In the ever-evolving world of hospitality, one of the trickiest parts of revenue management is figuring out how to handle those die-hard customers. You know the ones – they’ve been coming to your property for 25 years and are pretty much part of the furniture now. How do you find the right balance between rewarding their loyalty and optimizing profit margins? We’ve got you covered.
NB: This is an article from Smartpricing
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Regulars are a blessing and a curse. A blessing because their return is a sure thing, and these days, certainty is worth its weight in gold. And a curse? Well, that’s because they’re still paying prices from 2005, potentially causing you to miss out on some serious profit.
So, how do you manage these types of clients? How can you ensure they keep coming back without insisting on those old bargain prices that eat into your margins?
In the next few paragraphs, we’ll explore five practical, tested strategies (plus a bonus tip) to enhance your revenue from cherished regulars, all while respecting the bond they have with your establishment.
The Value of Legacy Customers
Long-time guests are all about retention. Retaining guests means taking actions that ensure they keep coming back. A loyal, regular customer who books with you year after year brings in steady revenue without the need for new marketing efforts. When considering loyalty, two crucial factors come into play: how much it costs to get a new customer (Customer Acquisition Cost, or CAC) and how much a guest is likely to spend over time (Lifetime Value, or LTV). In short, getting a new customer costs money, but a returning guest? They’re like a gift that keeps on giving, especially since the cost to keep them around tends to drop over time.
Deciding when to Stick with a Guest
Here’s a practical way to think about it: take one of your long-time guests and ask yourself a few questions. How much do they spend with you in a year? After you subtract all the costs, including what you spent getting them in the door, how much are you really making off of them? Could you make more money by trying to attract new guests? If the answer is no, then keeping them around, even if it means some give and take, is probably your best bet. If it’s yes, then it might be time to rethink the rates you’re offering them.
Now, let’s get into five tested methods (plus a bonus) for maximizing profits from your long-term guests without driving them away.
- Adjust Prices Periodically
This one’s an oldie but goodie. Think back to the days before the internet, when most guests were regulars and a small price hike each year was the norm. Even a small increase of 2-3% can significantly contribute to your revenue. This method is particularly effective with an older clientele and helps justify rate increases in the face of rising operational costs.
- Use Discount Codes
If your repeat guests are a bit more tech-savvy, or if you just want a modern twist on loyalty, discount codes could be your answer. The idea here is to tie these codes into your booking system. You can set up all sorts of discounts – a percentage off, a fixed amount, you name it – and make them valid for certain dates or services. This way, you keep the door open for dynamic pricing while still giving your long-standing guests a sense of being valued.
- Have a Secret Price List
Similar to discount codes but with an air of exclusivity. Major booking portals use this strategy to offer special rates to a select group. While discount codes appeal to price-sensitive guests, secret price lists cater to those with more spending power, focusing on exclusivity rather than price alone.
- Create an Exclusive Club
Here, you shift the focus from price to exclusive benefits. Think of famous loyalty clubs, like for frequent flyers. This strategy tends to resonate well with guests who aren’t as worried about spending a bit more. They’re looking for an experience, something to chat about, and of course, who doesn’t love a freebie like a bottle of wine on the house? While enhancing your brand image, offerings these bonuses can often end up costing less than offering discounts.
- Kick Off a Loyalty Program
Different from exclusive clubs, loyalty programs reward repeated behavior with progressive rewards. It’s about saying “thanks for coming back” with little perks that add up the more they stay with you. These are easier to implement thanks to various software solutions and can be highly effective in encouraging repeat bookings and making guests feel appreciated.
Bonus Tip – Be Nimble with Your Strategy
Remember, the key is to dissociate loyalty from price as much as possible and focus on perceived value, which can mean different things to different people. For your most loyal guests, when you’re thinking about tweaking prices, make sure to communicate it adequately. Focus on what makes them tick, what they value most about staying with you.
Lastly, be ready for some of your long-time guests to be a little set in their ways. Change isn’t everyone’s cup of tea, but if you can improve the conditions for most of your repeat customers, consider it a success. With the more stubborn guests, patience is key; they might not cause significant financial harm, but they can impact your reputation if not handled with care.
By weaving together one or more of these strategies, you can master the art of revenue management, keeping your most faithful guests close while also looking out for your bottom line. To start implementing these strategies today, download a free PDF version of this guide!