The Independence of Loyalty

Independent hotels boast that they offer a one-of-a-kind experience. The linchpin counter for the big chain hotels has always been their tried-and-true loyalty programs, leveraging their scalability to keep customers faithful. It was an area where independents could not compete!  Well, thanks to some new entrants to the loyalty program game as well as the revitalization of older systems, this is no longer the case. And all of this is making for a very interesting landscape in the hotel industry.

Since their inception, chain loyalty programs have become behemoths in their own right. True, guests can cash in their points for hotel rooms, and often flights, car rentals, cruises, gift certificates, golf, and other palpable experiences, but, the redemption process is oftentimes limited and confusing. In the end, travelers either use their points inefficiently, or just let them accumulate; residuals acting as rolling “free finance” (or future liability) for the hotels.

Loyalty programs encourage customers to adhere to one chain and/or one reward program. To give you some visuals, rent the movie Up in the Air. There’s a great little scene in the middle where George Clooney lists off all his various memberships in robotic detail – hotels, rental cars, airlines, etc. And somewhere in there he emphatically suggests that switching programs is a definite faux pas. It’s just too much hassle to keep track of more than one.

At first glance, you’d think that most independent hotels are shut out of this potentially lucrative marketing opportunity. For starters, Small Luxury Hotels of the World (SLH) and Leading Hotels of the World (LHW) have been incumbents for awhile now, and both have fought to enhance the allure of their members. But, such associations haven’t traditionally provided sufficient incentives for guests to stay at other affiliates; after all, they’re associations, not conglomerates. It’s a tough life for an independent hotel.


This is About To Change

For 2011, LHW has revamped their loyalty program, now called the Leaders Club. Guests now pay a $100 yearly fee to gain perks including a free night after five separate stays, a complimentary breakfast, a room upgrade and free internet access. Or, they can opt for the $1200 annual membership with added benefits like access to airport lounges and direct concierge services.

Lo and behold, these are the types of bookings that management wants because they all must come through the LHW portal at full (rack not discounted) price. Assuming the average stay at an LHW location is two nights, guests get approximately 10% of their value back. Not too shabby if you ask me. It’s also interesting to note that the other old guard, SLH, has yet to follow suit with a corresponding plan. And Preferred Hotels and Resorts Worldwide has yet to develop a similar program to both LHW and SLH.

But, the real buzz is the three new entrants to the field.

Stash Hotel Rewards launched about a year ago, partnering with 150 luxury properties in the United States. They offer a clear-cut point system where guests earn five points for every dollar spent on room rate. Member hotels are then free to set their own cost for redemption. The average point-to-price ratio works out to roughly 9:1, meaning guests get about 6 cents back off every dollar spent, usable towards a future stay.

Voila Hotel Rewards was launched by industry giant Hospitality Marketing Concepts about five years ago. Since then, they’ve found a niche with 235 properties in Europe, Asia and the Middle East. Their only North American locations are the two St. Giles properties in New York City. Like Stash, their system is points-based. Guests earn ten points for every dollar spent on room rate, with a fixed point-to-price ratio of 10:1. A guest gets 10 cents back off every dollar spent, usable towards a future stay, and frequent travelers earn 25-50% in additional bonuses. As well, their points are transferable to several airline partners.

Global Hotel Alliance (GHA) introduced a novel reward concept for their collection of 12 brands encompassing 300 properties. A caveat: GHA isn’t a program for independent hotels, only for their brands, but nonetheless worth mentioning for their innovative approach. Rather than a traditional points-based system, they offer ‘local experiences’ at their member hotels. The quality and quantity of these experiences are respectively determined by how often consumers travel and how many different brands those consumers visit. Currently-offered examples range from a tour of the Samuel Adams Brewery in Boston to a private yacht tour of Dubai.


Will Customers Switch Hotel Selection Based Upon These Programs?

I want to give my two cents here from as unbiased a platform as possible. Within the limits of brief editorial writing, I’m bound to make one or two cavalier assumptions, so bear with me. The majority of customers will NOT switch to these new loyalty programs, and here’s why.

Whether they are business or leisure travelers, everyone wants points. That’s a no brainer. However, loyalty programs are geared towards frequent visits, something that doesn’t directly coincide with leisure travel (how often do you vacation each year?). So, if these systems are contingent on appeal within the business sectors, then how is financial success possible?

Business travelers have already succumbed to the allure of a loyalty program with this chain or that. But why? Simple: scalability. Big chains like Hilton and Marriot both have around 3,500 properties under their belts. That’s between eight to ten times what these independent loyalty programs offer.

