Guest Loyalty: A Challenge for Independent Hotels
Do you have clear differentiation in your value proposition?
By S. Lakshmi Narasimhan Founder, Ignite Insight LLC | September 29, 2019
The Loyalty Factor
Businesses worldwide tend to crave loyalty in customers. This is not merely for brag rights but is also a sound strategy from many points of view. To begin with, customer retention which is the other term for loyalty allows businesses to cut marketing costs. This is because the customer who returns has already bought into the value proposition of the business. They are sold so to say. Secondly, loyalty is a great fulcrum in bringing in more customers into the fold through referrals.
Hotel businesses are no different. Loyalty is a sought after attribute by hotels too in their guests. Loyalty as a factor is however not entirely applicable to all hotel business types in equal measure. Why so?
Chain Vs Independent Hotels
Hotel businesses can broadly be divided into group or chain hotels and independent hotels. Group or Chain hotels are often represented by a big, visible brand under whose umbrella the constituent hotels operate. Chain hotels have a major advantage over single independent hotel undertakings - they can offer attractive deals and value to entice the guest to come back to their various hotels. Variety is on offer as part of the brand and it is powerful. Even if the prospective customer does not find a particular hotel property in a given location suitable they can be offered similar ones within the group. This allows chains to retain customers in their fold.
Single, independent hotels have an uphill task on their hands. To begin with, they do not command the investment budgets or marketing muscle that chains can boast of. They are often small sized boutique hotels offering a differentiated value proposition. They have no choice. With the constraints they operate under, their core message has to be sharp. But resources are not their only crunch factor. Without the ability to offer different hotel properties to a prospective customer, they often suffer in the loyalty arena. Guests are likely to return to big brand chain hotels with multiple offerings for a given location. So how do these independent hotels battle the loyalty challenge?
Opportunity in Challenge
There is not a shadow of doubt that loyalty is a difficult attribute to achieve consistently for an independent hotel. Notice that I am saying "difficult" and not impossible. It is a major challenge. But as the saying goes, problems are opportunities in work clothes. And so is the challenge of loyalty an opportunity for independent hotels. They now have to hone in a core message which will appeal to modern day customers.
Loyalty is all about getting the guest to come back to your hotel, if possible, multiple times. Hospitality chains often compute the lifetime value of a customer. This basically considers all the stays at your hotel in terms of revenue generated and accumulated over time. The benefit of a lifetime value calculation goes beyond just revenue accumulation of stays. It immediately makes the hospitality or for that matter any business think in terms of a long-term relationship. Customer Relationship Management is all about this long-term association.
However, the difficulty that the independent hotel has to surmount is that a guest is less likely to return to the same property the following year unless it is a business visit. This is where the business mix of the independent hotel is critical. A hotel which is heavily leisure based has an uphill task trying to get a guest to return a second time as they would like to visit a different location for a vacation. This is also where referrals of existing guests play a big part.
Marketing Approach to Growth
So, what is the marketing approach that an independent hotel should take to aim for sustained growth? To begin with, differentiation is going to be critical. Is the hotel going to use its location, customer service, restaurants, price, amenities or a combination of those to offer something that a guest will not get elsewhere? Modern day customers are getting demanding. One of the key strategies that the hotel must apply is not to try to be everything for every guest.
Niche and Blue Ocean Strategies are two powerful marketing approaches that will stand the hotel in good stead. Both these strategies advocate a focused, small chunk of the market segments that sync with the strengths of the hotel. Hotels that seek to solve some of the biggest frustrations of travelers in a stay will reap rich rewards.
A classic example of a Blue Ocean Strategy in a related transportation industry is the Uber business model. Uber solves two of the biggest frustrations of cab seekers - bringing the taxi to where the customer is (there are legions of horrifying experiences of customers going in search of taxis and literally walking their legs off) and the other, settling the fare before the journey began (again tons of stories of cab drivers over charging and the customer not knowing what they will end up paying). Thus, the marketing strategy should be to focus on one attribute of the customer experience that the hotel can carry off like no other. Why is customer experience such a huge factor in marketing?
