Hotel Online Special Report


Hospitality Loyalty Programs; Strategies
for Points-based, Recognition-based
Programs
This article is from the Fall 2006 issue of Hospitality Upgrade magazine.To view more articles covering technology for the hospitality industry please visit the Hospitality Upgrade Web site or to request a free publication please call (678) 802-5307 or e-mail.
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By Mark Haley

The intent of hospitality loyalty programs is to drive customer loyalty and to make the guest want to continue to choose to stay at a brand�s hotel again and again.  Many observers argue that points-based programs have become a commodity and are merely a cost of doing business now, since all large chains have them.  Not having one becomes a negative attribute, but having one is simply the price of entry.

Hospitality loyalty programs tend to fall into two broad categories:
  • Points-based frequency programs where guests earn points based on spend or stays which can be exchanged for rooms or other benefits
  • Recognition programs where guests� preferences are captured, retained and communicated throughout the brand and utilized to enhance future visits

Both varieties of programs have their place, including points-based. Different organizations establish different programs according to their size, competitive posture and other attributes.  These choices lead to other decisions about what technology to deploy and how to administer it.

Large, multiple segment operators with broad geographic distribution (such as Marriott, Starwood, and Hilton) build out points-based programs like beavers building dams.  It is in their nature to do so and guess what�hotel guests like them.  Points-based programs have numerous virtues:

  • They are voluntary:  the guest decides to join and decides to share their personal information.
  • They are easy to understand:  You stay. You spend. You get points.  Then you get free stays for points.
  • They are straightforward to administer, with the right investments in technology and business process integration.
  • They support non-points-based awards also, such as special registration lines, or upgrades.
  • They are effective:  Market Metrix1 reports that 34 percent of hotel guests say that a loyalty program was a key factor in hotel choice, from a sample dominated by points-based programs.  And do you think these 34 percent are infrequent stayers or regulars?
If points-based programs have all these positive attributes, why would someone build a recognition-based loyalty program?  Simply, because they have to.  In order to accumulate enough points to fund a meaningful stay or partner award, one needs quite a few stays.  But for a single hotel or small chain, it is difficult to assign enough value to a given stay to accumulate enough points to give anything away.  You need lots of opportunities to have stays to make a points-based program effective.  Plus, you need plenty of locations that members can redeem awards in (such as Hawaii), probably different from where they earned them.

Rather than creating �me-too� points-based programs, many smaller brands and independents wisely try other formats of loyalty programs.  One format, briefly offered, gave frequent customers the opportunity to earn shares of Jameson Inns stock.  More commonly, these other loyalty program formats revolve around guest recognition. 

The essence of a guest recognition-based program revolves around capturing guest preferences and making them available to enhance future stay experiences.  Some of these programs call for enrollment and use of a member ID number.  The Wyndham By Request program is a great example of this class of program.  Others are based on staff observations, where line personnel are incented to record relevant guest behaviors, so that the request can be anticipated on the next visit.  Denihan Hospitality�s MAGIC (Marketing and Guest Information Center) represents this class of program, using sophisticated database tools to match up guest reservations with existing profiles, and no enrollment or member number is called for.

Of course, the points-based programs support elements of guest recognition.  Examples include flagging elite members as such to associates or populating reservations with key preferences such as nonsmoking or smoking.  The difference is that in a points program, the points are the currency valued by the guest.  In a recognition program, the experience becomes the currency and thus a tangible extension of the brand.

Technology Strategies

Different types of programs call for different technology strategies to support them effectively.  A points-based system, generally used by major brands, typically bolts onto the CRS with two-way integration into the brands� designated property management system.  Some of these systems allow associates to interact with the loyalty program to update member addresses or other profile elements or even to allow associates to award extra points as a means to resolve a service issue that a guest may have encountered.

Stay transactions in a points program also incur an accounting transaction, where the hotel that got the stay has to pay the brand for the points.  The technology needs to support these transactions as well.  This money funds the program�s operation and promotion and a portion is accrued to pay for future award redemptions.  When an award is redeemed, the hotel or partner is paid out of that accrual account on a pre-defined basis.  The perceived cost of points and perceived low reimbursement rate for redemptions often become points of contention between brands and their hotels.  Everyone wants to offer guests the programs, but no one wants to pay for them. 

