Impact of Loyalty Programs on Customer Retention in Hospitality

Airline frequent-flyer programs are becoming less attractive to customers. It's hard to get a flight for free. With hotels, you can redeem the points much more easily. Hotel loyalty programs are getting easier to use and more generous, often with no blackout dates. Consumers are signing up to earn free hotel rooms, upgrades and other perks.

With improved benefits and guest-friendly rules, hotel loyalty programs are increasingly becoming one of the primary reasons for selecting a particular hotel. Loyalty programs now rank fourth among reasons why consumers select a hotel (the top three reasons are "Location", "Price", and "Past Experience").

Measuring loyalty program effectiveness

One measure Market Metrix uses to evaluate the success of a brand's loyalty program is called "Loyalty Program Effectiveness". This measure identifies the percentage of guests who say that their loyalty program membership was a primary reason for choosing that hotel.

In 2009, 32.7% of guests said that the loyalty program was a primary reason in deciding where to stay. That number has grown to 34.5% in the first half of 2011. Among the major chains, the most effective programs in the hotel industry are Hilton HHonors, Starwood Preferred Guest, and Marriott Rewards. Starwood's Preferred Guest has seen the biggest improvement (+5.9% to 37.7%) in the past three years. Industry wide, approximately one of every three members of a hotel loyalty program said their membership was "Very Important" in hotel selection.

In the Hilton Honors program guests can "Double Dip" and accumulate points and airlines miles simultaneously with their hotel stay. Similar to frequent flyer programs there are various tiers of membership. Diamond VIP, the highest tier level, offers members access to the Executive Level lounge at Hilton Hotels, Guaranteed 48-hour reservations, a dedicated "Diamond VIP Desk" which members can call for priority reservations and travel planning, a dedicated VIP check in line, best available room pre-assignments, and special in-hotel amenities such as upgrades and arrival amenities.

InterContinental Hotel Group's Priority Club Rewards is growing in popularity. With its low point requirement for free rooms, generous promotions and 4,500 hotels worldwide, the points needed for free rooms and other perks are relatively easier to earn than with other programs.

Wyndham Rewards is attractive to budget travelers with more than 6,500 hotels under such brands as Days Inn, Super 8, and Travelodge.

Guests love Marriott's rewards program. For example, Marriott rewards are easy to redeem, have no blackout dates and can be used for airlines, cruises, car rentals and more.

Starwood's Preferred Guest program, offering rewards at Westin, Sheraton, W, Four Points and other brands, is especially well-liked for the rewards offered to its elite status members and often provides benefits more generous than other high-status programs. Guests can qualify for free rooms based on less expensive stays in U.S. hotels, and then get free nights at more expensive spots like Rome, Florence and Milan. And the program lets you combine paying cash and points for stays.

Loyalty programs in a mixed economy

Hotels are evaluating ways to reduce costs and protect revenues. Can a loyalty program help reduce the impact of an uncertain economy? While no loyalty program has been built to handle these tumultuous times, here are a few guidelines to make your program stronger:

• Eliminate fees to attract new members 
• Offer quicker and/or immediate benefits to guests 
• Clearly differentiate and communicate the perks and benefits that are only available to loyalty program members 
• Make sure benefits are meaningful and provide members with the perception that they are receiving special treatment compared to non-members (e.g., special line to check in, welcome gift, upgrades)

In a tough economy, your best customers are even more important. When customers are easily distracted by lower prices or free add-ons from competitors, emphasize the benefits of staying with your brand. This does not mean offer more discounts. Instead, make sure your loyalty program offers sufficient benefits that motivate guests and impact hotel selection.