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HOTEL BUSINESS REVIEW

OCTOBER FOCUS: Revenue Management

 

Defining Brand Loyalty in the Hotel Industry

By Bill Linehan Executive Vice President, Chief Marketing Officer, Red Lion Hotels Corporation | October 2015

*Co-authored by Brigette Pence, Director of Relationship Marketing, Red Lion Hotel Corporation.* Disrupters and brand loyalty are the jargon de jour among retail based industries. Even loyalty is making its metamorphosis into the more descriptive recognition. The jargon is evolving in an attempt to keep pace with its ever-changing environment as brands struggle to gain and retain the fleeting attention of consumers bombarded with messaging. Retail sales is more than the sum of its product. It is a masterful and complex interlinking of imagery and awareness that lead the consumer to purchase and advocate within their social circle. You are what you buy. The hotel industry is a retail based industry and savvy marketers are using retail based modeling to grow consumer’s share of wallet and brand loyalty. It is commonly stated that marketing and brand loyalty originated in the U.S. with the evolution of the engagement ring. While the clarity, quality and size of the diamond and the intricacy of the setting has become the defining significance of the engagement ring, it did not start out that way. Originally, the engagement ring was a simple band of gold. Similarly, what began as an offer by companies to entice repeat business in customers became an unwieldy and expensive proposition. In the hotel industry, loyalty programs are a form of currency with tax and liability implications, all in an effort to persuade and retain guests. Ironically, through the evolution of hospitality based loyalty programs, somehow the onus is on guests to earn the loyalty of hotel companies by spending more and staying more in order to gain some level of recognition. Wait a minute… **Has Loyalty Become Guest Recognition for the Elite?** Hospitality based loyalty programs today are set up, by and large, to benefit those who spend and travel the most. The road warriors. The point junkies. The elite. And, they are elite. Statistically speaking, they account for only 20 percent of the total number of room nights consumed annually. Yet the industry is increasing annual marketing budgets targeting primarily this business segment while concurrently devaluing its own points systems in an attempt to contain costs. In the meantime, those road warriors are hoarding points intended for a future all-expense-paid personal trip as a self-proclaimed entitlement for the hours spent traveling. The recent HVS publication of the 2014 United States Hotel Franchise Fee Guide tells a very interesting story about the implications of loyalty on the pocketbook of an owner. Owners typically evaluate franchise fees as a percentage of their overall gross Rooms revenue. The median franchise fee as published by HVS was between 11% and 12% of gross Rooms revenue in 2014. The franchise fee breakdown typically includes several cost centers, but the three largest sources of fees are loyalty, marketing fees and royalty. One of the top hotel brands offers its members the privilege of double-dipping to receive both points and miles in exchange for their loyalty and offers its owners the privilege of paying for it in exchange for their location. This brand not only has the most expensive flag in lodging today with one of its brands at 14.7% of gross rooms revenue, but also has all six of its flags above the industry median of almost 12%. These costly entitlements do not create loyalty. If the average consumer is carrying four loyalty cards in their wallet and downloaded an additional six loyalty apps on their mobile phone, how has the explosion of these loyalty program created true loyalty? How do big brands look an owner in the face and say that this will pay for itself…”I guarantee it!”? The price of (dis)loyalty must be reconciled just as digital marketing spend is held to an ROI expectation; loyalty programs must follow the same scrutiny. The majority of redemptions from the mainstream hospitality loyalty programs are for hotel stays rather than airline redemptions. An evaluation of spend per free night between programs reveals a truly important fact. The average amount of points required for a free stay is 40,000. On average, it would take a customer 18 stays to earn enough points to redeem for a free night at a hotel. Boiling down the economics: 40,000 points divided by the product of a $115.32 average rate (which was the Total US ADR from 2014) multiplied by a two-night length of stay multiplied by 10 points. Talk about making a customer skin their knee to earn the right of being considered a loyal customer. This is a key contributor to the millions and millions of point’s worth of liability that big brands have to carry on their balance sheet. Another major hotel brand’s recorded liability related to these programs totaled over $2.3 billion at year-end 2014 and $2.2 billion at year-end 2013. **Perks or Entitlements? Who Gets Them and Why** In terms of loyalty marketing, most hotel marketers are in hot pursuit of corporate guests versus leisure travelers, or those who subsist on the company credit card versus those who use personal accounts to foot the bill. Corporate travelers are less price sensitive when they are on the company dime but then stay over for free when they are on their leisure time. Loyalty perks are more than free room nights, free upgrades, free drinks, free Wi-Fi, free breakfast and free parking. Perks allow guests to stand on a special stanchioned carpet and bypass the check in line. Under the points-based system, those guests who generate 80 percent of the total room nights consumed are left standing. A small collection of hotel companies are changing the script and acknowledging the shift in expectations towards recognition from their very first stay. Especially those guests with the millennial mindset who are consistently connected to their devices and have a world of information at their fingertips. They are seeking instant gratification and a loyalty program that knowingly recognizes who they are as a consumer. The beginning of service is the most critical time to gain loyalty, according to 48% of consumers. Guests, or consumers in general, want meaningful relationships; they want to be treated fairly; be appreciated, and recognized as individuals. Convenience, value and personal attention to their preferences motivate purchase behaviors. As the industry discards points-based loyalty programs where consumers collect their points and earn their status to one where consumers don’t have to worry about points and status, but rather feel rewarded where there’s business, the marketing potentials multiply without status restrictions. **What Are Effective Pricing Strategies Related to Loyalty?