Across industries, loyalty programs are a virtual battlefield where the fight for customers is happening. From airlines to retail chains, credit cards and hotels, companies are competing aggressively for business by offering loyal customers better perks than rivals.
NB: This is an article from Bill Caswell, Principal at North Highland
Within the hotel industry, loyalty programs are table stakes. They also happen to be highly effective – especially for big brands with national or international footprints. According to Kalibri Labs, a hotel analytics company, nearly half of the business at U.S. branded hotels comes from loyalty members.
Loyalty programs are valuable for many reasons, including because they drive direct bookings and increase per room revenue. Business travelers are the most valued targets because they book frequently and produce more ancillary revenues, so it’s important for hotels to provide a compelling loyalty value proposition to this customer segment. This is especially true in an uncertain economic environment, when business travelers can soften the impact of depressed consumer spending if there is a downturn.
The ascendance of loyalty programs represents a unique threat to independent hotels, however, especially those that aren’t located in major cities, coastal towns or other tourist destinations where filling rooms is less problematic. The challenge is redemption. Large hotel chains allow travelers to earn and redeem points across their various brands, which could include thousands of properties globally. This is an enticing benefit for people who want flexibility when it comes time to spend their rewards.
The big hotel brands have made several recent missteps, however, which has diminished the value of their loyalty offerings. They continue to alter the rules and redemption process, confusing consumers and frustrating frequent travelers. Specialized perks have been watered down, and many benefits are now also offered to certain credit card consumers or customers of a partner company. As a result, somebody who rarely stays at a particular hotel might enjoy the same benefits as someone spending dozens of nights with the brand. This imbalance doesn’t go unnoticed by business travelers.
Independent Hotels Should Play to their Strengths
Big hotel brands don’t hold all the cards, however. As independent hotels figure out loyalty programs, they are better positioned than their larger rivals to implement them effectively and deliver unique, world class service. Customer-facing employees at boutique hotels are more likely to recognize regular guests, understand their preferences and deliver more personalized service. This is difficult for larger brands to replicate because they’re at the mercy of franchisees to execute loyalty programs. Many franchisees are not meeting the customer experience goals set out by the brand. Instead, many are delivering inconsistent service and leaving loyal customers playing a roulette wheel as to whether they will even be recognized on site at franchised locations.
Logic would suggest that large hotels could overcome the disadvantages of the franchise model by investing in sophisticated CRM technologies. However, legacy systems and resistant franchisees have proved to be difficult obstacles to overcome. The large hotel brands will continue to invest in technology, but improvements, so far, have been incremental – not transformational.
The gap between hotel brand expectations and franchisee delivery may be due in part to an unprecedented amount of friction between these two groups. In May of 2019, The Wall Street Journal reported that five of the biggest publicly traded hotel operators have launched 16 new brands in the last six years. The article said that in the past, hotel companies have gone years without adding a brand. Franchisees haven’t reacted kindly to new competition coming from their own brand, especially when it’s a direct hit to their bottom lines.
Many people don’t realize the autonomy that individual franchisees have in operating their business. At the end of the day, there is very little that a brand can do to enforce certain policies and procedures at the franchise level. In some respects, customers are the ones holding franchises accountable to certain experiences they have come to expect when staying at a particular brand. But there are still gaps in how services are delivered.
In contrast, independent brands own their service delivery. The unique personalities of these properties are often the attraction for customers. As a result, a loyalty effort that reflects the personality and style of the property will add personalization, building an even stronger guest experience for those who participate in the program.
Independent hotels can capitalize on their deeper understanding of guests by offering loyalty programs with broader, more individualized redemption options. VOILA, for example, offers the usual benefits one would expect from a loyalty program (free nights, complimentary internet, room upgrades and priority check-in/out, etc.). However, they also have a long list of airline partners where points can be redeemed, as well as local shopping and restaurant experiences. (Editor’s note: Bill Caswell is not affiliated with VOILA.)
This is a smart way for independent hotels to offer attractive loyalty programs because members don’t have to redeem points for a future hotel stay; they can redeem points across a whole range of options. This gives VOILA and the hotel greater flexibility to target prospects based on their unique travel personalities and preferences, information that boutique hotels are often better at collecting.
VOILA is just one example of how independent hotels can overcome their main weakness – lack of redemption opportunities – by offering more curated options. This model is a template for how independents can succeed in an environment where the big brands are getting bigger and leveraging their size to generate direct bookings.
Other loyalty programs for independent hotels include I Prefer, GuestBook Rewards and Catalonia Rewards. I Prefer, for example, enables travelers to earn points for a variety of benefits, including exclusive rates, at over 700 independent hotel properties worldwide.
Independents should also make it easy and transparent to earn points or other benefits. Eliminating blackouts, as well as offering easy access to perks that customers at other brands might not be able to get, can help independent hotels compete more effectively with larger rivals – and win.
Independent Hotels Can Compete
The success of large hotel brands over smaller rivals is not a foregone conclusion. In fact, many are struggling relative to independents. STR, a global data and analytics company serving the hospitality industry, reported that occupancy at the big hotel brands is flat – or, at best, one percent better in 2019. The average daily rate looks to be trending about one percent better than 2018. In contrast, independent hotels are expected to maintain three percent occupancy and daily rate growth for 2019. This suggests that boutiques are capitalizing on their unique value proposition: knowing customers better than larger competitors and bringing them back at better rates.
The famous maxim that luck is what happens when preparation meets opportunities seems particularly relevant for independent hotels’ efforts to compete with big brands. There is not a one-size-fits-all way to acquire the customers of big brands, but it is crucial for independent owners to position themselves for success by providing a compelling alternative for travelers who are open to moving their business. These opportunities could materialize if big brands fail to live up to their brand promise or otherwise alienate customers by, for example, trimming rewards programs.
Recently, I was sitting on a plane talking with a man who travelled frequently for business. When he heard about the consulting I do for hotels, he told me about his own experience. He used to enjoy a simple perk at a hotel where he often stayed: a warm cookie given to him at check-in. After the hotel was purchased, however, the perk was replaced by a mass-produced version provided in a sealed bag. The level of service, from his perspective, was deteriorating. He looked forward to that perk, and now it lost its value.
This issue is bigger than just cookies. Many big brands are struggling to offer as many room upgrades and other expected benefits as they had in the past, leaving customers wondering why the value of their loyalty is depreciating. The big brands are also dependent upon franchisees to deliver on the brand promise and personalization programs they have created. Many franchisees are simply not equipped yet to meet those expectations.
The downgrading of loyalty perks by many large airlines should be a warning sign for big hotel brands – and an opportunity for independent players. Travelers want to feel like they’re getting special treatment, and that their expectations are being met, when they devote spend to a single brand. This is even more true of business travelers, who rightly believe they deserve premium benefits for their loyalty. The hotels that deliver this experience, whether large brands or independents, will be the ones to retain customers and steal others from competitors.
Loyalty, after all, may be a strong word for the relationship many travelers have with their hotel. If a competitor offers flexible perks, personalized service and consistent delivery of a brand promise, many travelers will be willing to give it a shot – especially if their current hotel is struggling to deliver all three.
Reprinted from the Hotel Business Review with permission from https://www.hotelexecutive.com/.
