How to Build a Successful Hotel Loyalty Program

There’s a reason why so many successful brands in the hospitality industry have spent time and energy building a hotel loyalty program. Research has shown over and over again that customer retention is better for a hotel’s bottom line than customer acquisition. A 5% increase in customer retention can increase your business’ revenue by 25-95%. Why? On average, returning customers will spend more money at your property on upgrades and services and are more likely to refer your hotel to their friends and family. There are many different strategies that you can implement to increase repeat business at your hotel. One of the most tried and true ways is by building a successful hotel loyalty program. Whether your property is a full-service hotel, resort, or a collection of boutique locations, considering these factors will help you determine if a loyalty program makes sense and aligns with your goals.

If you’re considering building a loyalty program for your hotel or brand but don’t know where to start, ask yourself the following 5 questions. This will help you determine if a loyalty program is right for you, help you develop the framework of your program, and assist you with any roadblocks that you might face.

1. Does a hotel loyalty program make sense for your property or brand?

The purpose of a hotel loyalty program is to incentivize new guests to stay at your hotel while also rewarding your existing clientele for their repeat business. There are many pros and cons that can come with developing a loyalty program at your property. It’s important to weigh all your options and determine if establishing a rewards program makes sense for your business.

Here are some of the potential benefits of a hotel loyalty program:

• They keep customers coming back to stay and your returning customers are more likely to spend more money at your property than a new customer.
• They attract new customers without costing you a crazy amount of marketing dollars.
• They’re a great source for consumer data and trends. This data can be instrumental in developing a marketing strategy - not only does it give you a general understanding of your client base, it can also assist you in segmenting those clients to develop and execute a targeted marketing strategy.
• They improve direct customer communication. By tracking your customer’s actions within your property or brand, you’re able to create a unique, personalized experience for your guests which can further fuel repeat business.

However, there are certain cases where loyalty programs might not be as beneficial, such as for properties primarily serving one-time guests (like small inns) or budget accommodations with limited repeat visitors. In these cases, consider if the program’s costs and efforts would outweigh the benefits.

On the flip side, there are a few cons to consider before investing your time and money into a loyalty program:

• They can get expensive especially if they aren’t executed properly. A loyalty program is going to impact your bottom line no matter what you offer as a reward. Discounts, offers or even doubling points can be risky if you’re not getting the repeat business that you anticipated. You need to be constantly reevaluating if the cost of your rewards are less than the revue of the repeat business. To mitigate risk, analyze your rewards’ ROI periodically, ensuring that each reward justifies the costs based on its influence on repeat bookings and guest spending.
• Let’s be honest - there is a negative narrative surrounding information gathering. Your guests may get nervous sharing their personal information with you especially with the recent data hacks that have occurred in the past. Ensuring you invest in a secure software program can mitigate this risk however it is something to keep in mind.
• Is the market oversaturated? If you are one of the first brands or property to bring a loyalty program to your market, you’ve hit the lottery. You should implement a program immediately and reap the financial benefits. However, there is a chance that the market is oversaturated with different rewards plans. If this is your current situation, do an analysis of what everyone else is offering and find a unique approach that will differentiate you from the rest. If this is the case, focus on creating a highly tailored program that reflects your unique guest demographic or location, such as by integrating local partnerships or aligning the program with sustainability efforts that appeal to your guests.

2. What is the goal of the loyalty program and how do guests accumulate points?

There are four common goals when implementing a loyalty program for any business. These include:

• Increasing brand loyalty. This is the most common goal with hotel reward plans.
• Decreasing guest price sensitivity by offering reward pricing. This is common with grocery stores (ex. Safeway) but could be used for hotel discounts.
• Preventing customers from leaving, also known as the handcuff effect. This is more common with contractual businesses (ex. phone companies) and could be used when negotiating LNRs or long term contracts.
• Gathering information to improve marketing initiatives like your e-mail segments or promotions for specific demographics.

You may set one goal or use a combination of the goals. These goals will help you design the framework of your rewards program and how your hotel guests accumulate points.

