Every time my car insurance renewal comes in, I shop around and, normally, I end up changing providers. Why? Because I get a better deal elsewhere. The same is true for my home insurance and travel insurance. And every time I inform my current provider that I am leaving they are nonplussed. There is no big fight to retain my business. I am not loyal to them, but likewise they are not loyal to me.
My loyalty is fickle. My purse is full of plastic cards for various retailers. I shop according to price, offers, points and availability. Will they have a delivery slot on the day and time I need?
There is no place for loyalty on Maslow’s Hierarchy of Needs. It’s all about me – what I need, want and desire.Calculating the True Cost of Hotel Loyalty #revenuestrategy Click To Tweet
My car insurance renewal got me thinking about the true cost of loyalty in the hospitality industry. It’s a hot topic right now. Loyalty is changing face like never before, as consumers seek out instant gratification in the form of price discounts or upgrades over delayed gratification – the rewards that come after months, or maybe years, of collecting points.
What Is Loyalty?
Think about it. Are we confusing channel choice with loyalty? Because there is always this perception that loyalty is only about those booking direct from your own website. As revenue managers we are constantly asking:
- How do I drive more business to the website?
- How do I get my repeat customers to book direct with me?
- How to I offer something better on my own controlled channel?
But are these the right questions? Is this where our focus should be?
Put yourself in the shoes of the traveller. If you are looking to book a special vacation, with flights, transfer, hotel and activities, then you would probably prefer to go through a tour operator, or at least use a travel agent to coordinate your bookings. Does it matter that the customer is coming to you through another channel?
Similarly, does it matter if they like to book via an online travel agent such as Expedia? Is it not my job, as a revenue manager, to leverage the power of Expedia to my benefit?
OK, you will pay more money for the OTA customer. With a direct booking you would expect to maintain 95% of the rate, while with an OTA you would expect to get only 75% of the rate, the rest going in OTA commissions. But with the direct booking, am I taking into account the additional acquisition cost of having a marketing team that needs to create awareness?
Are we truly accurate when we calculate the cost of retaining or acquiring a customer?
If my loyal customer always books with Expedia, and always stays at my hotel, do I really want to try and break that just so that I can get them to book direct? There’s a risk here. This disruption may break the loyalty altogether, and the guest will end up staying elsewhere.
Drive Loyalty Without ADR Trade-Offs?
Loyalty is a two-way relationship. The customer has to feel like they are getting something in return for their loyalty, but there has to also be a benefit back to the business too.
Consider, is that offer you’re quoting to loyalty members creating business in excess of what you usually get with your publicly listed rate? If you’re offering an aggressive discount, say 15% off, and your conversions from look to book only increase a few percentage points, then it’s not worth it. Many of those guests would book with your hotel no matter what, so the loyalty discount could be flexed down to 5% off or even less.
What is important here is being able to see the booking trends in advance, so that you can gauge at the right time when to increase or decrease your loyalty offer. And the best way to do this is with Big Data.
Look how the supermarkets do it. They collect data on every purchase I make. For a while, my family were trying out non-dairy alternatives and our marketing messages, recommended purchases and promotional codes from our supermarket were all about soya, rice milk and other non-dairy products. They had read the data and identified a trend.
This is the way to encourage loyalty. By getting granular in your segmentation and presenting a personal price that is tailored to the guest.
You may have to get creative with your data gathering – it won’t all exist in your PMS or CMS, especially if you are keen to target a new segment. Imagine, for example, you want to market to the surfing fraternity. Think about who you should partner with. What social media channels you should follow and engage with. What booking channels are most favoured? Build out a picture of the best time of year and other special requirements for this market. Once you’ve built out a granular segment you can start pricing in a granular way. Before you know it, you’ll be riding the crest of a wave in surfer bookings.
Loyalty is a two-way relationship. Yes, we want to encourage repeat bookings. Yes, we want to encourage direct channel bookings. But do we want to encourage these by diluting price? No. Always yield according to demand.
- Loyalty A Top Priority For Hotels In 2016
- Stop Rewarding Loyalty At The Cost Of The Bottom Line
- Cookie-Cutter Loyalty Betrays Hotels’ Lack Of Strategy
Latest posts by Joyce Galvao, Senior Customer Success Manager (see all)
- Do Loyalty Bookings Have to Come Direct? - May 3, 2017
- Pricing it Right: How Hotel Revenue Managers Get Ahead in Uncertain Times - January 10, 2017