Mr. Johnson

Guest Service / Customer Experience Mgmt

Why Guest Programs Don’t Work... And How to Make them Better

By Mark Johnson, President, Loyalty 360 - The Loyalty Marketer’s Association

Membership in hotel loyalty programs reached 176.8 million, making up one-third of total loyalty program membership. With most programs having a zero entry fee, this number may well reflect the fact that many travelers join multiple programs just to have the basic membership benefits. Their allegiance to a program is, however, often trumped by the price-sensitivity ---- not caring if they stay at a Hyatt, Marriott, or Sheraton as long as they get a fair price. And, this lack of commitment plays out in low levels of active participation.

While program membership is growing - increasing 37% from 2006 - The Loyalty Traveler blog states that active membership is still only about 20% to 40% of the total membership cited for most programs. And, travel industry loyalty rewards programs have seen a reported 31% decline in active participation since 2007.

What’s more, customers are leaving a lot of unused points on the table. Increasingly, customers seem to view points-based loyalty points as a commodity that isn’t worth taking advantage. According to 2011 Forecast of U.S. Consumer Loyalty Program Points Value, the perceived value (i.e. fair market value) of points earned in the U.S. as of 2011 was an astonishing $48 billion per year. Yet, one-third ($16 billion) of those rewards earned in a given year will go unused. Said another way, the average active U.S. household earns $622 in rewards per year, yet does not cash in on one-third of it, or about $205.

Clearly, simply having a loyalty program does not ensure its success. So, what’s the issue? How do you make it better?

In exploring possible answers to these questions it’s important to note that in the travel industry, hotel and airlines loyalty programs have become a revenue stream. Most marketers (61%) believe that loyalty programs participants are the best and most profitable customers, according to the CMO Council (“Leaders n Loyalty: Feeling the Love from the Loyalty Club”). It’s not surprising, then, that 65% of respondents believe that loyalty programs are an essential and valuable part of the marketing mix.

Because of this focus on revenue, however, many have lost focus of the real purpose of loyalty programs: creating a meaningful, interactive dialogue that helps build and maintain strong brand/customer relationships.

• Only 13% of respondents believe they have been highly effective in leveraging loyalty and brand preference among club members, and nearly 20% don’t even have a strategy for doing so
• An additional 25% admit they have not mobilized brand loyalists to become active advocates.

When asked what complaints customers typically have with loyalty programs:

• Nearly 30% of marketers believe that some customers see little or no added value to becoming a member of the loyalty program
• 24% indicate that rewards lack substance
• 24% feel they don’t get enough personalized attention
• 23% feel that communication is not personalized
• 21% have problems with receiving too much junk email
• 18% cite issues with redeeming points and miles

To remedy these issues, hotel loyalty programs need to turn themselves around and bring the focus back to the customer. Profiling the customer - learning about his likes, dislikes, preferences, spending patterns, etc. - and executing effectively on that information helps hotel marketers deliver a positive guest experience, increase program participation, and drive customer loyalty.

"Relevant profiling data continues to be a limiting factor in customer engagement. Without a deeper customer insight, marketers will be limited in their ability to do meaningful predictive modeling, market segmentation and revenue forecasting,” says Donovan Neale-May, executive director of the CMO Council in discussing The Leaders in Loyalty: Feeling the Love from the Loyalty Club. “Better understanding of customer behaviors, predispositions, intentions and preferences enables more effective and relevant messaging. It is also an essential part of customer revenue optimization and lifetime value building."

A loyalty program is a powerful treasure trove of rich information that can help hotels to better understand their customers. The data that’s collected within loyalty programs gives marketers the deep level of customer intelligence needed to deliver the most relevant, highest quality customer experience and drive long-term loyalty. The June 2010 Cornell Hospitality Report offers an interesting look at the depth and breath of customer data housed in a company’s loyalty program:

When we asked one gaming executive how he felt about his loyalty programs, he replied that they were the best marketing research expense on his balance sheet. He believed that even if the program provided no direct improvement in customer spending, the amount of personal information and purchase data that he can collect via his program makes it his single best source of marketing research data. Thus, hospitality operators should ensure that their programs are optimized to capture data on customers, as well as drive loyalty. Loyalty and research initiatives should be integrated to use customer insights not just for their loyalty programs, but for the broader business operations.

Marketers that mine, gather, and analyze data for insight and intelligence to develop customer-centric strategies gain a distinct competitive advantage. The data should be used to measure and understand customer behavior and identify customer segments. Only by doing this can hotels effectively reach the right audience with the right message at the right time - enabling you to provide highly targeted information, offers and rewards based on their interests and past history. And with the right reach, marketers can deliver the caliber of customer experiences that differentiate them from the competition, build and cultivate strong customer relationships, promote loyalty and deliver customer lifetime value.

As Harvey Thomson, author of “Who Stole My Customer,” is quoted as saying, “The key to effectively competing for loyalty is ensuring the quality of the customer experience, not the quantity of the customer rewards.” This is what using data generated from the loyalty program is all about. Mining data and turning it into actionable customer intelligence enables hotels to integrate several key elements into their loyalty programs:

Deliver personalized experience: Industry leaders such as Fairmont Hotels & Resorts take the time and effort to get to know their guests and provide personalized services and amenities that are meaningful to them and make their stay more enjoyable. As Sharon Cohen, Executive Director of Loyalty Marketing, tells InsideFlyer.com, “Our elite members continue to tell us that quality of service is what they vale most when traveling --- and our loyalty philosophy reflects that. Our goal is to offer a guest experience that is less transactional and more emotional through personal recognition of member preferences and exclusive on-site benefits.” As such, business travelers take advantage of the fact that Fairmont Hotels pre-registers its members and assigns their rooms based on their preferences so their visit at the front desk is speedy and efficient. Elite members are also offered personalized welcome amenities upon arrival so they will have something they appreciate in their room rather than the standard hotel fruit basket.

