Jun162010

Response to Cornell’s Ten Principles for Hotel Loyalty Program Design

The Center for Hospitality Research at Cornell University just released its latest report, “Building Customer Loyalty – Ten Principles for Designing a Customer Reward Program,” by Michael McCall, Ph.D., Clay Voorhees, Ph.D., and Roger Calantone, Ph.D. Report link – CHR registration required (free).

Here is my non-academic commentary to the ten principles outlined in the report as guidelines for hoteliers developing and managing hotel loyalty programs.

1. Foster customer engagement – this occurs from repeated positive interactions and experiences with a brand. The ability to get a complimentary room upgrade, nice bathroom and amenities, good TV and the opportunity to eat breakfast are big drivers of loyalty for me. 

One suggestion from the report is giving a reward for annual updates to guest profile contact information. Hilton HHonors was a champion of this strategy years ago when members would receive 1,000 points every quarter for updating your email address. This could be done twice per quarter for 8,000 bonus points per year. That kept me attentive and returning to the HHonors website. HHonors inattention to other details of the loyalty program kind of left me seeking a better fit for my travel style.

2. Establish a Two-Way Value System – Here is where the CHR report shows its bias for the hotel industry. The report argues the use of hotel discounts or free nights has low customer value and high cost to the hotel if a free room or discount is given to a customer who would be willing to pay the full rate for a hotel room. As an alternative, the report states giving guests a free or discounted service during the hotel stay is a high customer value, low cost loyalty reward.  

Fortunately complimentary upgrades also fall in the high customer value, low cost award category since an upgrade to an empty room that is a higher category than the customer paid is a value-added customer benefit and the paying guest already at the hotel is a low cost opportunity to give the customer value with an otherwise empty room. The customer leaves with a great memory.

Personally, when I am the customer I am more inclined to spend extra at the hotel in return for feeling I am getting more hotel room than I paid for, therefore I am feeling like I can add more cash to the hotel stay through a restaurant meal or drinks.

The problem for the loyalty program is knowing what a customer values. This is the objective of guest profiling and data collection.

Hey – hotel loyalty wiz-kids mining my data. In short, this Loyalty Traveler gives ultimate value to earning free hotel nights. Second is upgrade rooms. Third is breakfast.

3. Capitalize on Customer Data – this principle argues for the need to analyze customer data and compare the spend for loyalty member guests to non-loyalty member guests to determine the value of the program.  

In my discussions with the corporate heads of a couple of hotel loyalty programs this past year I have been told unequivocally that hotel loyalty program members are highly profitable for the hotel chains.

The major loyalty programs have 5 million to 50 million members. Personally, I believe there is enough profitability among the programs as a whole to mitigate the impact of the few thousand point-hounds like me who maximize several aspects of the loyalty programs for high value on low spend.

4.       Properly Segment across and within Tiers – the authors refer to elite status in this section and use Marriott Rewards (although not mentioned by name in report) as an example of elite tiers that are probably not differentiated effectively. Marriott Rewards confers Silver elite at 10 nights and the next elite tier is not reached until 50 nights.

Marriott Rewards has the greatest gap between tier levels among the major hotel loyalty programs and a much more difficult threshold for high elite levels than any other major hotel loyalty program.  Hilton, Hyatt, IHG, and Starwood all have at least one other route besides hotel nights for obtaining elite status. Marriott Rewards only counts nights and 50 nights is a road warrior level of hotel nights for mid and top-tier elite attainment.

Currently HHonors is the only major program that has a route for earning elite status based on spending (HHonors Gold earned at 60,000 base points ($6,000 annual spend) or HHonors Diamond at 100,000 base points ($10,000 annual spend). Priority Club also gives status based on points earned, however, Hilton only counts base points with a direct correlation to hotel spend while Priority Club allows points earned from nearly all sources to count for elite qualification.

5. Develop Strategic Partnerships – corporate partnerships are common among hotel loyalty programs. The airline frequent flyer miles partnerships with hotel frequent guest programs are one of the primary corporate partnerships providing members with across travel industry sectors. Rental cars are another valuable partnership expanding reward options for hotel loyalty program members. 

Most of the major hotel loyalty programs have shopping mall portals for earning hotel loyalty program points for online retail store purchases.

The authors also make the suggestion to hotel loyalty program managers to seek independent insight and analysis from companies specializing in design of hotel loyalty programs and educational researchers.      

This is my Business Plug: Loyalty Traveler provides low cost independent evaluation of hotel loyalty programs.  Contact me to discuss your needs ricgarrido@loyaltytraveler.com.

6. Develop Dynamic Tiers – Airlines have dealt with the problem of frequent fliers jumping ship by offering additional incentives like additional upgrades and benefits after reaching the highest elite tier. Hotel programs lag in this effort.

One of the interesting comments made in the report is a suggestion that undocumented small rewards be offered to elite members. The problem I find with undocumented offers is the benefits tend to actually be documented in forums like Flyertalk. The social media outlets make it difficult to keep any offers through loyalty programs undocumented from the frequent guest viewpoint. Personally I see (and have actually felt on occasion) some resentment towards a loyalty program when I see targeted offers others receive and wish I had received that same opportunity.

