Owners weigh costs, benefits of brand loyalty programs
 
Owners weigh costs, benefits of brand loyalty programs
24 JULY 2017 8:07 AM

As brands raise the bar on loyalty perks to compete for guests’ attentions, the cost of those perks is passed on to hotel owners. That’s not a problem as long as they pay off in bookings, owners said. 

REPORT FROM THE U.S.—Brand loyalty programs ultimately are about “getting the guest.”

Some offer flashy perks—inviting the avid traveler to rub elbows with famous professionals, swim with sharks, go on an adventure—that act like a neon sign to grab attention. Others stick to the more-traditional rewards of free room nights, upgraded accommodations and the like.

Whatever the level of loyalty program, there’s a cost, and it’s the hotel owner who pays it. The trick, hotel owners say, is balancing that cost with the benefits loyalty programs offer, starting with bookings.

That balance becomes trickier as brands continually raise the bar with loyalty program perks to compete for guests’ attention, said Jay Litt, founder of the private hotel consultancy firm The Litt Group, which advises owners on acquisitions, capital projects and property improvement plans.

“As an owner, the question is, ‘How much more money will it cost us to get our guests?’” said Litt, a 46-year veteran of the hospitality industry and part owner of six hotels within the portfolio of Boca Raton, Florida-based Waramaug Hospitality, where he previously served as SVP of asset management.

“As the brand increases what it’s giving the guest, that’s not just out of charity. The people paying for those gifts to guests is the owners. … What will the next bar be? … Whether brands themselves come up with a new program, something that is less costly for owners but more attention-grabbing for guests, remains to be seen.”

Brand support
Litt has experience on the brand side, too. As an SVP and EVP at what was then Wyndham International (now Wyndham Worldwide), Litt “ran the Wyndham (hotel) brand … (and created) Wyndham by Request, which was actually the first main Wyndham loyalty program,” he said.

Brands and owners need to work together, he said, to make sure that loyalty programs are doing what they’re designed to do.

“As brands began to proliferate, they started realizing they had to be more than just a brand. They had to offer another piece, to make guests use that brand. And owners sat back and said, ‘How do we get the most out of our brand?’” Litt said.

“For owners, it’s about what brands have a stronger attraction for guests. Every brand said they did … (but) they needed something they could put their pencil on, to say: ‘These are our guests, our loyal guests; this is who we are, and this is what you’re paying for. You’re not just buying our brand, you’re buying our loyalty program. You’re buying the opportunity that they’ll find your property attractive based on that brand name.’”

For owners choosing what brand flag to put on their hotel, part of the consideration is not just the cost, but the direction of a brand’s loyalty program, said Jeffrey Dougan, SVP and COO at Bethesda, Maryland-based Condor Hospitality Trust, which has a portfolio of 17 hotels, including six under the Hilton brand, four under Marriott International, four Choice and one each under Wyndham and InterContinental Hotels Group.

“On a cost basis, there’s not as much swing between (loyalty programs) as you might think. They all fall in a similar category, relatively close in pricing,” Dougan said. “What we look at is: Strategically, is the brand moving in the right direction (with its loyalty program), and do we feel that it works. Is it simply a point giveaway, or does it really drive the loyalty? … It’s about how the brands are promoting and pushing it, and developing training programs around it.”

Bhavesh Patel, chairman of the Asian American Owners Association and principal at Cinnaminson, New Jersey*-based ADM Hotels, said this is where hotel owners can help each other.

“If you’re a new owner, or new to the brand, the best bet is to talk with owners who have properties under that brand’s flag. It really comes down to several considerations that you need to look at,” he said.

“First, is there customer support for the loyalty program from the brand? This comes in terms of online account management, phone support and robust tools to manage your rewards. That says the brand is committed to the program if they’ve spent the resources to build those tools. Second, what are the statistics for the program? I like to look over customer retention numbers, frequency of reward redemption and whether customers identify themselves as program members.”

Options, flexibility
The good news for owners shopping for a brand, Patel said, is that there are many to choose from, and their loyalty programs are diverse.

“There are many differences,” he said. “Many times the benefits or impacts on consumers are the primary focus, and there certainly is a lot of variety and competition there. However, the impacts the programs have on owners can also be significant. Is a reward night reimbursed by the brand and how much? How many points are rewarded for what stays and how are those redeemed? Some brands reimburse $25 on a $90 room. Some brands reward points faster and have flat redemption rates. All of those affect the owner—not all in a bad way—and need to be closely considered.”

The Litt Group’s Litt agreed that owners need to make decisions on loyalty programs based on what works for their properties. That means if a loyalty initiative is meant to drive group bookings at a property, the hotel should see results from that, he said.

“There’s a caveat in saying that the brands themselves create (loyalty) programs that are for everybody: They’re not specific. But your hotel is specific,” he said. “The owner has to make sure that the nonspecific program benefits your specific hotel.”

AAHOA’s Patel said the loyalty program comes with the brand, so opting out of it completely is not an option. “It’s either take the program and all its ups and downs or don’t opt into the brand,” he said. “That itself has pros and cons. A pro is that the burden of reward redemption is carried by all of the properties in the franchise. A con is that maybe the program hasn’t delivered results in terms of a customer base that you were expecting.”

