American Airlines CEO Bob Crandall is credited as the father of the modern travel frequency program. Soon after he launched American’s AAdvantage program in the early 1980s hotel companies followed suit, institutionalizing the concept of loyalty among travelers. It didn’t take long, however, for hotel companies — and hotel owners specifically — to realize the financial burden that comes with trading free hotel stays for points-based loyalty.
Nearly every hotel company has a points-based program, and most are very similar, so its hard to gauge whether these programs produce real loyalty or are, as Hyatt CEO Mark Hoplamazian calls them, “organized discounting.”
“We’ve recognized that if you conceive of loyalty through a lens of transactional interaction, then you’re destined to a commoditized future,” he recently told Skift.
No matter what role points-based loyalty schemes have played in the past in marketing, hotel executives today increasingly view the concept through a new prism. Whereas 35 years ago loyalty was an anchor around the necks of hotel owners, today it seems to be a weapon they might be able to wield effectively to boost bottom lines.
Hotel Loyalty Circumvents Rate Parity with OTAs
In the past few months, several hotel brand companies have won concessions from online travel agencies that enable them to offer to loyalty program members room rates below agreed-upon parity levels. The chains — specifically Marriott, Hilton, Starwood and Hyatt — believe these discounts will drive frequent guests to book directly with them, rather than going through intermediaries.
On the surface, these plans make economic sense: The discount the hotel companies offer to guests is substantially less than typical online travel agency commissions. And, perhaps more importantly, it gives the brand companies the opportunities to forge closer and sometimes new relationships with travelers, especially higher-spending business travelers.
What Loyalty Means to Frequent Travelers
The question is whether these schemes will actually attract new frequency program members and spur existing members to book directly on a consistent basis. I’m not entirely sure either will happen.
A large share of travelers who belong to hotel frequency programs, and a larger share who are active participants, are road warriors employed by companies that pay their travel. So even a 10% discount on a room hardly seems to be something many of them will care about. And many companies frown on their employees booking directly, even for a nominal discount, because it takes them out of negotiated corporate travel programs (which probably includes built-in discounts equal to or lower than rates offered through the direct-booking plan).
Yet despite corporate rules and regulations, many business travelers, and especially younger ones, would rather control their own travel decisions, often through the use of mobile applications and some out-of-the-box platforms, including sharing-economy sites such as Airbnb.
Discount rates for frequency club members differ by hotel company and other factors, ranging from 2% and 3% up to 10%. The size of the discount probably will matter less than the messaging accompanying the offer. You don’t have to discount so heavily that it hurts your ability to meet rate and revenue goals. Just give your most loyal customers the best price and clearly explain it to them in all of your marketing messaging.
However, it might be a mistake to reward all members equally. A guest who stays 25 times a year and regularly books suites during prime booking periods deserves a better deal than a traveler who stays just a couple times a year in non-peak times.
A larger question might be what is it that actually drives loyalty from frequent hotel guests. Many older travelers in particular are still motivated by points, a reward they view for enduring the hassles of travel and the hardships of being away from family. To them, earning points they can use to take their families on vacations or getaways is their payback for putting up with the rigors of the road. It’s been said these dedicated points junkies won’t walk across the street unless they receive 1,000 Marriott Rewards or Hilton HHonors points.
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Just as points-based rewards programs might not generate loyalty, but instead create a legion of points junkies, perhaps discount programs aren’t the perfect solution, either.
Another problem with points-based systems is that travel companies seem to constantly change the rewards parameters, which has the effect of angering frequent customers more than sealing their loyalty. Even Hilton’s new discount rate program for HHonors members who book directly is rife with fine print covering exclusions, booking windows and day-of-the-week price tiers.
Some hotel companies seem to be hedging their bets when it comes to perfecting the loyalty equation. The four major hotel companies that recently implemented fenced discount programs for loyalty club members are still retaining their points-based systems, while adding perks and amenities for loyal customers.
And despite Hoplamazian’s pronouncements, Hyatt recently joined other big companies in offering discounts to frequency program members while continuing to offer points. Like other brand companies, Hyatt is also seeking new, experienced-based hooks to attract and keep frequency guests.
One problem is designing an experiential-based loyalty program that appeals to all demographics of travelers. Baby boomers and millennials have, for the most part, vastly different hot buttons of excitement. A boomer traveling on business might appreciate an upgrade to a suite and free Wi-Fi; a millennial is OK with a smaller room since he or she will be in the bar or lobby socializing, and to them Wi-Fi is a public utility that should always be free.
No matter their focus in the future—points-based, discount-driven, experiential, or a combination—hotel loyalty programs are here to stay, even if lodging companies aren’t sure of their ultimate goals.
It’s up to brand companies, hotel consortiums and even individual hotels to determine the paths they need to follow to reach their goals, whether it is lower customer acquisition costs or a more loyal base of repeat customers, or both, and to transform loyalty from a burden to a weapon.