Hotel loyalty programs can be an expensive proposition, but sources said they are a necessity.
REPORT FROM THE U.S.—About four years ago, Dan Donahue was wondering how his independent hotel, the Lenox in Boston, was going to keep up with the big boys of the industry.
His answer: Join a loyalty program—specifically, Stash Rewards. The results, said Donahue, managing director of the property, speak for themselves. Approximately a third of the hotel’s guests are loyalty members.
“We aggressively sign everybody up,” he said.
Donahue acknowledged the expense of maintaining a rewards program. “The costs are real.” But, he added, so too are the benefits.
Other hoteliers echoed Donahue’s comment. Hotel reward programs can be a hard sell for a hotel operator because of what’s being given away for free. But to stay relevant, sources said loyalty programs are essentially a requirement for most properties.
Christine Cutten, principal at Monitor Deloitte Consulting, said she has seen more investment in loyalty programs of late. Programs used to be comprised of a simple points system, but as the number of programs grows, companies are finding they have to differentiate by offering personalized experiences or rewards.
“It’s getting much more competitive in breaking through the noise,” she said.
Public companies weigh in
During quarterly earnings calls, executives at the big brand companies touted their loyalty clubs. The programs can serve as a gateway for a customer to go deeper into the brand, said Thomas D. Singer, CFO of InterContinental Hotels Group.
The IHG Rewards program accounts for about 40% of the system delivery into the company’s hotels, he said. IHG has plans to increase that figure over time.
“We think associating IHG Rewards with our underlying hotel brands will encourage guests to stay more frequently with us and to try additional brands that they’re not familiar with within our portfolio,” he said.
Loyalty programs also can benefit luxury-branded properties, Starwood Hotels & Resorts Worldwide’s President Frits van Paasschen said during his company’s second-quarter earnings call. Starwood Preferred Guest’s share of occupancy is more than 50% across the company’s system overall, and at its three luxury brands, that figure stands at more than 60%.
“To be sure, we reject the old yarn that luxury and loyalty don’t mix,” he said.
Michael Beardsley, VP of sales and marketing at Aimbridge Hospitality, said during a telephone interview the cost of operating the programs is generally 2% of transient revenue, though it varies by brand.
Michael Barnello, CEO of LaSalle Hotel Properties, which has 10,600 rooms in its portfolio divided among 42 branded properties such as Hilton and Marriott, said loyalty programs can be “fairly expensive.” The value of the program is directly tied to the value of the brand, he said.
“You can’t separate them,” Barnello said.
The hotel loyalty program’s value is derived from the intrinsic value of the brand of which it is a part, Barnello said. If guests value the brand, they will also value the loyalty program as an extension of that.
Of the 180 hotels in Aimbridge’s portfolio, loyalty programs drive 50% of the occupancy, Beardsley said. The argument he hears most often, especially during times when the economy is recovering, is that the hotel would have sold the room without the program so the hotelier is basically just throwing money away by booking reward redemptions.
Problem is, it’s not always an upward-swinging market, Beardsley said. “In a down market, you love these people,” he said of loyalty members. Most of the members are high income earners who typically spend well with hotels, he added.
Independent hotels, of which Aimbridge has a handful in its portfolio, are not immune. For the most part, independents without loyalty programs need to be located in knockout locations or have a unique value proposition to offer guests.
“It is difficult for an independent hotel to drive occupancy” without a loyalty program, he said.
Donahue agreed the programs are worth the cost to operate.
“We think there is intrinsic value in it,” he said of loyalty programs.
Deloitte’s Cutten said loyalty programs are a significant demand-driver.
“It’s the minimum criteria now … It’s the minimum to be in the game,” she said. “The question is how you make them differentiated.
“The better question is, if you don’t have (a loyalty program), how much are you losing?”
Hotel News Now’s Patrick Mayock contributed to this report.