What are your freebies worth?

Loyalty programme members spend more and stay more at hotels, but as a result, expect good earnings and easy redemption. Louise Oakley investigates the scale of their value to hotel firms.

Hotel loyalty programmes have been around for close to 30 years, after pioneering launches from InterContinental Hotels Group and Marriott in the US in 1983.

Hilton joined the club in 1987 with Hilton HHonors and since then, the business of rewarding loyal guests has become essential for hotel chains, as well as an increasingly useful tool for F&B brands, boutique properties and independent operators.

Most recently, Ritz-Carlton introduced a loyalty scheme, linked with the existing Marriott Rewards, citing growing demand from guests over the past 18 months.

Shangri-La completely restructured and extended its Golden Circle programme, while locally, Landmark Group unveiled its Shukran customer loyalty card covering all of the Citymax Hotels F&B outlets, standalone restaurants as well as its retail stores.

At the same time, the offers and promotions from established programmes have become all the more enticing and competitive — from February 1, Marriott Rewards members will earn one free night for every two paid stays they make through to the end of April (up to two free nights per member).

Over at Hilton, from now until June 30, HHonors members have the opportunity to redeem free nights with 40% fewer points at participating hotels worldwide with the Point Stretcher Rewards promotion, enabling loyal members to earn free rooms faster at more than 1800 participating hotels.

Such tempting offers are not about good public relations; they are designed to fill rooms, encourage guest spend and reward hotels’ most frequent guests — the people that help to grow occupancy rates year on year.

Hilton HHonors members typically generate more than 40% of occupancy across the portfolio — which totals more than 40 million guests, reveals the company’s senior vice president for global customer marketing, Jeff Diskin.

“When we keep our loyal customers happy, our business thrives,” asserts Diskin.

A similar figure is true at Starwood, which introduced the Starwood Preferred Guest (SPG) programme in February 1999.

Starwood Hotels & Resorts, Europe, Africa and Middle East senior director, digital, loyalty and partner marketing, Steven Taylor, says: “Today SPG is a powerful and growing force for us that drives nearly one out of two guests in our hotels worldwide. Our SPG members now represent 41% of total occupancy for our hotels in Europe, Africa and Middle East”.

Even the newer loyalty programmes from regional brands have proved remarkably successful.

Rotana Rewards launched in April 2005 with three tiers now available: Classic, Select and Exclusive. Already, there are 25,000 active members with a renewal ratio of 75% yearly.

“Since its launch, Rotana Rewards Exclusive Programme had a frequency ratio of 3.5 visits per week per member, and the revenue generated is around 25% of the total company revenue,” says Rotana loyalty programme director, Elie Saliba.

These figures are a mere snapshot of the value of hotel loyalty programmes, which have become yet more important — and therefore potentially more profitable — in the changing economic climate of recent years.

Dion Maritz, general manager at loyalty marketing specialist ICLP Middle East explains.

“With the advent of global recession since 2008, hotels in the Middle East are faced with challenges of oversupply of rooms which will continue to affect the market in the next couple of years.

The impact of this on reducing price points and squeezing margins remains a significant challenge for hoteliers. Previously, hotels in the Middle East used to have one of the highest average daily room rates in the world — but these are now being eroded.

“With the above pressures, brands now have to look inward to tap into one of their most valuable corporate assets — their loyalty programme. They can use this direct channel to deliver better margins by understanding and targeting the less price sensitive customer, and driving the data to identify further opportunities within their databases,” explains Maritz.

“Programmes are also seeing rising redemption rates. Research conducted on behalf of Wyndham Hotels and Resorts in the US for instance shows that 20% of consumers believed that they would be unable to take their next holiday without using loyalty points or miles, which suggests that the current economic climate has increased the importance of utilising travel rewards in holiday planning.

“Many of the leading brands are currently benefitting from the kudos of being seen and being able to help their loyal customers still enjoy a holiday by cashing in their reward points. The result of which is that customers are engaging more readily and more often with their chosen brand,” he asserts.

Taylor says he has seen this trend at Starwood. “Loyalty programmes such as SPG keep guests travelling during tough economic times. Cost crunching consumers can tap into the power of SPG to book flights, hotel stays and more, all cash free.”

Such schemes are extremely important for a hotel’s business to stay competitive, agrees Hilton’s Diskin, “especially in an economy where price-sensitive consumers are looking for greater experiences at better prices”.

Diskin highlights the need for “greater experiences”, which is key when it comes to rewards because loyalty members do not merely expect a discounted rate or an upgrade.

