Loyalty program partnerships key to guest engagement, J.D. Power study shows

Third-party offerings are among the most requested features for today's hotel loyalty programs. Credit: zakokor//Getty

Over the past several years, hotel companies have grappled with the changing efficacy of loyalty programs, with varying results. After all, if a traveler is a member of 10 loyalty programs, can they truly be called a “loyal” customer? After all, travelers are looking for deals, perks and bonuses, so it stands to reason that the loyalty program that offers the most for the least effort would be able to retain customers more than others, but discerning which perks are valued higher than others has been a struggle for the industry. J.D. Power’s annual Hotel Loyalty Program Satisfaction Study digs into the crux of this issue, finding that third-party partnerships are among the most valued aspects of a loyalty program from a hotel guest’s perspective.

The study examines four factors as they relate to customer satisfaction, in order of importance: ease of earning and redeeming rewards (35 percent); program benefits (27 percent); account management (22 percent); and member communication (16 percent). Satisfaction is measured on a 1,000-point scale, with Rick Garlick, travel and hospitality practice lead at J.D. Power, calling a score of 900 the “gold standard” hotels should aim for.

Looking at the results, Marriott Rewards came out on top with a score of 806 on J.D. Power’s ranking, followed closely by World of Hyatt at 805. Both were ranked 5 out of 5 on JDPower.com’s Power Circle Rating for customers, with Hyatt coming in as something as an outlier to Garlick. Hilton Honors came in third at 793 points.

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“Marriott and Hilton were obvious choices for the top three, but Hyatt made a big jump this year,” Garlick said. “Hyatt recreated their loyalty program thus year, and have taken a unique approach to loyalty, social responsibility and branding strategies. They have a unique program compared to others on the list.”

As for the companies bringing up the rear, Choice Privileges and Wyndham Rewards rounded out the bottom of the list with 743 and 742 points, respectively, but Garlick isn’t sure the companies are doing anything wrong. He reasoned that the companies ranking highest also have the strongest distribution arms in the industry, and also have a larger number of higher-end hotels, which tend to bring in higher-scoring rankings across the board.

As for why the companies at the top scored where they did, the study found that travelers are looking for more options beyond hotel stays. Companies in a position to partner with third parties in retail, travel and more are positioned to benefit the most. Garlic said redemptions involving special events fall 124 points higher on the company’s satisfaction index than programs unable to offer those options. The same is true for car rental redemptions, which are 103 points higher, and dining redemptions, which come in 86 points higher. Meanwhile, redeeming points for hotel stays adds just four points, on average, to loyalty satisfaction scores.

“If you can only redeem points for hotel stays, that’s only going to give a slight bump in satisfaction,” Garlick said. “The more engagement you have in a program, the greater share of travelers’ wallets you will get. Redeeming for nights versus at retail or travel packages, options with variety will be the programs that represent a better value to customers, and they do drive better engagement.”

Needing Direction

The biggest “a-ha” moment the report generated, Garlick said, was related to the level of understanding guests have about how loyalty programs and the act of redeeming points actually works. Among customers who understand the ins and outs of these programs, satisfaction was 147 points higher than those who said they are unclear on how the process works. 

Despite the power loyalty programs exert on guest satisfaction, nearly half of all loyalty program members indicated they were unclear on how they can earn points. Only 50 percent of respondents said they knew how to redeem their points once earned.

“If the average tenure for an active traveler in a loyalty program is nine to 10 years, but only half understand how to earn points, that sticks out,” Garlick said. “If you are in that long and don’t understand the basic components of a program, that correlates to the degree travelers engage with a program.”

Improving communication in this area seems like low-hanging fruit, and Garlick said hotels are working hard to educate consumers on how loyalty programs work. However, he isn’t sure how effective their efforts have been. This is even more important because of the hotel stays booked in the last 12 months, 47 percent were booked with a brand affiliated with a loyalty program. That number is boosted to 52 percent among members who are satisfied or delighted with their loyalty program, and is correlated with improving direct bookings. 

“Data show that [online travel agencies] are getting more market penetration in hospitality across the board and are growing, but Hilton’s Stop Clicking Around program resulted in the company having the lowest percentage of people using OTAs and the highest percentage of direct bookers,” Garlick said. 

Hilton, however, can afford a massive media campaign to push direct bookings, and Garlick said hotel companies may have to consider whether or not they are in a position to maintain such an effort. 

“You have to ask yourself, in terms of a loyalty program, does the cost and effort in maintaining it—customer acquisition, maintenance, maintaining channels—how does that value equation compare to what the OTAs bring to your business? Loyalty programs also gain revenue from other sources. Partnerships with airlines and credit cards generate a lot of revenue for loyalty as well.”

Third-party partnerships remain popular loyalty offerings, be they for travel, food or experiences.

Simple or Not?

In closing, Garlick said the majority of the programs on J.D. Power’s list have retooled their loyalty programs in the past year. Many loyalty programs have also stripped down their offerings to become easier to understand, offering simple discounts, free roomnights or Visa debit cards, but Garlick said these strategies are targeting casual travelers. For business and high-frequency travelers, these programs are not substantial enough to hold their interest.

“Some companies are more than happy to capture [casual travelers], but it probably under-represents the kind of customer these programs draw in,” he said. “Once again, travelers want variety.”