8 traps of independent loyalty program design
10 OCTOBER 2014 8:56 AM
Be sure to consult this list of do’s and don’ts before launching your own hotel loyalty program.
Nothing in the hotel business comes easy. But you know that already. After all, you might have successfully grown from a single independent property to an operation with several locations in various cities around the region. And despite some difficult times, you’ve managed to maintain your fiercely independent culture, stand out from the competition and build a dedicated following of loyal customers.
But while many of your guests have inquired about a hotel rewards program, it’s the one thing you haven’t delivered.
So now you’re thinking more seriously about a loyalty program. You’ve weighed the options and in true independent spirit have decided to create your own. But where do you start? And what should you be aware of heading in?
Our team has built two programs from scratch—Expedia’s rewards program and Stash Hotel Rewards. We’ve talked to hundreds of hoteliers and thousands of frequent travelers. And we’ve read everything written about loyalty program dynamics.
So before you jump in, we’d like to share our knowledge to help you avoid eight common loyalty program traps that snag independent hoteliers:
1. We don’t need a loyalty program
Occasionally, we’ve heard, “Our guests come back for our wonderful guest experience.” That’s probably true, but they’re also likely sleeping at other hotels. Researchers at the Cornell University School of Hospitality Administration have proven that when enrolled in a rewards program, a hotel’s best guests increase their visits and spend by nearly 50%. Without a program, those additional visits are likely going to the competition.
Additionally, a points-based loyalty program is going to provide the single best defense against online travel agencies. Multiple studies show the No. 1 reason travelers book directly is the ability to earn points. No doubt that’s why independent hotels fill twice as many rooms through OTAs as do chains. The best way to reduce OTA share is to get guests to book directly. Points provide the motivation to do so.
2. The Howell fallacy
We often hear from higher-end hotel groups that their wealthy guests don’t care about points. “They’re crass. Points are for the 99%,” they claim through clenched jaws and noses tilted slightly skyward.
We’ve named this trap after Thurston Howell III, the billionaire castaway stuck on Gilligan’s Island, the fictional location in a classic television show. Thurston had so much money he could pay Gilligan to fan him with a palm leaf. He certainly didn’t care about the balance of his frequent-flyer account. Or so the thinking goes.
But the research shows just the opposite to be true: Travelers with the highest incomes put a significant value on points as they consider hotels.
A 2013 IPSOS/Google Think study found affluent travelers (those with annual household incomes of more than $250,000) are increasingly likely to book based on loyalty program membership. And more than 80% of those surveyed said loyalty program membership has significant impact on their choice in hotels.
3. Unclear status labels
Independent hoteliers want the structure of their loyalty programs to be as unique as their hotels. Instead of naming their elite levels using some combination of known precious metals (silver, gold and platinum), status levels are named after star systems, 16th-century explorers or the orders of the Freemasons. But there’s a problem with these imaginative names: They don’t convey a clear hierarchy, and hierarchy is extremely important if you want to trigger the human instinct to achieve the next level of status.
Here are a couple of status levels you might find in an independent loyalty program:
- Enthusiast, Aficionado, Seeker
- Centaurus, Phoenix, Orion
I’ve mixed up their order. Can you tell which is the highest level in each group? Do you think a guest could?
Research by loyalty expert Xavier Dreze found status levels with distinct hierarchal value are critical to driving loyalty member engagement. Silver, gold and platinum: Stick with the metals.
4. Borrowed currency: “We’ll just use airline miles”
Airlines already have fervent followings of point junkies. So why not just give away airline miles and skip the hassle of building or joining a specific hotel program?
Makes sense on the surface.
But here’s the problem: Airline miles don’t come cheap. A mile can cost two cents or more. And the effective value of the miles you buy from American Airlines or United Airlines can never match the value of the reward you can offer with your own inventory.
There’s a second problem with airline miles: You’re linking your loyalty program to currencies that are decreasing in value and increasing in customer dissatisfaction. That’s not an ideal situation for you or your guests.
5. Lack of scale
An independent hotel group with 10 or so properties might start to feel like a network internally. But does that make it so? What is critical mass? Do 10 properties provide enough coverage to meet the needs of seasoned road warriors?
Programs with numerous properties offering the same currency are going to be more valuable to frequent travelers than a program found at a standalone property or among a small grouping of hotels. So creating a program without providing enough opportunities to earn points is unlikely to appeal to many guests.
6. Lack of geographic breadth
Kimpton Hotels & Restaurants has 60 hotels in 27 cities, which is small compared to other programs. But its hotels are located in key cities for business travel: Washington, D.C.; New York City; Boston; Chicago; San Francisco; Dallas; Miami; Philadelphia; and Seattle. The secret to Kimpton’s success is less the size of its network, but rather the breadth of its network.
Compare that to another independent program with 30 hotels. On the surface, it seems to have sufficient scale. However, the majority of the hotels are located in just one region. Most business travelers don’t visit just one region, so this program provides limited opportunities to earn points.
Regional programs have another limitation: After staying 15 to 20 nights in that region, guess where members don’t want to redeem their points for a free night? At another hotel in that region.
7. Only soft benefits (a.k.a. you can’t take it with you)
Many hoteliers try to solve the loyalty program gap with a set of soft benefits offered to their best guests, such as free Wi-Fi or complimentary breakfast. But those kinds of benefits aren’t meaningful to business travelers because they can usually expense those costs.
What travelers really want is value they can take home to their families—to compensate for all the time they spend on the road. Points can be redeemed for those overdue family vacations. And that’s more important than a bottle of wine or a cheese plate. Points are portable; soft benefits aren’t.
8. It’s cheaper to build and run our own program
This is the most costly of all the traps. Initially, it might seem logical to try to use existing resources to build and manage your own program. However, after factoring in all costs, we found the average independent hotelier will spend nearly $15,000 more to start his or her own program than if he or she joined an existing program.
That startup cost doesn’t factor in the resources needed to manage and run the program—administration, marketing, promotional, technical and customer service costs. And you’ll have to dedicate time to hire the right team, train them and pay them to run the program. That’s a lot of time spent on logistics when you have guests to take care of.
So, while the idea of building your own program might seem grand, it’s not that simple. It takes work, time and resources. And, it’s going to take you away from what you do best, which is taking care of guests.
Jeffrey Low is founder and CEO at Stash Hotel Rewards, the largest loyalty program for independent hotels in North America. Stash helps independent hotels fill more rooms, win more groups and meetings, and recognize their best guests. US News & World Report recently ranked Stash as one of the Top Hotel Loyalty Programs in the US. Stash has also been featured in numerous publications including The New York Times, Inc., and Condé Nast Traveler, and it was named an Innovation of the Year by Hotel News Now.
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