Which entity owns the hotel customer?

It’s a common philosophical question among hoteliers, and of late, it has floated even more to the forefront of the minds of operators and thought leaders across the industry. With the advent of the internet, breadth of search functionality and purchase options available to hotel guests, it’s a question with many nuanced answers and an area that needs to be concretely addressed. The third-party intermediaries have offered an influx of “options” when it comes to transacting, but one must ask whether these options are truly a gateway or gatekeeper to higher guest satisfaction and increased occupancy.

Before the technological developments in distribution, efforts in creating customer loyalty were focused on the competition between and among hotel properties and companies. Sales and marketing budgets were dedicated to promoting the unique selling propositions of the property and differentiating Hotel ABC from Hotel XYZ. Hotel marketers would highlight the benefits of Hotel ABC’s physical plant versus that of Hotel XYZ, and why this unique combination of space and service provides a superior overall guest experience.

While that aspect of market distinction has remained mostly intact, there is a secondary competition for the time and attention of the guest throughout the travel-planning process. Part partnership, part rivalry, hotel brands compete with themselves for the eyes and loyalty of the consumer and across the third-party intermediaries whose primary goal is to generate bookings for their partners, which comes at a cost to the suppliers. This means that any discussion about “who owns the guest” has to be considered in a two-phased approach examining brand-versus-brand competition for the guest and examining brand-versus-third-party competition for the guest.

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Of course, these developments are not lost on the brands as, over the past couple of years, they have invested significant resources into attracting guests to begin their guest experience on brand.com and to complete their transaction directly with the brand, as well. Most recently this has been evidenced with “book direct” marketing campaigns.

Bookings made directly with the hotel are more beneficial for the property because the costs associated with those transactions are considerably less than those booked through an indirect channel or intermediary, as shown in Chart 1.

One way to measure the success of these efforts is to track the percentage of guest bookings that are made by loyalty members. Chart 2 displays loyalty contribution for the 12 months ending December 2016, and each chain scale shows an increase year-over-year in the percentage of bookings associated with a loyalty program. The lift in percentage means an increasing number of guests are taking advantage of the loyalty program benefits and booking directly.

The percentage of loyalty contributions varies widely by property type. Specifically, as shown in Chart 2, those hotels that operate in the middle to upper end of the market tend to have a higher concentration of loyalty members than those on the lower end of the price spectrum or the very high-end, luxury segment. Properties in the upper-midscale, upscale and upper-upscale chain scales have more than 50 percent of all their bookings made by loyalty members. That number has grown considerably over the past year for all of those segments.

While loyalty contribution lags for economy hotels, hovering in the mid-teens, it is the segment that is showing the largest percentage growth in loyalty contribution over the past year, growing in excess of 15 percent. There is every reason to expect that figure to continue to grow in the coming months, although it will likely be several years before loyalty contribution in the economy segment will reach the levels achieved by their higher-priced counterparts.

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