A few weeks ago I posted the following poll on LinkedIn:
NB: This is an article from Direct Your Bookings
Poll on Linkedin about Loyalty Programs for Hotels.
By far, those who believe loyalty is even more important in this disrupted post-pandemic market outnumber those who don’t.
Quite surprising, at least to me.
Not because I don’t believe in loyalty, but because I would have expected different figures.
I admit though, my own vote fell under “Not much”.
To be crystal clear: this post is not about convincing those who believe loyalty is of paramount importance that it is not.
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But ever since the above poll, a lot has been written about this ubiquitous topic, yet too many points and questions remain unanswered, especially when it comes to loyalty for independent hotels.
And not clear to which extent a loyalty program contributes hotels’ revenue and bookings.
First and foremost…
What does loyalty mean?
My main concern when talking about loyalty, is that we don’t consider the point of view of those who really matter: the customers.
What does loyalty mean? In theory, a loyal customer is loyal to a brand only (what kind of loyalty would it be otherwise?).
For example, a Startwood’ SPG member shouldn’t be a Hilton Honors member. And the other way around.
But is it really the case?
A much interesting statistics to know about would be: “how many loyal members are loyal to more than a brand?”
Following the example above, how many people have signed up for both Starwood and Hilton?
30%? Not many, yet relevant.
70%? Wow, to me this is like saying that loyalty doesn’t exist.
But there’s no answer nor statistic about the above question, at least none that I could find.
So, let me ask the same question from another point of view: what makes guests loyal?
Here, to me, falls the difference between loyalty program and loyalty to a brand.
At the end of the day, a loyalty program is just what it is: a program, a tool.
Cultivating a community of happy and repeat customers shouldn’t depend on a program, but on the hotel, on its Staff and people. And a loyalty card in the customers’ wallet doesn’t make them loyal to those hotel brands.
Instead…
No A/B Testing.
A big hotel brand (I won’t make any name 
) used to tell that their loyalty program contributed to 48% of bookings in the previous year, in a specific country.
Impressive, isn’t it? Yet, that number doesn’t say much.
First, what’s the incremental revenue generated by the loyalty program? Or the other way around, how many of those loyal bookers (and revenue) would have come in anyway?
The most reliable way to answer this question would be an A/B test.
A simple 50-50 traffic split would be enough: loyalty program visible to only 50% of the prospective customers, and invisible to the remaining 50%.
The main benefit of any A/B test is that it really is like comparing apples to apples, because all the conditions between version A and version B are the same, except the very one thing being tested, in this case the loyalty program.
Instead, comparing the performance of the hotel with another similar period (for example last year, or same month last year) before adopting the loyalty program would be misleading, even more so in a post-pandemic moment like this where very little from the past can be used to justify what happens now.
The problem is that there are 2 limitations when A/B testing:
- Even though there are booking engines that allow hotels to run their own A/Bs, why would hotels (especially independent ones) pay 100% for a loyalty program and using only 50% of its full capabilities?
- As a consequence, LP providers should run such tests. But why would they do that, considering that best case scenario the test would confirm their theories, but also good chances that it will destroy them?
This is exactly the point. It is relatively easy to buy into a random 48% of booking contribution by a loyalty program. It’s all the secrets that lie hidden behind such a number that would tell the truth.
Does it Only Support Your Direct Booking Strategy?
But ok, let’s assume the only reason why some hotels join a loyalty program is to incentivise direct bookings.
Does having a loyalty program automatically drive more direct bookings?
Furthermore, is a loyalty program really needed to accomplish this direct-booking goal?
And more importantly, isn’t it instead that the loyalty program is making hotels lose direct bookings?
It’s simple math:
- given 100 website visitors;
- all of them are asked to join a loyalty program to be entitled to a 10% OFF, plus other benefits;
- let’s say, 30 accept and join the program;
- so, what about the remaining 70 visitors? Did they book? Did they run away? And how many of them could have been retained if they were entitled to the same discount and benefits?
Let’s step into one’ shoes (of those 70) who didn’t join loyalty: logically, if neither the 10% discount, nor all other benefits have convinced him to sign up, it means he is quite a cold prospect, right? For sure a bit colder than someone who accepts to join the program.
Cold lead. And he can’t access benefits and discounts offered to warmer prospects (loyal customers). Then how can we expect him to turn from from cold to warm to hot, when all the LP is doing is discriminating him?
Instead, those who joined the program might already be warm, probably even hot. Is it really necessary to be more convincing?
You see, what I really don’t get when reading and hearing about the benefits of loyalty programs for hotels, is that all the emphasis is around the 30, but none around the 70.
Loyalty Programs vs. Loyalty to a Brand.
So what is then the goal of a program? Driving more (direct) bookings or boosting customer retention?
This is what customer retention is capable of:
- 5% incremental customer retention equals 25% up to 95% incremental profits (Harvard Business Review quite old yet relevant research);
- Furthermore, guests spend extra $25 on their loyal hotel brand, on average.
But the 2 points above have nothing to do with those customers who join a LP for the sake of having a better rate.
Incremental revenue and profits derived from retained customers are the natural consequence of loyalty to a brand.
I like you.
That’s essentially the only one reason customers are loyal. They like the brand. They like what the brand does for them and how the brand makes them feel.
Think it’s simple? No, it’s simplistic.
Loyalty is one of those arguments like Metasearch engines and Price comparison tools: they seem to be easy solutions to complex problems.
“Connect to Google and other Metasearch engines and your direct bookings will skyrocket”.
“Install a price comparison tool on your site and booking engine and your direct bookings will skyrocket”.
“Join a loyalty program and your direct bookings will skyrocket”.
Hotel distribution has changed more in the last 4 years than in the previous 40.
I still refer to Distribution as my playground: it’s never boring. And I love it. Seriously. Because it’s a mess. And I eventually love dealing with chaos, it’s fun
.
But this chaos also generates many headaches to many hotel professionals, who just cannot stand the rapidity with which things change. And the complexity implied in everything related to Hotel Distribution.
Too much money in and around it. And too many (big) players claiming a piece of the same pie.
Can we really expect to even compete with those giants out there by simply connecting our hotels to meta? By simply installing a price comparison widget? By adopting a loyalty program?
As said, a loyalty program is just what it is: a program. By itself, nothing can it do.
Does it instead serve and support your customer loyalty strategy? Then long life to loyalty programs.