My discussions with hotel loyalty program corporate executives indicate that hotels are interested in developing targeted offers based on guest profile data, but in the consumer world of social media this is a two-edged sword. My feeling is targeted offers tend to alienate frequent guests who feel the benefits and offers being given to others are excluding them for whatever reason.

Marriott is a good example of a program that has regularly targeted offers. Some members feel their hotel spend is not commensurate with their loyalty. For example, some members get points bonuses based on a specific number of nights and some members may get a free night offer. Giving the member the opportunity to choose a different offer based on their own projected stay pattern is an easy remedy. Some members report success at getting their targeted offer (i.e. MegaBonus) switched to some other offer they learn about on FlyerTalk or elsewhere.

Rather than the hotel loyalty program seeking to drive my hotel stay behavior with a targeted promotion for my profile, my suggestion is to provide me, the frequent guest, the choice of an offer that will meet my projected hotel stay pattern during the promotion period. There is no problem sending me a targeted offer, but if I receive an offer “5 nights earns 10,000 bonus points” and I project 30 hotel nights for the quarter, then I might be looking somewhere else for hotels. Particularly when I have read on FlyerTalk that some other member in my same hotel loyalty program is getting 50,000 points for 25 nights.

Hyatt Gold Passport is an example of a program that offers elites additional incentives. Platinum elite is reached with 5 stays or 15 nights in a calendar year and then the next tier for Diamond elites is not reached until 25 stays or 50 nights. This may seem like a hurdle as large as the Marriott Rewards Silver (10 nights) to Gold (50 nights), except for the fact that Gold Passport offers Platinum elites “Platinum Extra Awards” after every third stay until the member reaches Diamond level.

New Platinum members will receive their first Platinum Extras Award certificate in their membership materials.

Your Platinum Extras choices become richer after every third eligible stay. Options include your choice of:

Stay 3 & 6: 1,000 Hyatt Gold Passport bonus points, 1,500 bonus points for dining*, food & beverage welcome amenity*, or a complimentary beverage**

Stay 9 & 12: 1,500 Hyatt Gold Passport bonus points, 500 travel partner miles, 2,000 bonus points for dining*, food & beverage welcome amenity*, or a complimentary beverage**

Stay 15 & 18: 2,000 Hyatt Gold Passport bonus points, 1,000 travel partner miles, Regency Club upgrade*, $10 Starbucks gift card, or a complimentary beverage**

Stay 21 & 24: 2,500 Hyatt Gold Passport bonus points, 1,500 travel partner miles, Regency Club upgrade*, complimentary Continental breakfast*, or a complimentary beverage**

*Available only at Hyatt Hotels & Resorts™
**Available only at Hyatt Place™ and Hyatt Summerfield Suites™

Source: https://goldpassport.hyatt.com/gp/en/awards/platinum_extras_awards.jsp

7.       Cater to Customers Desires to Choice and Fairness

The article talks about choice in redemption which is common in most programs. There are hotel award nights and the choice of miles in all programs. While there has been an extensive catalog of goods and services offered through hotel loyalty programs as points items, in my opinion, the more valuable effort would be developing more hotel reward options.

Priority Club has the great PointBreaks perennial limited time offer of 5,000 point nights for a selection of hotels that are as high as 25,000 and 30,000 points regularly.

Starwood Preferred Guest offers Cash & Points on a select availability basis. Cash & Points awards allow members with relatively few points the opportunity to use points for a hotel night with a cash supplement. Priority Club and goldpoints plus also offer the points and cash option for hotel nights.

The second part of this principle addresses elite status which the authors refer to as a “reward tier”. 

The article states frequent guests want to feel their elite tier is a matter of distinction and needs to be earned. This sentiment is expressed on FlyerTalk every time there is a fast-track to elite status offered.

In 2010 this whole concept of earned status across hotel loyalty programs has been tossed out the hotel window. Hyatt Gold Passport gave away elite to anyone who asked up until a month ago. Best Western advertised a hotel elite match most of the year. Although elite status matches are a widespread practice in the loyalty industry, it is an uncommon tactic to announce it and recruit new members with an elite status match.  

If you do not have hotel loyalty elite status in 2010, then you really just do not have enough interest. Hotel loyalty programs have been giving away elite status to any breathing human. Since my interest is hotel loyalty programs I have elite status in more hotel loyalty programs in 2010 than ever before. Despite the fact that I am not traveling anywhere near my average number of nights over the past decade (yeah, it’s the economy holding me down by the neck too).

I really do like the idea of requalification being easier than initial status. If it is 50 nights to be top level elite, then make the requalification threshold 20% less or 40 nights. This is a measure of compensation for loyal members who feel slightly betrayed when they put out the money and time to reach the elite level and someone else, by virtue of a good fast-track offer, gets in with a much lower threshold of hotel stays.

8.       Avoid Commoditization through Differentiation – Find ways to differentiate your program.

The most astounding aspect to me as I have researched and compared hotel loyalty programs the past few years is the remarkable similarity between programs. There are differences, but they tend to be fewer than the similarities. It is obvious the hotel loyalty programs position themselves relatively close to their primary market segment competitors when creating something like a hotel night award chart or points-to-miles exchange rate.

