I’m excited to see major hotel brands launch new loyalty pricing strategies, but they could be doing so much more. Instead of offering a fixed discount off of the best publicly available rate, they should be flexing those discounts based on the value of their customers. With Open Pricing, not every segment has to receive the same percentage discount. Why reward a loyalty member who stays at your brand once a year the same as someone who stays 30 nights? Which customer is more valuable to you and your bottom line?
This new approach gaining traction is similar to what the casino industry has been doing for years. It’s where my passion for loyalty pricing first began and where the seed for Duetto took root.
While working at Caesars a decade ago, I was introduced to the idea of loyalty pricing: creating personalized rates for specific segments of customers based on their worth to your property. Casinos use a measurement called average daily theoretical spend (ADT) to segment customers based on how much money they gamble and their expected losses.
The bigger the ADT, the more a casino would “reinvest” in those customers to ensure they’d stay and play at the resort. For a million-dollar whale, we might charter a private jet to bring him from Japan and let him stay in our presidential suite for as long as he’d like. For a player who typically gambles a couple hundred dollars in table games a day, we might comp a room over slow periods or offer a slight discount during busier times.
Learning reinvestment from the casinos
The approach is simple to understand, but as casinos in Las Vegas and around the world grew into “integrated resorts” with a lot more to offer than just gambling, gaming spend and ADT became a less complete way to calculate customer worth.
It’s one of the reasons I left Caesars. With Total Rewards, we had a massive database of customer information, but we were only using it to give benefits to the casino player. Gaming spend was plateauing, and resorts on The Strip were beginning to see the spa, golf courses, restaurants, night clubs and other retail outlets as more than just amenities to get gamblers in the door.
A new generation of customers who enjoyed those options arrived, and they were spending huge dollars without the chance of going home with house money. It drove me crazy that we couldn’t track and analyze those spends, but the venues at most casino resorts on The Strip are franchised, leased, or run by other companies with different goals and point of sale systems.
What attracted me to Wynn was all those outlets were owned and operated by the company. It’s where I created the Enterprise Strategy division to bring those revenue-generating functions together, and we created a holistic Revenue Strategy that marketed to not just gamers, but also non-gamers. It’s where my total customer value algorithm that led to Duetto took shape and later became the foundation to our loyalty pricing functionality that calculates optimal room rates based on customer value.
Bringing loyalty pricing to hotels
My eyes were opened to this potential, and I realized points-based loyalty programs employed by most hotel companies were going to die. Instant gratification — a clear preference of the millennial generation — was a concept well understood on the gaming side of Las Vegas for a long time.
Why couldn’t we bring that to the hotel industry? Every customer has value. Why wasn’t it possible to segment hotel customers by value and price based on that to increase loyalty and profitability?
It is possible, and we are proving that today. What Marriott and Hilton are doing is promising, but they are just scratching the surface.
Hotels have the opportunity to give customers something online travel agencies can’t: the best price. If customers are recognizable at the time of booking, typically through a password-protected loyalty program, hotels have the ability to offer private or fenced rates that are better than the best available rates shown on the hotel’s own website or elsewhere. Since these prices aren’t publicly available, they won’t violate any rate-parity agreements.
Rather than offering a fixed discount like Marriott and Hilton do, companies can and should offer personalized and dynamic discounts based on demand and the value of the customer.
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Value can be calculated in numerous ways, and it can depend on the hotel company’s strategy and sophistication. It could be based solely on number of stays or a total dollar amount of money spent on rooms and potentially even total on-property spend.
This is best done through a customer relationship management system, but it can also be done more basically through a PMS if companies are disciplined at tracking data at check-in and encouraging customers to charge everything to their folio.
It’s the same concept of reinvestment I learned in the casino industry, but without ever having to charter a private jet. The actual reinvestment amounts are far less and, in the end, minimal in comparison to the cost of acquiring new customers. This is a far more efficient way to run a business.
Rather than fighting to win new customer after new customer, why not keep those customers coming back and provide them instant gratification with better prices they can’t get anywhere else. Rather than lower your rates for them, you could slowly slide your public rates higher, and even if ADR remains flat, those direct bookings are far more profitable than paying OTAs for those customers.
I’ve heard people argue that the customer of a Four Seasons or Ritz-Carlton doesn’t care about a discounted price. It’s the same thing I heard at Caesars and Wynn. “Why subsidize customers with free rooms?” It’s a flawed argument. Everyone loves a deal and wants to feel like they’re special.
Why do you think so many people are shopping and booking at OTAs? Give them a reason not to and drive guest loyalty and profitability through loyalty pricing.