It seems like all major brands today have hotel loyalty programs in place these days, but it’s no secret that they can be costly both in terms of time and money.
If you’re on the fence about whether to launch a loyalty program for your hotel or brand, consider the following pros and cons.
Advantages of Hotel Loyalty Programs
With hotel loyalty programs, you will have systems and procedures in place for recognizing frequent guests and ensuring that none are overlooked both within your hotel and at participating properties.
The lure of instant perks can be a powerful way to convert travel shoppers into bookers. Moreover, when travelers are familiar with a brand, they are more likely to return. Research from Kalibri Labs found out that 40 to 60 percent of hotel room bookings came from loyalty members.
It’s far less costly to attract repeat guests than to convince travelers to book for the first time. Furthermore, loyalty members are more likely to book directly than through an Online Travel Agent, especially when offered an incentive. The Kalibri Labs study found that direct bookers were on average 9 percent more profitable than Online Travel Agent bookers. Even when hotels offered discounts for booking directly, net average rates were higher than Online Travel Agent rates.
Frequent guests are more likely to spend money on additional services too. In a survey from Triptease, 40 percent of hoteliers said that regular direct bookers are their biggest spenders.
With a loyalty program, hotels can build rich profiles of guests and track their preferences, interests and spending behavior. When travelers join a program, they are asked for consent to receive communications and promotional offers. This helps ensure compliance with privacy regulations like Europe’s GDPR.
Personalization and relevancy
The more data hotels collect on guests, the more they can tailor the guest experience, communications and special offers to meet individual needs and interests. Loyalty members can be segmented by lifetime spend, and big spenders can be flagged for VIP treatment.
Hotels can use loyalty points to encourage and incentivize guest behavior such as using the spa, bar or restaurant, completing a guest survey, declining housekeeping services, using the hotel’s mobile app, and checking in and out online.
Hotels can create an elite database of top loyalty members and invite them to participate in focus groups, ask them for detailed feedback and suggestions about services and amenities, and engage them on social media and on property.
Group and corporate business
Travel managers and event planners are often more inclined to choose a hotel that offers participants loyalty rewards, helping to generate group, corporate and events business.
Disadvantages of Hotel Loyalty Programs
As mentioned, a loyalty program can be time-consuming and resource-intensive, requiring investments in technology, training and labour to track points and redemptions, answer inquiries and engage members.
Marketing and operational costs
Loyalty discounts and incentives can increase marketing and distribution costs. Extending perks such as upgrades, amenities, Wi-Fi, food and beverage credits and early check-in/late check-out can burden operations, displace revenue and increase expenditures. Hotels may extend discounts and incentives for bookings that would have been made anyway. And in extreme cases the costs of attracting direct bookings may exceed the costs of Online Travel Agent commissions.
Costs of redemption
Points accumulated over time represent a liability on the hotel’s balance sheet. The costs of redeeming rewards can be significant,
displacing revenue on rooms that would otherwise be occupied by paying guests. Further, some members may accumulate points at less desirable properties and redeem rewards at more desirable properties, creating an imbalance.
The more frequent the guest and the higher their status, the greater their expectations tend to be. When a hotel has multiple loyalty members in-house, it can be challenging to accommodate all of their needs and expectations.
Lack of consistency
Often there are significant differences in service, quality and amenities among properties within a brand. Whereas some hotels may go to extremes to acknowledge loyalty, others may be less proactive or lack the resources or infrastructure to do so.
When expectations are not met, loyalty members can be very vocal about their dissatisfaction, complaining to staff, writing negative reviews and posting complaints on social media. Managers must dedicate extra time to keeping members happy, sometimes to the neglect of other guests.
For a comprehensive take on all aspects of hotel loyalty programs in downloadable format download our guide.