These accrual accounts are actually liabilities on the balance sheets of the points-based frequency programs.  As many member point balances sit for years before redemption or write-off, these liabilities swell to very significant amounts in larger programs.  Alleviating the balance sheet impact of these accruals can induce programs to make it relatively easy to redeem awards (good for members) or engage in aggressive write-offs of stale points (bad for members). 

Strategies for making redemptions easier include:

  • Point-swapping agreements with other frequency programs (such as airlines).  Point-swapping agreements can also increase liabilities, of course.
  • Allowing for merchandise awards (golf clubs and other leisure items).
  • Using points to purchase upgrades to suites or nicer rooms, where the traveler can stay in an ocean view suite at their negotiated corporate regular room rate.
These all require enabling technology applications with external partners or property management systems.

Another major class of technology impact on points-based programs comes from the many ways one can earn points in addition to hotel stays.  Most large programs offer private label credit cards, where members can earn program points for spend on the cards, often with double points for spend in the brand�s properties.  Others have tie-ins to telephone companies or others that are willing to pay the brand for points awarded to members that they can market to.  These connections call for the necessary interfaces, typically at the mainframe level.

All of this enabling technology is complicated and expensive.  They demand people, systems and resources to build, manage and maintain them.  These costs are another reason that points-based programs are the province of large hotel companies, and smaller organizations need to find another way to compete.

A recognition program typically calls for richer interaction with the loyalty program database from the PMS.  If the program does not utilize member ID numbers known to the guest, then tools for matching reservations and profiles become more important.  This technique is called householding in the database marketing world, and is usually coupled with data hygiene tools to standardize things like addresses and name formats.

Recognition-based programs are generally spared the need to build or buy technology to connect with third parties for point-swaps, external point awards and so on. 

As noted above, this is one reason smaller companies are more likely to choose a recognition program.

Different organizations need to do different things to encourage repeat patronage and commit the customer to their business.  In practice, many programs share attributes of both of these approaches.  The code to crack for any hotelier wishing to invest in a loyalty program is to build the model that fits their organization and services their guests the best way possible, using the right combination of valuable resources.
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Mark G. Haley, CHTP is a member of The Prism Partnership, LLC, a boutique consultancy servicing the global hospitality industry with practice areas in technology, marketing and research.  Please visit http://theprismpartnership.com
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�©Hospitality Upgrade, 2006. No reproduction or transmission without written permission.�

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Contact:

Geneva Rinehart 
Managing Editor 
Hospitality Upgrade magazine 
and the Hospitality Upgrade.com website
http://www.hospitalityupgrade.com
[email protected]

