Guest Loyalty Programs. Do They Work?

One of the owners of my property is a very creative and passionate man. He wouldn’t have been able to build the property I work at, with its unique flair and style without such a grand big picture already in his mind. He also has a tendency to make sweeping statements on goals and projects that he wants to tackle without much understanding of the nuts and bolts that goes into execution. When he does get involved in execution, things tend to get frustrating when the realities of business operations conflict with his personal vision. The other day in a meeting he tasked the GM and I with developing some system for tacking, recognizing, and rewarding repeat guests. We have a system in place now for tracking and recognizing, but I’m the first to admit that it’s not really accurate, and the “reward” portion is fairly lacking. The bigger boxes in the industry have developed intricate Guest Loyalty Programs, and I have mixed feelings about the big box solutions out there.

Guest Loyalty Programs swept through the “chain” side of the industry some time ago. Most every major brand (Marriott, Fairmont, Hilton, Four Seasons, etc) has some sort of Guest Loyalty Program. You know that club that you sign up for at the Front Desk or two days before you get there because it gives you some little perk like free Wi-Fi or whatever. Ostensibly the program makes it easier for the hotel to recognize repeat customers, track their preferences, track issues or problems the guest has had/caused, and offer them rewards for repeat business. The programs represent two important factors to the Hospitality industry. The first is that guest loyalty is truly essential, a guest who enjoys your product and comes back over and over again is worth their weight in gold, not only for the actual dollars they spend, but for all the other people they refer our way. The second is that information is power. These programs allow us to build massive databases of information about our guests and when used appropriately they let you keep repeat guests happier, but also allow you to better market directly to them. In order to profit from this large database of information and cover the administrative costs, less scrupulous companies will also sell this information to “partners” like Frequent Flyer programs, sister brands, and other affiliates. I’m not saying everyone does this, but some of them do. If I signed up for a program I always use my Junk Mail email address (Yes, I have like 3 personal email addresses each one with its own purpose).

The programs do all of that, however, there’s also much doubt in the industry that these programs actually foster guest loyalty. Most of these programs are tiered in some way and the basic membership is free to join. Many frequent travelers belong to every “loyalty program” out there just to have the basic membership benefits. At a certain point, they don’t care if you’re a Fairmont or a Hilton so long as your rooms are within their price range and they get a bed to rest their head on. They carry cards for every loyalty program and offer zero loyalty in return. I won’t say this is the case for every member of a loyalty program and for those that reach the upper levels of membership, many of them have demonstrated that they have at least a strong preference for your brand. The majority of Loyalty Program members are in that bottom category of occasional visitors that generally just signed up to get the initial perks.

For smaller properties a formal sort of program can be a double-edged sword. The software for Customer Relations Management (CRM), to correctly manage these programs is expensive. Sometimes it’s just easier to try to do it through your existing Property Management Software (PMS), but most PMS’s aren’t designed to track the same level of detail that dedicated CRM software can. For instance I can see in my PMS that a guest has stayed with us 12 times before, but my PMS doesn’t really track whether you told us you prefer feather or foam pillows on your last visit. Unless I remember the guest’s name, it also isn’t great at letting me know if this guest had a major issue and screamed in the lobby about something on their last visit. Being a smaller stand alone property, we have to be a lot more careful about what “free perks” we give away. If we’re going to give stuff away or offer discounts to repeat guests does that mean we have to nickel and dime or raise prices for new guests to make up for it? Or do we just hope that the guest “loyalty” this expensive software has helped us earn will make up for itself in repeat business. And isn’t the best thing about repeat guests supposed to be that they’re basically free? You’ve already attracted them once, if you did your job right the first time they should just come back all on their own regardless of marketing efforts. I know that’s not entirely accurate, but we all would like it to be.

I’ve worked at a smaller independent property before where we offered a 15% discount on the room rate to any return guest, that was easy to implement if the guest’s name was in our system. We were a trusting property, so if a guest asked about the discount and said they had stayed before, but we couldn’t find a computer record for them we just took them at their word and gave it to them. As a promotion we would offer the 15% discount to anyone that said they were referred by a repeat guest. Once again we were very trusting about this. This was a lean and relatively efficient method of promoting guest loyalty and occasionally encouraging them to refer friends and family. And I have no idea what that does to your ADR or RevPAR in the long run. It also doesn’t allow for distinguishing between the guest that’s been back twice and the guest that’s been coming back for 20 years and spends several thousand dollars each time. Should both of them be equally rewarded? Or should there be an extra perk for the guest that spends lots more money? At the smaller property most of those truly long-term guests ended having a relationship with the Front Desk manager and she made sure they got their extra attention. My current property is already too big for that level of relationship with our guests and we’re about to more than triple in size.

I have a feeling our Loyalty Program at my current property will end up falling somewhere in between the “big box” solution and the smaller independent property solution. Mostly because I doubt I’ll be able to sell the owners and the GM on the likely fairly expensive CRM software I was looking at online today, but pretty soon we’re going to be considerably larger than my small property solution can handle. I smell entirely too complex spreadsheets in my future trying to do something they were never intended for.

I am curious, if any of you have similar mixed feeling about Hotel Loyalty Programs? Do you sign up for the free perks wherever you’re staying? Or do you only sign up at properties that you really like and want to stay at all the time? Will a club membership help you decide between staying at one property over the other? Especially if both offer similar programs? Will a repeat business perk, like a 15% discount on your room, heavily affect your decision to return? OK, I know that was a lot of questions. You can answer none, one, all or just some of them. This is an issue we discussed at great length during my academic program for Hotel Management, but I haven’t discussed with most people outside of the industry or outside of an academic setting really.