They need to be looked after, valued and part of a loyal community following that hotel chain. Rarely are they like George Clooney’s alter ego Ryan Bingham from the film Up in the Air, which brought Hilton HHonors to the big screen. Bingham spends at hotels merely to add to his frequent flyer miles tally in an effort to hit the prestigious 10 million miles — not to actually go anywhere.

“I don’t spend a nickel, if I can help it, unless it somehow profits my mileage account — I’d be the seventh person to do it. More people have walked on the moon,” Bingham says proudly.

The film was great for bringing loyalty programmes to the forefront, but outside of Hollywood, loyalty members are looking to cash in their points for something real.

As Jeff Strachan, vice president sales and marketing, Middle East and Africa for Marriott International, explains: “Customers can choose to earn Marriott Rewards points. Alternatively they can swap the points into miles and earn with their preferred airline partner. We have an excellent programme online called dreamrewards tracker. This solution helps our customers set a goal for a dream vacation”.

Hilton prides itself on its ‘Double Dip’ approach, which enables members to earn points and miles, or points and points, for the same hotel stay and Hotel Reward Exchange, which offers hotel points for airline miles and airline miles for points with participating airlines.

In addition, several chains claim to have revolutionised the industry with no blackout policies, which means members can redeem their points wherever and whenever they want, not just outside of holidays.

Diskin claims that Hilton was the first “and still the only” hotel guest loyalty programme to offer members “both points and miles and no blackout dates”.

He adds: “Last year, we announced a new partnership with JetBlue — making Hilton Worldwide JetBlue’s very first hotel partner. Now Hilton HHonors and JetBlue’s TrueBlue members will have the opportunity to earn one TrueBlue point for every two US dollars spent on stays at any of the hotels in the Hilton Worldwide portfolio”.

Pick your partners
However, guests don’t simply collect points and redeem them for rooms. A successful hotel loyalty scheme has to be far more diversified. Many hotel chains partner with airlines. The offer varies but the premise is the same — if you want more people to travel to your hotel, you need to support the entire travel process.

Taylor explains SPG’s offering: “In 2008, SPG launched SPG Flights, which allows our members to use their points to book flights on hundreds of domestic and international airlines with no blackout dates.

Members can simply go to our site, search for and select their preferred flight and the class of service, and redeem their Starpoints for the entire cost of their flight. Members may even earn airline miles when booking airfare through SPG Flights”.

But what else can members ‘earn’? In order to make the new Ritz-Carlton Rewards distinct and of more value to the luxury traveller, Ritz-Carlton has placed heavy emphasis on securing the right partners for its programme.

The Ritz-Carlton Rewards’ partners offer unique access available only to members, including Abercrombie & Kent members-only tours in locations such as China, Turkey and Egypt; special customer events and a half-day personal shopping experience with fashion experts at Neiman Marcus featuring a private consultation, fashion show, lunch, facial and make-up application; multi-day photography workshops with National Geographic’s renowned photographers at Ritz-Carlton hotels and resorts in locations such as San Francisco and Miami; and the opportunity to redeem points for credit toward wedding gowns and other select products designed by celebrated designer Vera Wang.

Members will also be able to redeem points for flights on 31 of the world’s major airlines.

“No other luxury hotel company comes close to providing such a full range of opportunities to earn and redeem points and experience some truly exceptional and exotic adventures,” asserts Herve Humler, president and chief operating officer, The Ritz-Carlton Hotel Company.

“This is just the beginning. We will continue to add global partners offering our members the very best in customised and one-of-a-kind memorable experiences.”

There are great incentives at some of the other groups too: Starwood offers SPG Moments, an online auction that offers SPG members the the possibility to use their points for a chance to win experiences such as VIP concert tickets and behind the scenes access to major sporting events while Hilton Worldwide focuses on variety, with 56 airline partners, 62 merchandise partners, 24 charitable partners and eight online retail options.

Online ‘stores’ are also becoming increasingly popular across the hotel groups.

Strachan explains: “Marriottrewards.com provides a fantastic platform for redemption with the options on our online store changing continuously. There is a wide variety over and above hotel stays, for example, customers can even choose to take a cruise”.

Meanwhile, Rotana has placed strong emphasis on food and beverage with its loyalty programme. Every Exclusive member dines for free in any F&B outlet when accompanied by another person and gets 15% off beverages when dining and all members receive points on food and beverage purchases.

The group is currently in the process of revamping its entire programme in line with its “existing brand image”, but the F&B aspect is “equally as important as the accommodation aspect”, says Saliba.

