Loyalty Programs in the Hospitality Industry
What is a loyalty program?
For a business, retaining the currently existing customers is of paramount importance. While they try out various marketing campaigns to acquire new customers into the basket, retaining the existing customers and incentivizing them to engage more with their brand is significant.
This is where loyalty programs come in. In order to increase the customer engagement with the brand, they are given various benefits. The benefits are proportional to the frequency of engagement, i.e., how often they buy/use the brand’s service.
How does it work in the hospitality industry?
Let us take Marriott as an example, the world’s largest hotel giant. They have over 7000 hotels all over the world. Brands ranging from Ritz Carlton, Coutyard in the luxury category to Le Meridien, Aloft in the mainstream and budget category have signed franchisee with Marriott to bring under the bigger ‘Marriott’ brand umbrella.
Now since Marriott follows a franchisee model, a major chunk of the revenue is usually based on Royalty paid by the respective hotels, which is in turn based on how many bookings are made through Marriott’s point of sales and as a Marriott’s loyal member. Now it makes sense for Marriott to increase the member engagement and boost their revenue. The loyalty program of Marriott is the Marriott BonvoyTM.
So how does the loyalty program work?
When a customer makes his first transaction with any of the Marriott hotels, he automatically becomes a level 1 member ‘Member Status’. From now on more the money he spends on Marriott hotels, more the number of Loyalty Reward Points that he is going to receive.
Now this is not a linear structure. Once the customer crosses 9 nights/ year or a threshold of a certain number of accumulated points, he is automatically promoted to a ‘Silver Elite’. Then this goes on further to ‘Gold Elite’, ‘Platinum Elite’, ‘Titanium Elite’ and ‘Ambassador Elite’. The perks that an Ambassador Elite member gets is higher compared to a Silver Elite member. The points accrued for each dollar spent also increases exponentially as the member tier increases.
Take a look at the benefits list across the different member tiers.
As you see, more the points you accumulate, the more frequently you engage with Marriott, the higher your member tier raises. And the higher the member tier, more the benefits you will receive.
So, what do the members do with these points?
Once a member accrues enough points, he can redeem them by using them to buy a ‘Free Night’ with just his points and no cash. Sometimes he can also decide to use the ‘Points & Cash’ category and pay partially through cash and partially through the reward points.
Is that it? No!
Marriott also partners with numerous companies enabling the customers to redeem Marriott loyalty points with their partners. The partnerships can include car rental companies, Airline companies and credit card companies.
Marriott members can also choose to sell their points to get cash or exchange with Amazon (and other e-commerce websites) coupons.
This adds to the perceived value of the Loyalty program as the customers can use their points at multiple places. The perceived value plays a major role in decision making of the customer. He may choose Marriott over, say, Hilton or IHG if their perceived point value is better.
How does the overall picture look like?
Suppose I am a business class customer based out of Delhi, and I need to travel to London. I have a Gold Elite status with Marriott as I stay in Marriott hotels often when I visit my client location in Bangalore, and I have accrued 100,000 Marriott loyalty points. Now, if I am looking for an accommodation in London, I would rather look for Marriott hotels rather than IHG, Hilton or Hyatt hotels.
Now when I search for an airline ticket to fly to London, it makes sense for me to choose an airline that has partnered with Marriott, where I can use my Marriott loyalty points to redeem and buy an air ticket.
Now again, when I look for car rentals in London, I would choose the ones partnered with Marriott.
This model is beneficial for all the stakeholders – Marriott, respective partner companies, hotels and the customers as well.
Customer Analytics aspect
Data! Data! Data!
All these loyalty members help Marriott generate a ton of valuable customer data. Marriott can leverage this to closely monitor their 20 Billion Dollar business and understand which part of their business is going well and which is not. They can decide which type of hotels to bring under their umbrella and which ones to let go.
They can also understand the purchase behaviour of the different buckets of the customers to run targeted marketing campaigns focused to increase their engagement.
Suppose in New York city, a Ritz Carlton luxury hotel is not attracting enough business customers. But the nearby JW Marriott is getting enough business customer. Marriott will look into the cost structure at Ritz Cartlon and decide to run a targeted campaign just to the customers who have a brand dominance (say over 50% stays in Ritz Carlton) and give a 30% price cut and a free member tier promotion for stays longer than 5 nights.
Thus, we see that, loyalty programs are well built in the hospitality industry, and provides a win-win situation for all stakeholders. It goes a long way in retaining existing customers and to keep them happy. In a cut throat business world, it becomes very important to hold on to the existing customer as brand loyalty plays a major role in maintaining the competitive edge in the market.