Tailor loyalty program messaging: If you’ve seen that a program member has inquired about beach properties, it makes sense to proactively provide information and offers about beach destinations and travel packages. Similarly, if they’ve asked about special offers for Valentines Day or for fun family summer get-aways, make sure to send relevant information on that as well.

Provide real value: The rewards you offer --- which includes both the intangible benefits as well as the monetary rewards and discounts --- need to have a high perceived value so guests truly feel they are being rewarded. Customers want to feel appreciated. Recognizing them keeps them engaged by helping them feel valued and emotionally invested in the loyalty program and with your brand.

Reward behaviors beyond purchase: While at some point loyalty became equated with purchases, true loyalty often goes well beyond how much is spent directly with at your properties. Customers can spend a lot at your hotel, and still not be emotionally connected and loyal. By rewarding and recognizing behavior that goes beyond transactions --- such as social media mentions, referrals, positive word-of-mouth, suggestions for product development and/or operational improvements, etc. --- will help you forge an even stronger relationship, greater advocacy, and deeper engagement and loyalty.

Offer experiential rewards: Offering personalized experiential rewards enables a hotel to shift the focus from the commoditized what you can earn and what you can attain (such as points, a free night, upgrade, etc) to the emotional what you can do. When a brand helps its guests do something they otherwise couldn’t do, the brand experience becomes meaningful and memorable.

For instance, earlier this year Hilton re-launched its HHonors program. Instead of focusing on the destination or earning points, Hilton HHonors is focusing on the unforgettable experiences people have while traveling. Going beyond points allows Hilton Worldwide’s hotels to serve as both the backdrop and conduit to special moments.

The GHA (Global Hotel Alliance) Discovery loyalty program, which unites 12 luxury chains and their nearly 300 hotels, takes the same experiential approach. GHA Discovery is not a points-based program, but rather an innovative one that rewards travelers with "Local Experiences" that have been designed by local experts offering members access to a large selection of adventures, exclusive experiences and off-the-beaten path activities that are not easily available or accessible to the general public. Members can earn a chance to play traditional "Boduberu" drums in the Maldives or take a sunset drive through a nature reserve in Namibia. They can go shopping with a personal shopper at the most exclusive multi-brand boutique in São Paulo, enjoy a night of fishing with local fisherman in Vilamoura, Portugal, have a private lesson with a certified Tai Chi Master in Suzhou, China, or get a behind-the-scenes tour at CNN in Atlanta.

MGM Casino’s M Life is a good example of the power of data

Las Vegas casinos are famous for giving away free drinks, hotel rooms or tokens to keep customers coming back. But, MGM Casino’s M Life loyalty program has found an innovative way to reward their customers and build brand loyalty. Instead of focusing solely on customer’s gambling patterns, MGM tracks members of their reward program across all resorts and all facets of their hotels, including clubs, dining, spas, shopping and gambling. MGM then uses this to offer tailored rewards that members receive two ways — through personalized offers and in the form of comps that members can self-select from a menu. As Bill Hornbuckle, who oversees the program as MGM chief marketing officer, tells the Las Vegas Sun, “People won’t be redeeming points for toasters. Loyalty programs that work involve emotion.”

By monitoring the M Life card, MGM will know which slot machine a guest played, how much they spent, what they drank while they sat there, what they were doing before and after, and what they’d like to do on your next visit. Spending more money nightclubbing or at a show will let MGM know that the guest is apt to prefer an entertainment coupon versus a gambling offer.

Tracking this detailed level of customer spend over many years gives MGM the customer intelligence they need to offers the rewards that will come closest to matching members’ tastes. For example, slot-playing grandma isn’t going to be offered an Ultimate Fighting Championship ticket. But, a guest attending a Madonna concert might receive an offer for an upcoming Lady Gaga show. Or, a concertgoer attending a Trace Atkins show could receive an offer for the Country Music Awards.

While hotel loyalty programs are commonplace, research has shown that having a program does not necessarily create loyalty. In fact, while overall program membership is growing, active participation is declining. As such, we are seeing a shift away from the revenue, points-based programs to initiatives that once again focus on the customer - or more, specifically, the customer experience.

Points based programs will always have a role in a hotel’s overall loyalty marketing strategy, but the true value of the programs is in the behavioral rich transactional detail that can give marketers insight into the attitudes, preferences and opinions of their customers. Using this data to create strategic and tactical marketing programs is a must for success and differentiation.

Mark Johnson is President and CEO of Loyalty 360 - The Loyalty Marketer’s Association. Loyalty 360 is the only organization that addresses the full spectrum of both customer and employee loyalty issues. An unbiased, market driven clearinghouse and think-tank for loyalty and engagement opportunities, insights, and responses, Loyalty 360 is the source business leaders trust for industry metrics, market driven research, case studies, and networking opportunities. A sought-after speaker and writer, Mr. Johnson is frequently called upon by media worldwide to share his expert insights into customer and employee loyalty issues. Mr. Johnson can be contacted at 513-290-5147 or markjohnson@loyalty360.org Extended Bio...

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