A slowing growth environment in the hotel industry prompts hotel companies to assess the strength and success of their efforts to grow loyalty for their brands.
GLOBAL REPORT—The world’s largest hotel companies are pushing hard for more loyalty members to book directly with them to ensure they get a bigger piece of the pie before the pie starts to shrink.
Early this year, Marriott International debuted its Bonvoy loyalty program, which united its brands under one loyalty umbrella, combining Marriott Rewards, Ritz-Carlton Rewards and Starwood Preferred Guest.
Hilton countered in September with its “Expect Better. Expect Hilton” campaign for its Hilton Honors loyalty program, broadening its perks to include the ability to redeem points for merchandise, choose a specific room within a reserved hotel, access particular events and earn rides with peer-to-peer car service Lyft.
These moves signal efforts by hotel giants, which also include Hyatt and InterContinental Hotels Group, to go beyond discounted rates for loyalty members who bypass third-party distributors such as online travel agencies to book direct.
“Where this campaign began, and how it’s evolved, is very much rooted in consumer feedback and insights,” Kasey O’Leary, VP of global enterprise marketing at Hilton, said. “We’ve done a lot of qualitative research to understand what drives consumer travel shopping and booking behavior, as well as which specific benefits and services truly matter to consumers.”
Meanwhile, Marriott has introduced its Rewards Network, which allows guests to earn loyalty points when they dine at certain restaurants off-property. Guests can also apply their points to home-rental locations via the new Homes and Villas by Marriott International addition.
Hyatt offers loyalty members content-streaming through the World of Hyatt app as well as early check-in and late check-out privileges.
“Our digital channel has been growing at three times the rate of our OTA channel, and year-over-year traffic and conversion has grown on both desktop and mobile,” Julia Vander Ploeg, SVP and global head of digital at Hyatt, said. “When guests and members book directly, we are able to get to know them better, enabling us to better personalize their stay and further deliver on our purpose.”
Such efforts are the latest in a strategy that began in February 2016 when Hilton debuted its “Stop Clicking Around” campaign to boost direct bookings in order to reduce distribution costs that, with wholesale prices offered to OTAs, can exceed 20% of room revenue.
Within three months of that campaign, Marriott, Hyatt and IHG had all introduced member rates in loyalty campaigns.
How well that strategy has worked is debatable.
OTA hotel bookings continue to grow, with both Priceline and Expedia, the world’s two largest OTAs, reporting an 11% increase in room nights booked for the first six months of 2019.
But loyalty membership is also rising.
Bonvoy membership as of 30 June totaled 133 million, which was 56% more than the 85 million combined Marriott Rewards, Ritz-Carlton Rewards and Starwood Preferred Guest members at the time of Marriott’s acquisition of Starwood Hotels & Resorts in September 2016.
World of Hyatt enrollments were up 37% year-over-year in June, and Hilton Honors is about to surpass 100 million members, with enrollments up 25% year over year in October.
A study from Kalibri Labs reported in January showed that loyalty-member room nights as a percentage of total room nights rose to 49.2% for the 12 months ending September 2018. That was up from 43.6% in 2015. The study also found that loyalty members accounted for about 60% of upper midscale and upscale bookings last year.
The study showed as of August 2018 that hotel websites accounted for 23% of U.S. hotel-rooms booked, while OTAs accounted for 15% (walk-ins, phone reservations, group bookings, wholesale reservations and GDSs accounted for the rest).
“When examining the pattern of business for the loyalty offers through Brand.com compared to the OTA bookings, it appears that Brand.com is either growing at a similar or faster pace,” the study concluded.
The stakes may be getting higher because the trend of increasing hotel revenue, at least in the U.S., may be coming to an end. Third-quarter U.S. revenue per available room rose 0.7% from a year earlier, marking the slowest annual growth in almost a decade, according to data from STR, parent company of Hotel News Now.
As a result, hotel companies are not dismissing the value OTAs bring to them. In September, Marriott announced it reached an agreement for Expedia Group to become the hotelier’s exclusive distributor of wholesale room rates.
Either way, running loyalty programs isn’t cheap. Speaking on the company’s August earnings call, Marriott Chief Financial Officer Leeny Oberg said Bonvoy members were redeeming points and cashing in on their perks faster than the company expected. As a result, the net cash generated from the program will be “a few $100 million more negative in 2019” than projected earlier this year.
Still, hotel companies are counting on those investments to pay off, and their optimism may be warranted. Member-rate bookings by loyalty members generate about 9% more in average nightly RevPAR than OTA bookings after the acquisition costs (in the form of wholesale rates) are factored in, according to Kalibri Labs. As a result, the return on the first wave of investments in direct-loyalty programs was almost double that of investments in OTA bookings.
“We got into it not as a fad and not simply as a test, but we got into it because we think it's a place where we can have a presence; we can provide more solutions to our loyalty members when they travel for different purposes,” Marriott CEO Arne Sorenson said on his company’s earnings call in August. “And we think we can make good economics over time.”
“We see that promotions and exclusive member rates do improve direct bookings as members receive IHG Rewards Club points for those stays,” added Christian Hempell, SVP of global loyalty and partnerships at IHG.