Brands: Programs target return guests

In today’s marketplace, brand loyalty is fickle. The antidote the industry has turned to is the loyalty program, and at the heart of a loyalty program rests the simple goal: incentivize customers to stay with a brand.

“When [loyalty programs] started 30 years ago, we wanted them to opt in and build a relationship,” said Bob Behrens, VP of Marriott Rewards. “It’s about developing a partnership and shifting share. You give me business, and I’ll reward you.”

And from that simple premise has grown mini multimillion-dollar organizations within each brand that brand executives contend contribute close to half of all revenue in any given hotel company.
For Marriott, one of the first hotel companies to jump in the loyalty game, Behrens said the 33 million members enrolled in Marriott rewards generate more than half the roomnights booked across the portfolio.

“We wouldn’t be doing it if it wasn’t a huge driver of demand,” he said. “They pay higher rates, use lower-cost channels and are more likely to use ancillary spend because they earn points on total spend. … It’s not a loss leader. Unlike other traditional marketing messages, you have that data—you can pull out control groups because you have that granular-level data to hone and perfect what is driving customer behavior.”

Targets
Perhaps the biggest benefit a loyalty program offers a brand is the guest database that builds as the program grows. While all brands provide similar programs and have similar databases, each uses the information differently.

At a smaller brand like La Quinta, for example, Mike Case, VP of loyalty marketing, places a big focus on getting that second night from a new member.

“Getting a second stay from guests, we can see certain aspects and see in their stay what their potential value is,” he said. “We put a lot of effort in the second stay, third and fourth.” They do this by lowering the benchmarks for a free room and planting the seed that rewards are more attainable, and thus influencing guests to shift their business to La Quinta and reap the easier rewards.

Rewards and point values are structured to attract the segment of the database that shows the most loyalty, adds the most revenue or provides the best avenue for growing the brand. Best Western, for example, maintains that the brand is positioned to best grab leisure travelers. So it tailors its point structure accordingly.

“One customer wrote and said she was delighted to actually earn a reward of a free night with a brand,” said Dorothy Dowling, SVP of sales and marketing for Best Western.

Wyndham Worldwide has a similar method. Its loyalty program is relatively new and its portfolio includes a lot of roadside hotels that capture more leisure guests. For a leisure guest to stay loyal, the rewards and their benchmarks must be substantially different from that of a more powerful, business-heavy, full-service hotel.

“Our strategy is more a function of our age,” said Robin Korman, SVP of loyalty marketing and strategic partnerships at Wyndham. “We’re only five-and-a-half years old, so we don’t have the track record. We’re really in a growth stage, where we are seeking to bring people in the program and maybe don’t have a clear idea of who might be here 25 years from now.”
Korman spoke to the subject of rewards in the form of gift cards, a currency that has immediate recognition by most guests.

“A lot of the economy segment is going for gift cards that are relevant for [guests’] life and habits and that help with everyday expenses,” she said. “Gift cards are attractive for a low level of stay behavior. We need to be relevant to our customers.”

On the other hand, some brands feel the product carries enough value that added incentives wouldn’t necessarily offset costs.

That’s the stance executives at Motel 6 take.

“Loyalty programs cost about 5 percent of the gross profit to run, administer and operate,” said Jeff Palmer, EVP & CMO for Accor North America. “This has to come from somewhere, and it usually is built into the price or the property has to absorb this cost. We would rather provide a low price to consumers, present a very transparent price value proposition and provide more top-line profit to our properties.”

At a brand with the size and membership of Marriott, the database is used a little differently, pushing out deals and incentives mainly to its most loyal repeat customers.

“Our strategy is to minimize barriers of entry to our program, but then how we choose to invest in them is how we differentiate,” Behrens said.

“Base-level activities will help, but we target the customers who we want and market to them. Hopefully we create more demand and then drive a better return with a higher rate, essentially get more people to shift demand to get the right mix and get our revenue-management strategy to work in concert.”

And on the very high end, it may become more important to invest in loyalty. The Ritz-Carlton Hotel Co., for example, is exploring the possibility of starting a program, according to a spokesperson for Marriott.
Regardless of strategy, pushing messages to a targeted group within a database significantly lowers marketing costs, according to each brand.
Costs

Korman said the fixed costs of running Wyndham’s loyalty program include: overhead for marketing, finance, training, partnership relations and other centralized services staff; a technology platform; a call center for Wyndham ByRequest; and tailoring and translating marketing materials and communication for other countries. But of course, the biggest cost is the rewards.

The cost of absorbing and reimbursing a hotel for a free night or matching the cost of a gift card is an immense responsibility for a brand.

“We all have a large reserve fund to pay for a large number of unredeemed points,” said Don Berg, VP of loyalty programs for InterContinental Hotels Group. “That number is calculated on actuaries based on how many will never be redeemed and then the calculated costs of a point being redeemed.”

IHG, for example, has a reserve fund of $450 million as insurance for all of its outstanding points. IHG also has more than 50-million customers, of which 20 percent are active, Berg said.

“If we say we reduce points by 10 percent, we’ll see an immediate impact on our reserve and then need $45 million in that reserve fund. We need to manage a fund that’s fiscally responsible and conservative.”

The funds for the reserve are generated on a percentage on the room rate paid by loyalty members.
 

See also:
Operators: Loyalty benefits trump costs
Loyalty programs for independent hotels
What frequent travelers really think about your programs
Use psychology to focus your frequent guest program

H&MM Loyalty Program Survey

Worldwide members
Best Western: 12.5 million
Choice: 11 million
Hyatt: More than 10 million
IHG: 48 million
La Quinta: 6.5 million
Marriott: 33 million
Red Lion: 277,350
Wyndham: 7.3 million

Program name
Accor: A|Club
AmericInn: Easy Rewards
Best Western: Best Western Rewards
Carlson: Goldpoints plus
Choice: Choice Privileges
Hilton: HHonors
Hyatt: Hyatt Gold Passport
IHG: Priority Club Rewards
La Quinta: La Quinta Returns
Marriott:    Marriott Rewards
Omni: Select Guest
Red Lion: Red Lion R&R Club
Red Roof: RediCard
Starwood: Starwood Preferred Guest
Wyndham: Wyndham Rewards

Earning rewards
Accor: One point/Euro
Best Western: 10 points/dollar
Carlson: 20 points/dollar at Radisson and Park Plaza; 15 points/dollar at Country Inns & Suites and Park Inn
Choice: 10 points/dollar at Comfort Inn, Comfort Suites, Quality, Sleep Inn, Clarion, Cambria Suites and Ascend Collection; 5 points/dollar at Mainstay Suites, Suburban Extended Stay, Econo Lodge and Rodeway Inn
Hyatt: 5 points/dollar
La Quinta: 10 points/dollar
Marriott: 10 points/dollar
Omni: One free night after 10
Red Lion: 10 points/dollar
Wyndham: 10 points/dollar

Elite levels
Accor: Gold, Platinum
Best Western: Gold, Platinum, Diamond
Carlson: Gold, Silver
Choice: Gold, Platinum, Diamond
Hyatt: Platinum, Diamond
IHG:Gold, Platinum
La Quinta: Elite, Gold
Marriott: Silver, Gold, Platinum
Omni: Platinum, Black
Red Lion: Gold, Platinum