Loyalty Programs: The Latest Revenue-Booster for Hotels

Guests love a good loyalty program, and it’s easy to see why: the rewards. From vouchers and points redeemable for cash to upgrades and a sense of exclusivity, the delight of a direct benefit makes for loyal customers.

The loyalty programs now emerging everywhere on the hotel scene are nothing new. Rather, they hearken back to the golden years of aviation and hospitality. And while the model is decades old, a loyalty program is nevertheless the latest must-have for boosting revenue, increasing occupancy, and improving the guest experience.

That’s why we’re devoting an entire blog series to helping you create a successful strategy around a loyalty program of your own.

In this first post, we’ll introduce you to the basics of the loyalty business. Be sure to tune into the blog regularly for upcoming installments on the topic.

What are loyalty programs, and how are they different from promotions?

Good question. Both promotions and loyalty programs encourage potential guests to book. The biggest difference lies in the approach. With the former, you’re looking to stimulate bookings with short-term incentives. With the latter, you’re looking to build a solid customer base of repeat guests who’ll book with you again and again.

Investopedia defines a loyalty program as “a rewards program offered by a company to customers who frequently make purchases.” The site goes on to explain that “A loyalty program may give a customer advanced access to new products, special sales coupons or free merchandise.”

A promotion, on the other hand, is defined as a “stimulation of sales achieved through contests, demonstrations, discounts, exhibitions or trade shows, games, giveaways, point-of-sale displays and merchandising, special offers, and similar activities.”

In the context of hotel marketing, a promotion would be a one-time offer available to guests who book through your website. A loyalty program, on the other hand, would be consistently rewarding return guests with a room upgrade (for example).

How did hotel loyalty programs get started?

Back in the 1970s, air travel was deregulated in the US and airlines had to get creative with their competitive strategies. They devised clever programs to earn them loyal customers and encourage repeat business. The ultimate goal was to boost revenue while reducing the amount of marketing money spent on acquiring new customers.

To appeal to travellers everywhere, airlines began to partner with hotels. Passengers could now redeem their rewards on their accommodations as well as on airfare. Though many carriers and properties are still partnered up today, hotel loyalty programs have now become their own entity. And they’ve become very popular.

In fact, Phocuswright’s October 2016 report: “Parsing Shop and Book 2016: How Airlines, Hotels and OTAs Compete on the Desktop and Mobile Web” tells us that “Loyalty program members account for three-quarters of hotel website bookings, compared to just 36% for airlines.

Are loyalty programs profitable?

In a word, yes. Any hotel can profit from the right loyalty program.

The US Hotel Lodging Intermediaries Rise Again report tells us that 43 percent of travellers enrolled in a hotel loyalty program book directly through the hotel’s website. By comparison, only 20 percent of non-enrolled travellers do the same. And if you’re paying commissions to booking sites, you already know just how valuable direct bookings are.

But that’s not all. Cornell University conducted a study on the economic impact of loyalty programs specific to independent hotels. They found that “the number of annual room-nights for each guest increased by nearly 50 percent.” When occupancy rates increase that significantly, revenue rises and costs fall.

And that’s only the beginning.

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