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Also See: What's New in the Hotel Guestroom? Digital, HD or IP Televisions / Ashok Kumar / June 2006
A Future Vision for Hotel Revenue Management / Caryl Helsel and Kathleen Cullen / June 2006
Marketing to the Next Generation of Buyers; Scoring Your Hotel Reservations System / Debra Kristopson / June 2006
Consortia-Corporate-Group Best Available Rate (BAR): Good or Bad for Hotels? / Caryl Helsel / October 2005
Check In Kiosks: Coming to a Hotel Lobby Near You? / Jerry W. Sheldon / October 2005
Moving into Compliance Mode; Realizing the Benefits, Cutting the Costs / Dorian Cougias / March 2005
What Hoteliers Need to Know About Flat Panel and HDTVs / Jake Buckstead / March 2005
10 Trends Affecting Hospitality IT in 2005 / Bradford Iverson / March 2005
Searching for Bookings? Optimize / Dr. Matthew Dunn / August 2004
Instant Messaging: Age Is Everything - Expectations of Immediacy, Productivy and the Rise of IM / Elizabeth L. Ivey / August 2004
Baby It's Cold Outside the Firewall / Michael Schubach / April 2004
High Wired: The Hotel Room of the Future / Kelly Stanford / April 2004
We're Not In Kansas Anymore; Differentiating your hotel through technology / Mark Haley / January 2004
Understanding the Power of Customer Relationship Management / Neil Holm / Hospitality Upgrade Magazine / November 2003
The Case for Self Service in Hospitality / Marvin Erdly and Amitava Chatterjee / Hospitality Upgrade Magazine / October 2003
Five Questions to Ask Online Distributors / Michelle Peluso / Hospitality Upgrade Magazine / October 2003
Surf's Up - Internet Marketing for Destination Properties / Marvin Erdly and Amitava Chatterjee / Debra Kristopson / Hospitality Upgrade Magazine / October 2003
Wireless Changes Everything; So, do ya want a latte with that or what? / Jocelyn Valley / Hospitality Upgrade Magazine / June 2003
Customer Awareness or Customer Beware? Data Security in a CRM-Obsessed Industry / Elizabeth Ivey / Hospitality Upgrade Magazine / June 2003
Your Magnificent Selling Machine Would you Prefer Your Hotel to Get: the Web Hit or the Phone Call? / Robert Camastro / Hospitality Upgrade Magazine / June 2003
Tradeshows & Economic Soldiers / Dan Phillips / Hospitality Upgrade Magazine / April 2003
Hotel Telecommunications in the 21st Century / Geoff Griswold / Hospitality Upgrade Magazine / March 2003
The ABCs of CRM  / Mark Haley & Bill Watson / Hospitality Upgrade Magazine / March 2003
Getting the Most out of Your IT Investment / By: Clay B. Dickinson / Hospitality Upgrade Magazine / Fall 2002
The Role of Paper in a Digital World / By: Bill Fitzpatrick / Hospitality Upgrade Magazine / Fall 2002
The Rotten Pineapple (international symbol of hospitality) / By: Steve D'Erasmo / Hospitality Upgrade Magazine / Fall  2002
Focusing on Labor Can Improve More Than Just Cost / Hospitality Upgrade Magazine / Summer 2002
Attention Hotels - An Ounce of Prevention is Worth a Pound of Cure / Elizabeth Lauer Ivey / Hospitality Upgrade Magazine / May 2002 
HOSTEC - EURHOTEC 2002 - Room for Improvement / Christel Dietzsch / Hospitality Upgrade Magazine / Feb 2002 
Technology and the Human Touch / Dan Phillips / Hospitality Upgrade Magazine / Spring 2002
Wireless Technology:  Where We Have Been, Where Are we Going? / Geneva Rinehart / Hospitality Upgrade Magazine / Spring 2002
Effective Customer Relationship Management (CRM) Implementations / John Schweisberger and Amitava Chatterjee, CHTP / Hospitality Upgrade Magazine / Fall 2001 
What's Up With Call Accounting Systems (CAS) / Dan Phillips / Hospitality Upgrade Magazine / Fall 2001
Technology Dilemmas: What have IT investments done for you lately? / Elizabeth Lauer / Hospitality Upgrade Magazine / Summer 2001
Full Circle from Centralized to ASP - The Resurrection of Old Themes and a Payment Solution / Gary Eng / Hospitality Upgrade Magazine / Summer 2001 
A High Roller in the Game of System Integration / Elizabeth Lauer / Hospitality Upgrade Magazine / Spring 2001 
CAVEAT EMPTOR! Simple Steps to Selecting an E-procurement Solution / Mark Haley / Hospitality Upgrade Magazine / Spring 2001 
Your Bartender is Jessie James and He Needs to Pay for College / Beverly McCay / Hospitality Upgrade Magazine / Fall 2000 
Choosing a Reservation Representation Company / John Burns / Hospitality Upgrade Magazine / Spring 2001 
Understanding and Maximizing a Hotel�s Electronic Distribution Options / by John Burns / Hospitality Upgrade Magazine / Fall 2000 
The Future of Electronic Payments - From Paper to Plastic and Beyond / J. David Oder /  Hospitality Upgrade Magazine / Summer 2000
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Biometric Payment: The New Age of Currency / by Geneva Rinehart / Hospitality Upgrade Magazine / Mar 2000 

 


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