Use technology to rewire loyalty connections
 
Use technology to rewire loyalty connections
14 MAY 2014 11:35 AM

The search for customer trust requires modern businesses to shift away from previously accepted common practice and become more human.

Today’s loyalty programs leave members feeling a sense of entitlement. The programs use language like “earn,” “points” and “statements.” Members receive cards that prove their worth. Companies leave themselves very little room for discretion.

Such programs hardly inspire tender emotions. When buying routine goods and services, customers crave human recognition and appreciation with special treatment. When things go awry, they want human judgment and discretion. To fully exploit this opportunity, hospitality companies must rewire their connections to loyalty program members to create feelings of appreciation and trust.

“Powered by technology, the democratizing of information, and the ascendant power of the individual, the way institutions connect with individuals is changing irrevocably,” our sister company, Lippincott, wrote in a recent paper called “Welcome to the human era.”

“We believe that a universal and fundamental search for trust requires modern businesses to shift away from previously accepted common practice and become more human—those that don’t risk a steady decline in relevance and value,” the report states.

The stakes are high. The U.S. hotel industry has 223.6 million loyalty member accounts, according to loyalty research company Colloquy. HVS estimated about 40% to 53% of reservations at major hotel chains come from loyalty members.

But just because travelers have been conditioned to use loyalty programs doesn’t mean they like them. When asked what they dislike about loyalty programs, 37% of respondents to a study by the Chief Marketing Officer Council said the rewards lack real value.

Successful loyalty programs in the hotel industry balance needs across four stakeholder groups:

  • Members want to receive their favorite rewards and feel engaged. They want the program to recognize their value and give them differentiated treatment when they stay.
  • Hoteliers want to build loyalty for their properties, steer guests toward more on-property amenities, and build the market share and revenue.
  • Brands want to build incremental loyalty membership and improve their franchise value while protecting program profitability.
  • Partners want to capture new business from the hotel loyalty members and generate greater utility for their own customers.

So if engagement is the key, it is surprising how few hotel companies really understand the nature and state of their guests’ engagement.

One classic example: A hotel guest travels regularly to Doha, Qatar, staying at a property every other week for six months. When the “targeted” loyalty program email arrived, guess where it suggested she take her next vacation? That same property in Doha. Clearly this customer is already aware of the opportunity to stay in Doha. But she might relish a promotion to use all those hard-earned Doha points on a vacation in the Maldives.

Loyalty programs must track the evolution of the guest relationship. This extends far beyond typical loyalty member segmentation—by elite status or even member needs—to a model for the state of member engagement by segment.

A program member might be a Reluctant Road Warrior, for instance, but how engaged and committed is he to the chain’s brands? Is he an occasional user, who considers the chain Plan C when his first and second choices are unavailable, or is he dedicated to the chain? Is he dedicated to a particular property, or is he a fan of the chain no matter where he travels? Is he happy with the chain, or have recent service failures endangered the relationship?

Once they monitor engagement in this way, executives of loyalty programs can begin to manage it proactively, by steering members to more positive (and profitable) engagement states. Through the right interventions, hoteliers can detect and re-engage at-risk members; they can proactively engage recovering former elite members; and they can urge established loyal members to extend their engagement to other group brands.

Hoteliers must consider loyalty programs at every touch point as loyalty becomes a much broader, cross-disciplined function:

  • Book: Offer greater loyalty rewards for transactions booked through direct distribution channels.
  • Redeem: Tailor the options and buying power of points based on loyalty. Include ancillary services in the redemption mix.
  • Experience: Offer exclusive on- and off-property experiences to elite members.
  • Share: Place greater value on ratings and reviews from loyal customers.
  • Earn: Beyond points, provide a differentiated opportunity to earn recognition and create influence in social communities.

Hoteliers should think expansively and holistically about the customer journey, creating an ecosystem of experiences that reach the lives of members beyond the direct travel transaction. They can do so with a portfolio approach to the change, a blend of initiatives that balance impact, cost and time to market.

Innovate on simple touch points, even mundane elements such as the folio. Reimagine core experiences using advanced technologies, for example the beacon-enabled property of the future that can locate and recognize each customer. Target new experiences and business models that grow revenue beyond the core hotel product, such as the offer Four Seasons recently announced for private jet tours.

Rewiring the connection to loyal customers requires hotel companies to take a broader view of the lives of their members and the context in which they interact. It is about creating unexpected, signature moments across a broader swath of experiences.

Scot Hornick is a partner with Oliver Wyman’s aviation practice, focusing on travel and transportation. Previously, Hornick was CEO of consulting boutique Fenix Partners. Earlier, he was a partner at PricewaterhouseCoopers, and he spent 10 years at Andersen Consulting. Hornick was also an adjunct professor at Northwestern University. He holds two U.S. patents in revenue management and airline seat inventory control and serves on the advisory board of the Professional Pricing Society. Hornick has a B.S. in computer engineering, an M.S. in electrical engineering, and a Ph.D., all from the University of Illinois at Urbana-Champaign.

Dan Kowalewski is an associate partner in New York focusing on the hospitality and travel-related service sectors. Prior to joining Oliver Wyman, Kowalewski was the VP of revenue management for Wyndham Hotel Group. He has worked on reservations, distribution and revenue management functions, in addition to enterprise-wide technology strategy, business process transformation and organization change. He also has a strong understanding of travel industry technology trends and has managed several post-merger integration efforts.
 
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