The full rewards offered by these loyalty programmes, and the countless others available, are too far reaching to mention here. One point that should be made, however, is the balance between the value offered to the guest and the cost of delivery to the hotel.

ICLP’s Maritz says: “The aim is to make every guest feel special — but profitably.

This is particularly so for regional groups who have limited economies of scale, as they have limited global coverage and, therefore, providing a reward-based value proposition for a global traveller is a challenge. Overall, loyalty programme owners have a constant struggle between managing programme profitability and their ongoing costs”.

He warns: “Programmes that do not deliver (i.e. constant poor performance of their programmes and spiraling costs) are unsustainable. With no clear return on investment, ultimately this results in the withdrawal of support from the key stakeholders in the scheme.

“Similarly, poor programme performance often dilutes the profitability of a customer and therefore destroys corporate value, brand value and customer relationships,” observes Maritz.

Targeted marketing
Maritz makes a valid point, for loyalty programmes are not there simply to reward guests, but to build a relationship with them. They enable hotels to understand their guests in detail and therefore, to ensure more tailored marketing and a differentiated loyalty proposition.

“The loyalty programme provides us with the opportunity to continue a dialogue with our customers even when they are not in our hotels,” says Strachan.

“Our online platforms provide interaction and assistance. If you visit marriottrewards.com you will find a Marriott Rewards online community. The programme also provides us with the data to have a much more relevant marketing conversation with our customers”.

Maritz expands: “Loyalty initiatives operate at multiple levels. Its biggest value story is in the data it collects. The loyalty programme encourages customers to identify themselves, which then gives marketers the ability to capture and analyse purchase and behavioural data.

Analysing this data enables you to understand the total value potential of individual customers, both in their professional and personal life. It helps you evaluate the opportunity to get a greater share of each customer’s (and potentially their family’s) requirement.

“Unlike traditional marketers who think market share, loyalty marketers think share of requirement or potential (i.e. what potential the member has and how can I divert this to my brand),” he says.

“With these insights the marketer is then able to direct timely, relevant communications and allocate dollars towards surprise and delight experiences. This in turn results in higher measureable customer spend.

“Equally so, members see loyalty programmes as a rational “value (rewards and benefits) exchange” and as long as this value is apparent, the programme will influence customer behaviour positively,” explains Maritz.

The real key to success, however, comes back to the fact that the hospitality industry is a service industry and as a result, the guest experience once they are actually in the hotel is all important.

If the service is terrible, the room uncomfortable and the food disappointing, even your gold or platinum members — Ryan Bingham aside — are unlikely to come back.

As Strachan puts it: “We operate great hotels. It all starts there. Let’s be honest, if we are not running great hotels, no amount of loyalty programmes will ensure a guest stays again and again and again”.

Marriott triumphs at Frequent Traveller Awards
Marriott International bagged the bragging rights when the company took home 11 of the 15 hotel loyalty awards at the Frequent Traveller Awards 2010 — testament to the success of the programme which has more than 33 million members.

The accolades included Programme of the Year for both the Americas and Europe/Africa, Best Redemption Promotion, Best Earning Promotion and Best Redemption Ability in all regions.

The winners in the remaining four categories were Taj Hotels, Resorts and Palaces, Starwood and Hyatt, which won two awards.

The Frequent Traveller Awards, which held its first event in 2010, are voted on by more than one million frequent travellers from more than 200 countries.

Loyalty programmes by the numbers
Starwood
“Members looking to redeem their Starpoints at one of our most luxurious hotels in Dubai will need 20,000 to 25,000 points for a free night at the Grosvenor House, a Luxury Collection Hotel, or 30,000 to 35,000 points for a stay at Al Maha, a Luxury Collection Desert Resort and Spa.”
Senior director, digital, loyalty and partner marketing, Steven Taylor

Marriott
“A customer would require 30,000 points to redeem a night at JW Marriott Dubai. There are a number of seasons throughout the year when we run pointsavers promotions which means the customer would require less points to redeem a night at the hotel.”
Vice president sales and marketing, Middle East and Africa Jeff Strachan

Hilton
“The standard rates of HHonors points needed to earn free nights vary by hotel, but the average rate to earn a free night at a top-tier hotel is between 40,000-50,000 HHonors points.” Senior vice president for global customer marketing, Jeff Diskin.

Rotana
A member would need to earn “starting from 35,000 points” to exchange them for a free room night at a Rotana hotel in Dubai.Loyalty programme director, Elie Saliba.