** Also known as Access Pricing, a term coined by retail marketing guru Brian Woolf, member-only pricing strategies can increase direct-bookings, lower costs and provide a better experience to their most loyal guests from the point of booking onward. The key is effective integration between a hotel’s Customer Relationship Management system (CRM) and its pricing software, also known as a Revenue Management System (RMS). Technology disruptors in this space such as Duetto and Serenata, are arming their subscribers with the ability to segment relevant price points to customers in the same way online marketers are providing relevant banner ads based on your historical digital footprint. CRM systems allow a hotel access to individual customer data including frequency, visits, rate program preferences, spend, and other preference information that can be fully leveraged to execute on the key service promise of knowingly recognizing a customer for who they are and surprise and delight them with what they like. This data, integrated with a RMS, can allow a hotel to segment pricing strategies by not only guest-type, but also DNA strand. This pricing science goes well beyond just providing a different price point for your top tier customer who is price agnostic, your loyalty members, and your leisure traveler. It crosses into the frontier of experience design and campaigning for personality use cases such as Mary the Senior Executive from Seattle who always buys a 3-night length of stay for her family in July for arrival on a Thursday and a departure on a Sunday that like wine, not beer, that likes tea, not coffee, that has a dog and drives an eco-friendly SUV to her destination. She historically buys the Bed & Breakfast package in a pricing range between $139 and $169 in a standard room with 2-beds, and has been a member of the loyalty program since 2006. The old Revenue Management strategy would have grouped this guest into market segments and generated email marketing campaigns against that entire segment. The new Revenue Management will generate omni-channel campaigns focused exclusively on Mary, not only when she visits a branded website, but also through retargeting campaigns on multiple devices. An integrated CRM-RMS guest management solution makes this scalable and efficient for measuring effectiveness. The recent adoption of member-only rates on OTA channels such as Expedia and Orbitz provides validation for the impact of knowingly recognizing customers with a perk relevant to them, but brands can take this much further because we own our data. Therefore we can target the customer, who gets what offer when, on what device and through what marketing campaign. Which metrics matter is a subject matter smeared across white boards in every brand HQ around the world. It is being written, erased and re-written again. This new chess board that we are all playing changes the game and therefore changes the metrics that matter. At the end of the day, it is no longer just about traffic. Traffic is a limiting metric to evaluate effectiveness. Even conversion is diluted based on the millennial mindset and how those consumers use multiple devices in the buying funnel. Additionally, social media dilutes traditional metrics making them obsolete. Modern day metric transformation includes emphasis on conversion at different stages of the buying funnel and different stages of the booking path. Traditional conversion stats around bookings and unique visitors have given way to stats that emphasize conversion performance once a booking is initiated. Today’s brands, as well as owners evaluating prospective brands, focus on contribution from all e-Commerce channels and the percentage of that business that is consuming on a brand’s proprietary website. The nature of omni-channel campaigns makes originating web or mobile site less important while increasing the criticality of overall e-Commerce channel growth, direct or indirect. **Pricing and Behavior Modification: Who Wins with Pricing and Behavior Modification?** Ideally, pricing strategies can modify behavior and create mutually beneficial opportunities for guests and hoteliers. But price is but one pillar in an expanding digital engagement tool box. The brands that will win the hearts and minds of the millennial-minded traveler will be those that combine an effective technology deployment, integrating CRM with RMS, with a service culture focused on executing personalized service with surprise and delight moments for their best guests. There is not one thing that saves the day, but rather the successful execution of many little things that carries trial into advocacy. Believe it or not, member-only pricing, by itself, is insignificant. Recognizing a customer’s membership longevity, by itself, is insignificant. Emailing a customer an exclusive offer on their birthday, by itself, is insignificant. But, when you combine all three of these personalized signature moments through effective marketing automation templates and execution, then you create a dynamic where 1 + 1 + 1 = 6. Knowingly recognizing guests in totality is playing in the exponential curve of customer loyalty adoption. Behavior modification is the act of incentivizing behavior that is in alignment with brand identity. Social media and online review postings are behaviors that hospitality brand leaders believe are ripe for modification and management. Many brands are looking to social media monitoring companies like Hoot Suite or Sprout Social to identify online behaviors for mapping against internal CRM databases to create associations between member profiles and online behaviors that deserve recognition or recovery. Imagine a world where a customer posts a review on TripAdvisor that pings the social media monitoring tool 60 milliseconds later that generates marketing automation with a 1-to-1 message that tells the customer, “Hey, we saw this and wanted to say thanks for taking the time to say such nice things about us. Thanks for your business and we look forward to your next stay. By the way, here is an Amazon gift card.” Do you think that person is posting that on Instagram? Many brands are testing this functionality today. The hospitality industry has more marketing opportunities than ever before. Not only is loyalty changing in the industry and all consumer based disciplines, it continue to be ripe for disruption. You have to decide whether you are a pedestrian or a traffic cop. ![alt text][1]
*This article was co-authored by Brigette Pence. Ms. Pence joined RLHC in October 2014 as of Director of Relationship where she leads CRM strategy to execute on the core tenants of the Hello Rewards guest recognition program and establishes strategic partnerships to increase the aim and value of the program. Ms. Pence has eight years of experience in direct marketing. Most recently, she oversaw Loyalty and Partnership Marketing at Frontier Airlines where she led digital, email marketing and enrollment strategy of their loyalty program, specializing in customer acquisition and retention. Additionally, she oversaw over 25 loyalty partnerships, including their co-branded credit card. Prior to that, she worked for Harley-Davidson Motor Company and Kohl’s Department Stores in a variety of e-Commerce and Marketing roles. Ms. Pence holds a Bachelor’s Degree from the University of Wisconsin-Whitewater.* [1]: http://www.hotelexecutive.com/images/business_review/BrigettePence_small_co-author.jpg