The most elaborate loyalty programs are run by properties in Las Vegas. They’re able to reward guests with points based on the number of stays, the total dollars spent, and can track their guest’ habits. Tracking all this data can be expensive and involve elaborate technological infrastructure. Identify one to two goals that you want to achieve and reward points based on that goal.

Here are a few different ways that guests can accumulate points for hotel loyalty programs:

• Sign up bonus for new loyalty members.
• Tiered rewards levels (ex. Silver, Gold & Platinum members) - Guests typically accumulate more points based on their loyalty level.
• Double points during off-season times to increase business during slower periods.
• Points based on dollars spent on hotel stays and within the property. This can include dollars spent at your restaurant, lounge or spa.
• Points earned based on dollars spent at participating partner’s businesses.

3. What are the rewards?

When determining what to reward your loyal guests with, you need to make sure that you’re adding value to their experience. The Harvard Business Review found that people respond more to luxury or status boosting rewards than practical rewards (ex. Cash back guarantee). These luxury rewards can include suite upgrades, welcome packages, and complimentary spa services or activities during their stay.

If you’re doing a multi-tiered loyalty program, you can offer complimentary benefits to your members based on their status. This is a great way to show others the benefits of your loyalty program and encourage new members to sign up. Some examples include:

• A separate check in line. The Marriott Bonvoy program is a great example of how they use this to visually enhance their members' experience at the  hotel. They clearly mark the separate line-ups. Guests who are not members can see other guests arrive after them yet be checked in faster and will want to sign up STAT.
• Improved arrival gifts depending on the status. For example silver receives a box of chocolates on their bed while gold receives a bottle of wine.
• Complimentary valet parking for higher tiered members.

To enhance value, consider the guest's preferences and how each reward reflects the experience they seek at your property. Rewards that are exclusive yet achievable help promote continued loyalty without becoming costly to manage. There’s a lot of room for creativity when it comes to determining the rewards of your program. Make sure you are considering if the rewards are achievable, cost effective, and luxury enhancing.

4. What information do you want to know about your customers through the loyalty program?

The information that you gather for your rewards program is extremely valuable especially when developing a marketing strategy or promotions at your property. You want to make sure that you gather as much information as possible without making the guest feel uncomfortable that they’re oversharing their life. The most common information gathered besides your guests name is birthday, occupation, purpose of travel, and spending habits at your property. To improve transparency and trust, inform guests about how their data will be used to benefit them (e.g., personalized offers, targeted upgrades) and ensure your software system upholds the highest standards of data security. Don’t know where to start? Take a look at the current information you have from your customer base and ask yourself or your marketing team what information will help elevate your business’ marketing efforts. This will help you improve your email marketing segments as well as any new campaigns that you want to roll out to target a specific demographic.

5. What are the risks?

There are some risks when rolling out a rewards program. It’s important to consider these risks when deciding if a loyalty program makes sense for your business. Here are some of the most common risks of a loyalty program:

• The program isn’t profitable. This can occur when the rewards given out are more expensive than the dollars a guest spends at your hotel or when the software used to manage the loyalty program is more expensive than the guests enrolled in it.
• Hotel’s reward points to guests that complain. When guests complain (let’s face it - it’s going to happen), identify the real reason for the complaint and make it right. Providing additional points is a bandaid and not only encourages this behaviour, it also prevents you from identifying key issues at your own property.
• The points are too divisible and don’t encourage loyalty. If you provide a reward for every 1,000 points accumulated versus every 10,000 points, your guests are not encouraged to continue coming to your property. You need to make the reward level achievable but also profitable for a successful program.
• Points are not being redeemed. If your guests are not redeeming their points, then the points have no value and you’re not creating loyalty. Track how often guests are collecting and redeeming their rewards to ensure the program is adding value to your guests.

Regularly evaluate the profitability of your loyalty program and gather guest feedback to ensure the rewards offered resonate with them. Making adjustments based on guest feedback helps keep the program fresh and relevant. There are many ways to increase repeat business at your property and a hotel loyalty program is one of the most affordable ways to do this. The most important thing is to constantly evaluate your program to ensure that it’s profitable and use any feedback from your guests to further improve the program.