The authors point out the tendency of hotel loyalty programs to copy each other. My viewpoint of the past year is Hyatt Gold Passport is the hotel chain that has tried to break out of this mold. The unprecedented offer of four confirmed complimentary suite upgrade certificates and the first large-scale hotel program to offer free internet to all elite members are features that set Gold Passport ahead of the hotel loyalty competition when these were introduced 14 months ago.

Another aspect of this principle that I strongly believe in is flexible program management. The bottom line is that the program is not determined by a one-sided interpretation of terms and benefits. Listen to members who object about the way some aspect of a program is run and make alterations to meet guests needs and desires.

The other aspect of this principle reveals the hotel industry bias again. The case study of Jet Blue changing its loyalty program from a model of segments flown to dollars spent is a major adjustment that would fundamentally alter hotel loyalty programs if it became common practice.

In my opinion, the hotel loyalty program marketplace would drop substantially in value if the earn or burn sides of the loyalty points equation are placed on a strictly dollar spend scale.

9.       Avoid the Price Sensitivity Trap

“Many reward programs are still based on a simple design that provides customers with future discounts as a reward for current spending.” 

This is the fundamental part of the hotel loyalty program. In-hotel benefits are certainly a nice feature of hotel loyalty programs, however, the future discount is the primary competitive advantage for using a hotel loyalty program over just making all purchases on Priceline or Hotwire or at some funky boutique property with personalized service. 

The hotel loyalty program rebates and value-added benefits are the features that provide the major chains with additional pricing power for their rooms.

10.   Embrace New Technologies

Rather than following me around the world through a site like Four Square to instantly offer me an incentive on the spot, while nice it may be…

how about simple investments in primary website capabilities? 

Hilton – Is it too much to ask that I can check AAA rates without typing my 16 digit membership number? 

Priority Club – Is there some valid reason why you can’t make it easy to search for the free night redemption cost of Holiday Inn and Holiday Inn Express hotels at the 10, 15, and 25,000 points levels? 

Hyatt – Do I have to call in for nearly every stay to get the G bonus or platinum amenity added?

Starwood – Can you allow me to see AAA rates for a group of hotels in San Francisco rather than needing to check each hotel individually? 

Marriott – I guess you have most of your bases covered since I can’t think of any glaring website deficiencies at the moment. Anyone else have a complaint?

Customer research is stated as the most important strategic investment a hotel loyalty program manager can make.

My Loyalty Traveler opinion is members’ needs are relatively simple for the vast majority of frequent guests. A simple combination of value for money, a return on investment of loyalty through rewards and value-added benefits, and a hospitable hotel environment will keep the loyalty game going.

Keep loyalty simple for a win-win relationship.

About Ric Garrido

Ric Garrido of Monterey, California started Loyalty Traveler in 2006 for traveler education on hotel and air travel, primarily using frequent flyer and frequent guest loyalty programs for bargain travel. Loyalty Traveler joined BoardingArea.com in 2008.

More articles by Ric Garrido »

Comments

  1. Ric,
    You probably gave away a lot of good free advice that the 3 PhD’s made good money on. Hopefully, one of the marketing/retention guys at one of the major chains follows your blog and will hire you for some true improvements from the “man in the street” as well as the “men in the ivory towers”
    One other idea that works when the hotels do it for me is to value my opinion: I like it when IHG sends me a survey asking me about my experience. I like it even more if I complain and they get back to me (but I dont like it when they dont—morale of story: set expectations and follow thru)

  2. The report is “Designing a Customer Reward Program”, but good design is lost when not accompanied by good execution. Points 1-9 discuss what benefits should be offered; only the last one touches on delivery of those benefits. Consider that nothing seems to generate as many new FT threads from frustrated elites as when published benefits are not honored. Rooms not upgraded, breakfast not offered, welcome-amenity-points not posting…

    Program design is important, but the hotels should invest in better training of front line employees, and provide easy resolution paths when issues do arise.

  3. Fantastic analysis, Ric.

    For technology, it’d be a cool elite benefit to have a membership card with RFID that could be tapped to use for everything – not just at checkin but also to open the room door.

    And for websites, I’d like hotel websites to get smarter about NYC booking. If I’m putting in NYC, I’d love a popup or pull down menu that lets me select Manhattan alone, or NYC alone, or “nearby NYC”. It’s not helpful to be overwhelmed with irrelevant choices. Searching by radius doesn’t matter for NYC – stop showing me hotels in NJ!

    Finally, it’s downright insulting that, in 2010, free internet is treated as an “elite” benefit. No, it’s not a convenience item like snacks in the minibar. For a business traveler, it is part of the essential purpose of the room itself as a place to get things done.

  4. One thing I would add to loyalty programs is “surprise” rewards, like an unscheduled upgrade. I’ve been reading a lot of behavioral economics books so I don’t know who said it but surprise rewards are often better remembered than scheduled rewards. It’s nice to give something when someone reaches 50,000 miles or points, but if you give them surprise small rewards along the way, they value those and the relationship much better.

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