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Insights

We draw inspiration from the world around us and we want to share our knowledge with you. Tap into our latest thinking on the issues that matter most in hospitality today and find out what trends are going to shape our industry in the future.

Redefining Customer Loyalty in 2018
22 November 2017, by Yunny Byun in Trends

How do you know you have loyal customers? Is the number of subscriptions to your loyalty program really the indicator? What motivates their loyalty?

 

Every benefit of loyalty

Hoteliers have strived for and nurtured, not only contemporary but a future connection with guests. No wonder, having a loyal customer base creates a virtuous circle. Foremost, it is proven in numerous studies that the cost of retaining an existing customer is lower than the acquisition of a new. In fact, the cost of acquiring a new customer is about 5-25 times higher. Also, loyal customers buy more and often. In fact, they are willing to spend extra 25 dollars on their favorite brand. Besides, they drive ancillary revenue up by purchasing related products. These satisfied loyal customers will generate positive word-of-mouth, feeding back to less marketing investments.

Millennials are now a large buyer cohort, and we are curious to know what the modern travelers think about loyalty, and how it is different than before. So what does it mean to achieve customer loyalty in 2018?

 

Anatomy of a traveler’s choice

OTAs together with metasearch websites created an unprecedented abundance of choice for travelers. In this era where the accommodation has earned a ‘commodity’ status, the competition is hyper and finding an alternative to ‘one room I saw today’ has never been easier. Modern travelers are averaging 3+ loyalty programs each, and they don’t blindly decide on a brand because they hold the loyalty card. Have you ever imagined what thoughts the travelers are juggling in their mind?

With the growing influence of on-demand economy, consumers are trained to postpone purchase decisions and they expect an instant gratification after a purchase takes place. Traditional loyalty programs rewarding a complimentary stay after 50 nights just won't cut it. Moreover, growing buyer demographic is fluent in social media settings and less risk-averse. They tend to be more excited for than afraid of new experiences they found online, at a good value. Therefore, I imagine the travelers are weighing these scenarios when they are in their research phase:

 

 

The brand-agnostic travelers are working with a number of alternatives, and it is difficult for hotels to rely on their own loyalty program for repeat business. However, rewards programs still play a more significant role as a loyalty tool for business travelers, for they are often enjoying the benefits of expenses covered by their company. But as the saying goes: easy come, easy go, they will have little reservation if they had to switch brands.

 

Players shaping the landscape of modern loyalty

Fortunately, some brands realize this and are acting upon it with more creative ways of redeeming points. Hilton Honors (previously HHonors) now allows members to convert points for Amazon.com, claim benefit using a combination of points and cash, and pool points with up to 10 friends and families. Choice Privileges members can redeem points for gift cards on Amazon, Uber and other vendors without an expiration date. Jamie Russo, Vice President of Loyalty for Choice Hotels says “Our members are much more active than they’ve ever been.” As such, we should expect more simplified systems and immediate benefits from loyalty programs.

Looking outside the hotel industry, there are examples where companies leverage the increased purchase volume over the cost of providing benefits and invest in what is seemingly a loss. The biggest online retailer’s loyalty program, Amazon Prime asks users for an upfront fee to be entitled to free, two-day shipping. Amazon's estimated loss is $1-2 billion per year in supporting these benefits. Nevertheless, the company makes up for it in increased transaction frequency. Diving into the second example, our favorite disruptor of accommodation sector Airbnb’s referral program rewards travel credits (free money!) to the users when they successfully refer other people, only after new users made a purchase, saving money on unprofitable referrals. Touching upon a non-user base, referral programs can also accelerate awareness.

 

What is loyalty made of?

Loyalty is far more than repeat business. Loyalty is a commitment. It is when a consumer says “yes” to a brand, believes that the brand is always their best bet, and sticks through thick and thin. There definitely isn’t a one-size-fits-all solution for such loyalty. However, there are ways to be remembered for the travelers’ next trip bookings, or give travelers an easy choice and be their first choice. Hence, we argue that loyalty is a result of collective and continuous efforts to:

1) Increase brand exposure: Choice is often made by habit, achieve the ‘warm glow of familiarity’.

2) Optimize the loyalty program: Simple and easy rewards program with immediate and enticing benefit will let the loyalty program live up to its name.

3) Provide memorable service: Winning their heart with the unforgettable personalized service and endless positive emotions is the most sustainable, the best kind of loyalty.

To expand on the last point and make it more actionable, Larry Mogelonsky at Hotel Mogel Consulting explained how technology can be the turbocharger to enhance — not replace — human connection and deliver service excellence. Check out his five-step approach here.

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