Customer Loyalty

It has been interesting to watch the major hotel companies’ recent attempt to shift bookings to their direct on-line channels by incentivizing members of their loyalty programs with “exclusive offers”, including reduced rates, free Wi-Fi, and special packages.

For decades, the big chains have invested enormous resources in an effort to build customer loyalty—beginning with loyalty programs in the early 1980s. This battle for customer loyalty has heated up in recent years as online travel agencies emerged, gained strength and market share.

A new battle has begun to emerge. One between distribution channels and which ones customers use to book their reservations. This new and expanded fight now playing out across the industry pits direct channels against in-direct channels.

Today, approximately 10% of a major chain-affiliated hotel’s reservations come from OTAs. It is significantly higher for small chains and independent hotels. The cost per reservation made through an OTA is several times greater than the cost per reservation made directly through a chain’s website. The continued increase in OTA bookings is having a major impact on the lodging industry’s overall profitability.

To their credit the major airlines began to confront this issue in the mid-1990s when their distribution costs were approaching a staggering one-sixth of total revenue. Following a number of bold moves airline distribution costs have been reduced to a point where today it represents only a small fraction of total revenue. The positive effect that this has had on the airline industry’s overall profitability has been enormous.

For several years now, hotel owners, operators and franchisees have been experiencing this same pain. They have, however, been conflicted on what to do and how to respond out of concern for losing business. The trend line of in-direct bookings has been on a steep incline and is forecasted to continue if left unchecked. The pain apparently has reached a breaking-point and has forced the major chains to act.

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