The psychology of the business traveler is this: amass points from company trips, spend them on vacations. With thousands of properties to choose from, there’s no worry over location. Marriot and Hilton, for example, are in almost every major city in the world, and both have many sites in prime vacation abodes. Stash, Viola and LHW just don’t have the critical mass to grant such flexibility.

Moreover, these independent reward systems lend themselves more to the upscale market. It’s up for debate whether or not the average luxury leisure traveler would pick their next destination based on the allure of a 10% value-back incentive.

The dark horse in this race is GHA, for which I fail to see any immediate incentives for repeat stays. Their experience-based policy definitely emphasizes to the leisure element, but the average sightseer wouldn’t venture out often enough to reach the upper tiers of the program where the real, cushy rewards are doled out.


Good for Hotels?

Every business on the planet loves selling gift cards because they get an immediate stimulus of cash plus interest, and they may or may not have to provide redemption later. Traditional loyalty programs work the same way. A portion of room revenue is paid into a fund that accrues interest, all while the points may go unredeemed for years if not expire all together. Adoption is a definite consideration.

But does the revenue from these ventures outweigh the costs of joining?

First, let’s go through some of the cost estimates, using Voila as our example, with Stash operating in a similar manner. A guest shows up at your hotel as a member of their loyalty program. This means that Voila will get 7.5% of the room rate charged. Now suppose another guest comes to your property wishing to cash in his or her points. Using the 10:1 points-to-price redemption ratio, your hotel will get 75% back off the dollar value of the room.

Confusing, but the gist of it is that Voila skims of the top of BAR for both types of point of purchase. Worse yet, the loyalty card companies manage the cash flow and collect the interest. So, onto the next question. Is the number of new customers acquired from participation enough to warrant the trouble?

Statistics on this vary too much from hotel to hotel for a solid inference. Ask yourself if becoming an affiliate of a loyalty program will disenfranchise your existing customer base. The last thing you’d want is to convert your faithful clientele into Stash or Voila clientele. Moreover, will new business from loyalty card guests interfere with other revenue streams; ones that aren’t hindered by a loyalty commission off the top.

The other two aforementioned systems are not problem-free either. With the LHW program, at worst, when a customer pays full price, the hotel only buys one-fifth of a free night at another location. It’s a good foot-in-the-door policy, but not exactly cheap given LHW annual fees. In the GHA system, the value of a given ‘experience’ is often equal in monetary value to the perfunctory welcome gifts at other hotels and only awarded on the first visit to each of the association’s 12 brands.


So Where Do We Go From Here?

Let’s consider our options from a manager’s perspective.

Leaders Club – LHW appeases both parties. The customer gets free nights, and the hotelier only gets a fee when full price is paid. By placating both ends, however, LHW has created a system where customers might not be fully incentivized to pay the $100 annual fee, leaving the association devoid of the mass market appeal that Stash and Voila offer. Of course, you have to be a LHW member to participate which isn’t cheap.

Stash Hotel Rewards – As a US-centric program, Stash has widespread clout in the region. Thus, they can draw a significant customer base to a prospective location that is close, but not too close to their other members. The problems of loyalty fees and customer conversation are still ever apparent.

Voila Hotel Rewards – In many ways, Voila in is the mirror image of Stash. Joining one or the other seems to depend more on a geographical analysis rather than a comparison of benefits. For instance, due to Voila’s lack of members in key North American markets, a new hotel could leverage this to attain a particular set of European consumers. But then again, how often do Europeans visit the States and vice versa? Is this enough to drive sales by itself?

Global Hotel Alliance – Although not for independents, the fresh take to their program could elicit some valuable insights. Visit their website and look at what they offer in terms of reward components and packages. If you currently have an in-house loyalty program, their approach may provide ideas for attracting new guests and retaining your existing clientele.


The Bottom Line

Personally, I am not yet ready to recommend any independent property’s participation. Despite all of their advantages, these systems just don’t have the strength in numbers to justify my endorsement. It’s a trend to watch closely though, as the loyalty programs continue to grow both in member hotels and general consumers. A geographical assessment should tell you if one organization is a good fit for your hotel or not.

As well, I remain skeptical about how these programs might erode customer loyalty. Sorry for being selfish, but I want guests faithful to my property, not some third-party organization. If you are struggling for occupancy, then perhaps joining could help boost temporary sales. But, if you are already getting by, aim to polish your own brand rather than dilute it under the banner of an external loyalty program.

(Article by Larry Mogelonsky, published on eHotelier.com on August 23, 2011)

Larry MogelonskyThe Independence of Loyalty