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Any and all disputes or controversies of any kind, including but not limited to any performance, duty, obligation or liability arising under or related to this Agreement which are not first resolved informally, shall be determined by binding arbitration in San Francisco, California, in accordance with the rules of the American Arbitration Association. The final award in any such arbitration proceeding shall be subject to entry as a judgment by any court or competent jurisdiction, provided that such judgment does not conflict with the terms and provisions hereof. The jurisdiction of the arbiter (or arbiters) with respect to legal matters shall be limited only by the statutory and common law of the State of California and the United States.

Notwithstanding the foregoing, any and all disputes, which the parties cannot informally resolve, regarding the scope of issues or matter with the jurisdiction of the arbitrator, shall be resolved by a separate dispute resolution process whereby HotelExecutive, in its sole discretion shall elect the dispute to be resolved by either (1) a court of competent jurisdiction in the State of California or (2) a panel of three new arbitrators.

This Agreement shall be governed by and construed in accordance with the laws of the State of California notwithstanding any conflict of laws provisions. You and HotelExecutive agree that the venue for all legal disputes, controversies, actions of any kind arising under or related to this Agreement shall be San Francisco, California. You and HotelExecutive further agree that in case of any litigation regarding this Agreement, you irrevocably and unconditionally (i) consent to submit to the exclusive jurisdiction of the state and federal courts in the County of San Francisco, California for any litigation or dispute arising out of or relating to this Agreement, (ii) agree not to commence any litigation arising out of or relating to this Agreement except in the California Courts, (iii) agree not to plead or claim that such litigation brought therein has been brought in an inconvenient forum, and (iv) agree the California Courts represent the exclusive jurisdiction for all litigation relating to this Agreement.