But, Condor’s Dougan said there is generally some flexibility on initiatives or promotions within the program. “Whether it’s double-points promotions or those types of things, you do have the ability to opt out,” he said. “We have quite a few hotels in Florida by Disneyland, and whenever there was a double-points program, we would opt out, because we didn’t need that to drive guests into the hotel. … You don’t want to just give something away because you have to give it away.”

Still, it’s a delicate balance, Dougan said. “You want to be a good steward to the brand. There’s a reason you’re buying the Hilton or the Marriott or the IHG flag. But at the end of the day the ultimate responsibility is to the owner,” he said.

It can also cause some challenges operationally, he said. When guests come into the hotel looking to cash in on a loyalty points promotion, “you have to explain to them that it’s a promotional program that you’ve opted out of.”

AAHOA’s Patel reiterated that most problems with loyalty programs can be solved by owners and brands communicating and cooperating. “More often than not, the brand will want to work through the issues you’re having and do all they can to solve them,” he said. “I can’t emphasize open communication and an ongoing, positive relationship with your brand enough. That personal touch during the good times, when all things are running smoothly, will help when issues arise.”

Creative approach to loyalty

Caption: An exclusive master cooking class with celebrity chef Eric Ripert at The Ritz-Carlton Grand Cayman in the Cayman Islands is part of the Master Classes program available to Starwood Preferred Guest and Marriott Rewards loyalty members. (Photo: Marriott International)

That open communication might also give owners opportunities to pitch their own ideas for unique loyalty initiatives that are specific to their properties.

“Competition can inspire creative and outside-the-box thinking. Without that mentality, we as an industry would never evolve and move forward,” Patel said. “Of course, the message to the brands is always work with the owners on new ideas. We’re on the front lines seeing what’s moving customers and hearing their ideas and complaints. Any big decision should have the input of owners. And for the most part, that’s how it is.”

He said the market is limited for “extremely unique perks,” and “ultimately … customers want free nights or miles for their favored airline because those are the easiest to accumulate and use.”

But, he said, they can be a great motivator for guests. “The big thing for millennials now is experiences over stuff … whether that be zip lining in some tropical destination or a cooking class with an award-winning chef,” he said. “It’s the difference between the aspirational ‘I could see myself doing that!’ and the reality of ‘Gosh, I’m so busy; it’s just easier to redeem for a roomnight.’”

Litt and Dougan agree that those kind of perks are “one-offs” and “attention-grabbers.”

Dougan said they’re geared more toward the top-tier loyalty members—those avid travelers who rack up tens of thousands of points or more, and are looking to redeem them for something really special.

“If you’re going to earn that many points in a year … call it 100,000 to 200,000 points … you’re likely staying at a lot of different brands. And we’re going to give you something beyond just a free night to make you say this is really something special that is going to cause you to make that decision that, hey, these guys are going to be my No. 1 go-to,” he said.

Starwood Preferred Guest really opened up that top-tier, experiential loyalty arena, Dougan said. “No question, Marriott (which officially absorbed Starwood Hotels & Resorts, including its loyalty program, in September 2016) will continue that program, and I think Hilton will jump in to remain competitive in that arena,” he said.

Marriott International President and CEO Arne Sorenson, speaking at last month’s NYU International Hospitality Industry Investment Conference, admitted that even he was caught off guard by the depth of devotion to Starwood’s loyalty program. “Early on, the thing I didn’t appreciate that I should have was how rabid the SPG elites were about the program,” he said. “Maybe that shouldn’t have been that surprising.David Flueck, SVP of Global Loyalty at Marriott International, said that with the launch of Starwood Preferred Guest Moments in 2006 and its integration into Marriott Rewards in 2016, the focus has been on experiences.

“Travelers today are placing more value in experiences than ever before because travel is about enriching the soul, learning about new cultures and meeting people wherever you go. Tapping into those passions has always been at the core of our loyalty programs,” he said.

Smaller touches
But it’s just as important to cater to those loyalty members who have fewer points to cash in, Dougan said.

“You don’t have to build 20,000 points to get something back. Whether it’s you get a free appetizer in the hotel restaurant because you’ve got 4,000 points, or the room upgrade that only costs you 5,000 points or whatever … I think that’s good in helping to build the loyalty (program),” he said.

“For the road warrior, it’s all about the free rooms. If you’re a major traveler, you’re going to get the points and get special treatment anyway because you’re in the top tier of the loyalty program. (Perks for) smaller points are designed to build people into the program.”

Lower-tier redemption options can also help to keep loyalty program costs in control, the sources said.

“It’s not cheap to provide reward rooms,” Patel said. “Some programs require you to grant a reward room even if it’s your ‘last room,’ so to speak— a room that normally would go for a premium price because of high demand. …

“There are many affordable ways to reward repeat customers, such as free bottles of water, free newspapers or late check-outs. Those are all extremely affordable for the owner but provide a tangible benefit to the customer who, in my experience, appreciate those small touches.”

The bottom line with loyalty programs, Dougan said, is that hotels should be better off with them than without. “The horse has left the barn, and you’re never getting it back in,” he said, “but how do you keep the reins on it? That’s the challenge for the owners going forward.”

*Correction 24 July 2017: A previous version of this story listed the wrong city as the headquarters location for ADM Hotels. 

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