Stop rewarding loyalty at the cost of the bottom line

Forbes recently released a list of the world’s most rewarding hotel loyalty programmes. The tally saw Wyndham Rewards replace Marriott at the top of the pile. The list, compiled by the Idea Works Company, calculated that for every dollar spent on a Wyndham room, the loyalty member received an extra 13.6 cents of value in the form of room upgrades, free rooms or other benefits.

Wyndham, which operates more than 7,800 properties, revamped its rewards programme in 2015. The group now offers 10 points per dollar spend, with every award room worth 15,000 points. Points accumulate quickly, and rewards can be enjoyed after just a three-night stay in a $500-a-night room. Since relaunching, Wyndham has seen redemptions up 90% while memberships are up 17% to 47.5 million members.

The loyalty programme undoubtedly rewards hotel guests, but what impact do these discounts, value-adds and benefits have on the bottom line?

In the battle of hotel brands vs. online travel agents, it seems some big brands could be cutting off their noses to spite their faces as they go after direct bookings, regardless of their cost.

The hotel loyalty programme – once seen as a fail-safe way of engaging brand commitment – can be a cost-prohibitive marketing model for many.

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The true cost of loyalty

Loyalty discounts drive bookings and brand awareness, but at the cost of the hotel owner. They do not drive margin for the owners and their marketing costs are prohibitive.

Take Wyndham, for example. Its new rewards strategy is essentially giving one free night away for every three nights booked. That’s a huge offer to sustain.

Hotels have found themselves locking horns with the OTAs over rates and guest ownerships for years. Now, in a bid to push back, many large chains are turning to loyalty programmes to drive direct bookings. But hotels need to ask, is this the best course of action?

  • Do these programmes really drive the revenue these hotels are looking for?
  • Are hotels rewarding clients who would have booked direct regardless of the discount?

In a bid to pay less commission to the OTAs, some hotel chains have embarked on costly promotional campaigns to push booking direct – but has the investment been worth it?

Hilton launched a multi-million-dollar ad campaign earlier this year, with its ‘Stop Clicking Around’ promotion. The chain unveiled discounted rates for loyalty programme members in a bid to elicit more direct bookings.

Meanwhile, this month, Marriott launched an omni-channel “You Are Here” ad campaign to drive its Marriott Rewards programme.

Multiple reports show both Hilton and Marriott have also renegotiated lower OTA fees and eliminated last room availability.

But let’s crunch the figures.

According to Morgan Stanley Research, the big five hotel brands (Hilton, Marriott, IHG, Choice and Accor) spent $5.3 billion in marketing in 2015. That’s marginally less than what the two largest OTAs spent. But is it paying off?

In a recent Tnooz article, Peter O’Connor, professor of information systems at Essec Business School and European online analyst for Phocuswright, examined just how much a direct booking may be costing hoteliers. And his results were somewhat surprising.

According to O’Connor, some properties could actually be better off taking bookings through an OTA than offering loyalty discounts to those who book direct, with hotel chain loyalty fees running at 4.5% for some brands. O’Connor’s findings showed that an OTA with a primarily merchant-based model could provide a higher net revenue to the hotel than a brand.com booking from a loyalty programme member. However, what it doesn’t allow for is the fact that the agency model, with a commission of somewhere between 15% and 25% is now favoured by OTAs, or the rate dilution caused by offering a loyalty discount to someone who would have probably booked direct at a higher rate.

Related Video: Duetto co-founder Marco Benvenuti discusses how hotel loyalty could learn from the casino reinvestment model:

Personalised prices over gimmicks and giveaways

Direct bookings at any cost, such as the discounted loyalty programme rates, are not always the best course of action. Neither is cutting all ties with the OTAs.

Somewhere between the discounted loyalty rate and the OTA rate is another option, one that drives higher revenue and guest engagement: Personalised pricing.

Personalized pricing has hoteliers thinking deeper about what each traveller’s price should be based on that person’s total worth to the property, as well as the hotel’s current demand. “What should the price be?” is the question hoteliers should be constantly asking and refining.

What should the price be for:

  • This day / week / month
  • This room type
  • This booking channel
  • This client type
  • This specific customer

Getting granular with your revenue matrix will help you drill down to the perfect price for each individual customer. It can be based on previous spend, previous market behaviour, external market influences, upcoming events and demand periods, and more.

Hotel loyalty programmes are a great way of driving brand awareness and engagement – but how long can Hilton afford to run its hotels with 56% of occupancy on discounted loyalty rates? Or how long can Wyndham afford to run a “Buy three rooms, get one free’” programme?

Remember, selling a room at any rate is not always the best course of action. Protect your prices. Know your value. Offer personalised pricing and both you and the guest get the deal you are both happy with.

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Sarah McCay Tams, Director of Content, EMEA

Sarah joined Duetto in 2015 as a contributing editor covering Europe, Middle East & Africa (EMEA). In 2017, she was promoted to Director of Content, EMEA. An experienced B2B travel industry journalist, Sarah spent 14 years working in the Middle East, most notably as senior editor – hospitality for ITP Publishing Group in Dubai, where she headed up the editorial teams on Hotelier Middle East, Caterer Middle East and Arabian Travel News. Sarah is now based back in the UK.

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