus group, what are their needs out of your regular service?
  1. Measure your organisations core values on the focus group needs.
    In what ‘unusual’ need can you facilitate from inside your identity but out of your regular service?
  1. Offer your clients your ‘unusual offer’ and ask ‘loyalty’ in return.
    Reward your clients with your unusual offer when they frequently use your services.

When using this steps you should be able to use a loyalty program to achieve your organisations goals in terms of profit, occupancy rate or other goals. Just developing a loyalty program because everyone else does won’t be differential enough to attract loyal, returning clients. Not only your investment but also your image will suffer and cause serious damage long term.

For now, the hotel industry must track their return on investment not only by customer, but for the program as a whole to identify at which point the program has peaked in terms of targeting and rewarding loyal customers to then minimize incremental investments into their program (Charania, 2011). This will help you evaluate and refine your program to a point where you can apply the thesis of this blog. Is my program just following the markets trend or does it return my investment?

 

Bibliography

Bergevoet, R. (2014, February 14). Cornell: helft meer hotelomzet door loyaliteitsprogramma’s. Opgehaald van Misset Horeca: http://www.missethoreca.nl/hotel/nieuws/2014/2/cornell-helft-meer-hotelomzet-door-loyaliteitsprogrammas-10159295

CsiMarket. (2016). Hyatt Hotels ROI. Opgehaald van CsiMarket: http://csimarket.com/stocks/H-Return-on-Investment-ROI.html

Focus, H. (2010, October). Richtlijnen voor loyaliteitsprogramma’s. Opgehaald van Hotelierfocus: http://www.hotelierfocus.nl/2010/10/richtlijnen-voor-loyaliteitsprogrammas-deel-1/

Peltier, D. (2016, May 25). 9 largest hotel loyalty programs. Opgehaald van skift: https://skift.com/2016/05/25/9-largest-hotel-loyalty-programs-growing-members-faster-than-engagement/

 

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