Loyalty programmes are now key to the strategies of all the global hotel operators, with the most-recent earnings season providing a look under the hood at their success.
While the value of a programme to groups with 30 or more brands is reasonably clear to see, how smaller companies can create a cost-effective scheme is harder to understand.
For investors, the benefits are starting to be felt. At Host Hotels & Resorts’ most-recent results James Risoleo, president & CEO, told analysts that loyalty redemption revenue had supported its leisure demand. He said: “Our redemption revenues have grown well in excess of the revenues outlined in the business case Marriott made for Bonvoy in 2019. Although redemption revenues will also face tough comparisons this year, Host's ability to leverage Marriott's powerful loyalty programme is another key strength for our business.”
Marriott International followed that up at its full-year results with news that programme had 141 million members at the end of January, which CEO Arne Sorenson described as a “key competitive advantage”. Member share of occupied rooms was 52% in 2019, 58% in North America, with, the CEO said, “solid growth from co-branded credit cards. More of our guests booked direct” with worldwide sales accounting for three quarters of room nights and direct digital bookings accounting for one third.
This had, however, come at a cost. CFO Leeny Oberg said that there had been “meaningfully higher” redemptions than the previous year. She said: “In 2018 we saw the loyalty programme be net cash positive, this year it was several hundred million of a net cash user, as a result of the introduction of Bonvoy. There was some pent up demand from our customers, there were also some marketing expense. You saw a fairly unusual pattern for the programme, we are confident it will be much less of a cash user in 2020. Introducing peak and off peak will help manage the programme and get it to where it behaves more like it has in the past.”
Marriott International was able to bear the cost, but such results were likely to be off putting to smaller companies. James Slatter, EMEA managing director, Agilysys UK, told us that this was not the case, commenting: “The agility of boutiques and independents places them in the unique position of coming up to speed and possibly surpassing the ‘big boys’ in relatively short order. There is a reason why experiences offered at boutique-type locations are highly sought after and considered trendy by guests of all demographics.
“Not only do they provide a more intimate, casual and personable atmosphere, but they also have enhancements, amenities and specialised services that the big chains often do not. Boutique and independent locations are in a position to promote specialty packages, and to offer loyalty redemptions that have longer expirations – or perhaps no expiration at all.”
Instead, he said, they should look at the value of the guest. Slatter said: “Understanding the individual guest is what brings value to your property. This knowledge is an integral part of the profitability equation, and loyalty programmes help by tracking total guest spend. Loyalty plan members may generate consistent room demand which supports occupancy rates and revpar.”
Accor was willing to put just such a price on its relaunched loyalty programme, forecasting a 10 percentage point increase in contribution to turnover, €100m in partnership revenue (from €6m) and three point revpar increase.
Slatter said: “However, a guest who stays frequently yet doesn’t spend anything else whilst in the hotel may bring in less overall value than a guest who stays less often but spends extra on hotel activities like spa or golf, as well as frequenting the hotel bars and restaurants. Another consideration when understanding the importance of each guest is to identify who books directly. Those who book directly contribute differently to the bottom line than those who book through an OTA, which can cost your property up to 25% in commission fees. Not all guests are of equal value, and loyalty programmes allow operators better visibility to their relative profitability.”
One area where hotel groups both large and small have noticed a chance to divert loyalty members from redeeming full nights was to appeal to their enthusiasm for ‘earn and burn’. Accor had such aspirations for Accor Live Limitless, with the burning starting at the most basic: coffee for points.
Above caffeine, the group has spent the last few years buying companies and doing deals to add entertainment, dining and culinary & sports experiences to their suite of offerings, including signing a multi-year partnership agreement with Paris Saint-Germain Football Cub.
The company did not reveal how much it had spent on the deal, but press reports suggested that previous sponsor Emirates was paying €25m to €30m per year but became skittish when asked for €80m per season.
Sébastien Bazin, Accor chairman & CEO, said: “Let’s stop being transactional - what we have talked about is points, but people want something they can’t buy. Those days of [points] have shifted enormously and what people want today is not credit, they want to be identified, they want passion.”
For those without a football team, Slatter said: “One way to keep it exciting is to change the redemption offers regularly. For example, redemption offers might include an interactive demonstration with the chef preparing the property’s signature dish, an upcoming pizza-making event, a complimentary round of golf or a bottle of gin from the local distillery. The key is to extend rewards that appeal to the diversity of your guest population, change offers on a consistent basis, and be sure to make it redeemable during the next stay – possibly with no expiration. Offering these rewards do not have to be an administrative burden either. They can be supported through your PMS and POS systems for automatic redemption with little, if any, need for staff to determine what guests have earned.”
And what’s ahead? He added: “Over the next three to five years, rewards themselves will become far more sophisticated; even more effective at captivating and retaining guests. Nimble boutiques, independents and small chains are well-positioned to take up loyalty programmes as a tool to gauge the value of their guests and to continue delivering against their changing expectations.”