Rapidly Changing Guest Preferences
Guest preferences in choice of hotels to stay have changed drastically over the past decade. In the past, the travel process was neatly categorized into flight, hotel, dining, sightseeing and so on. Guests treated each part separately and were satisfied if the service provider for each of those parts did a good job. In the recent decade, guests have begun to look for holistic experiences in their travel journeys. This means the customer is looking for experiences that will tie in every aspect of travel. Enter the powerful concept of personalized experiences.
Guests, and in particular the hugely influential and upwardly mobile millennial community have changed hospitality service approaches drastically. Millennials are young, well educated, often holding good paying jobs and are willing to pay extra for premium services. This chunk of humanity is literally determining how competitive hotels can get their offer right in their effort to woo and retain the customer.
For example, millennials prefer hotels that provide communal spaces. Room sizes are shrinking because millennials are rarely stuck in the room and are out mingling with the crowd and drinking in (literally in bars often, pun intended!) the local culture and environment. Casual dining has begun taking precedence over traditional fine dining. It is not that fine dining or specialty restaurants are not patronized, it is just that a majority of even upscale hotels are shifting to the casual dining concept. Price is not such an important factor any more when compared to the value proposition. Any time the value perception is not good, price and patronization take a hit.
With competition heating up for occupancies and customer patronage, volume becomes a huge factor in filling up hotel rooms. The fastest way to filling up hotel rooms is to take the OTA or GDS route. But this path is not without its perils. These channels of distribution charge hefty commissions beginning with 15% and going all the way to 25%. Just imagine how for every dollar of revenue earned up to 25 cents go away to these agencies. That is a meaty blow to the bottom line. So then, what is the way out? One effective solution is direct bookings.
More and hotels whether independent or chain, have built a booking engine into their websites. These booking engines buoyed by ever improving technology allow them to build entire reservation and guest loyalty systems into the websites. What is the attraction? It is the obvious one. Bookings coming through their websites do not suffer often horrifyingly high commissions. A typical example is the quintessential BAR or Best Available Rate offered by almost all hotels in whatever name. This BAR rate is the lowest public rate on offer on any given day. Hotels challenge the customer to find a lower public rate than this one and offer to compensate if they did. These BAR categories are also rates on offer on hotel websites.
Direct bookings do offer a method of ramping up occupancies without blunting the bottom line. They however, like any good thing, have limitations. At the most, direct bookings may account for 7 to 8% of total occupancy. Despite this, there is no doubt about the effectiveness of direct bookings. Apart from the commission element, direct bookings allow hotels to bring to customer attention their value proposition and build a kind of retention strategy.
Direct bookings are one of the areas hotels start conversations with guests and coax them to come back. They often are one key cog in the wheel of a hotel's customer retention strategy. Toward this, hotels begin to gather information of guest preferences and actual stays so that they may offer products and services that the guest is seeking. There is nothing more powerful in customer relationship management and guest retention than rich data on their likes and dislikes.
David Vs Goliath
It often seems to be a David Vs Goliath scenario with the independent and chain hotels. However, despite being dwarfed by the sheer size and marketing muscle of chain or group hotels, David in the form of independent hotels has the ability to strike a knockout punch. And indeed, independent hotels have shown how nimble they can be in not only putting out strategies but also adroitly changing course when needed.
Another area where independent hotels excel in making experiments or what is known as test marketing. Given the smaller volume of business they handle, they can put out offerings and gauge response in a much more efficient manner. Chain or group hotels on the other hand often have to deal with bureaucracy and numerous levels of hierarchy in decision making.
The Way Forward
So, what does the future hold in store for guest loyalty? And more importantly loyalty for independent hotels?
Well, independent hotels have their work cut out for them but do not need to despair. The customer is looking for value offerings and in recent times does not care whether they are from independent or chain hotels. A slickly executed marketing strategy on the foundation of strong differentiation and tying into guest personalization demands can bring the bacon home. Owners of these independent hotels who have already stuck their necks out with the investment can then laugh all the way to the bank.
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