11. MEMBERSHIP FEES

Hotel Business Review Subscriptions

If you choose to purchase a subscription, member subscription payments can be made in U.S. Dollars, as well as a variety of international currencies. Membership terms are Annual Recurring, and Monthly Recurring. The Annual Recurring subscription is an annual commitment and subscribers will be charged each consecutive billing cycle. Annual Recurring subscriptions can be cancelled after the first billing cycle and within 30-days of the billing date for a full refund. Monthly Recurring subscriptions are ongoing and subscribers will be charged each consecutive monthly billing cycle. Monthly Recurring subscriptions can be cancelled after the first month and within 7 days of the monthly billing cycle for a full refund.

12. PAYMENT AUTHORIZATION

Payment for the services provided to you in, at, through or in association with HotelExecutive may be made by automatic credit card, debit card, direct debit, bankwire or Paypal and other approved payment means offered in, at, through or in association with HotelExecutive, and you hereby authorize HotelExecutive and its agents to transact such payments on your behalf.

You hereby authorize HotelExecutive's Internet Payment Service Provider to charge your credit card to pay for your membership to HotelExecutive. You further authorize HotelExecutive's Internet Payment Service Provider to charge your credit card for any and all purchases of products, services in association with HotelExecutive. You agree to be personally liable for all charges incurred by you in association with your access or other use of any content provided by HotelExecutive or any third party in association with HotelExecutive. You acknowledge and agree that your liability for all such charges shall continue after termination of your access or any type of membership arrangement with HotelExecutive.

In the event that you have chosen to have your membership automatically rebilled, unless and until you notify HotelExecutive that you wish to cancel or terminate your membership to HotelExecutive, you hereby agree and authorize HotelExecutive's Internet Payment Service Provider to automatically renew your membership to HotelExecutive on a continuing basis and to charge your credit card (or other payment means you have selected) to pay for the ongoing cost of your membership. You hereby further authorize HotelExecutive's Internet Payment Service Provider to charge your credit card (or other approved payment means you have selected) for any and all purchases of products, services and entertainment provided to in, at, through or in association with HotelExecutive.

13. PRIVACY POLICY

The following is the Privacy Policy for HotelExecutive

We can be reached via telephone, email, or online at our contact page. When you visit our site we do not log any information regarding your domain or email address. Information Sharing: We do not share user information with any third parties other than via press release distribution as described below.

Hotel Newswire is a newswire service that distributes press releases on behalf of our users. If you decide to submit a press release for distribution through our system we will transmit your entire press release including any personal information therein contained to our media contacts and online distribution points including search engines. This is the only redistribution of your information that we engage in. Your submission of press releases through our system indicates consent with this policy. The information we collect during your registration process is used to notify users about updates to our service and inform users of any special events hosted by Hotel Newswire. This information is not shared with other organizations for commercial or non-commercial purposes.

Cookies: Our system requires the use of cookies to enable the user to log back into our website to access information from the newswire, without having to log in each time using the required username and password.

If you do not want to receive email from us in the future, please let us know by following instructions included in our communication with you. Users who supply us with telephone numbers online may receive telephone contact from us regarding their account, or informing them of new products and services available on the HotelExecutive website. If you do not wish to receive such telephone calls, please edit your account and remove your phone number from your account profile. This can be done from your user account menu.

Ad Servers: We do not partner with or have any relationship with any ad server companies. From time to time, we may use customer information for new uses not previously disclosed in our privacy notice. If our information practices change at any time, we will post the policy changes to our website to notify you of these changes and provide you with the ability to opt out of these new uses. If you are concerned about how your information is used, you should check back at our website periodically.

Upon request we provide site visitors with access to all information (including proprietary information) that we maintain about them. Users can access this information by logging in to their account.

Security: We always use industry-standard encryption technologies while transferring and receiving user data exchanged with our site. We have appropriate security measures in place in our physical facilities to protect against the loss, misuse, or alteration of information that we have collected from you on our site. We do not store credit card information in our systems.

If you feel that this site is not following its stated information policy, you may contact us.

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