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. 

Direct Bookings

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.

Mr. Narasimhan S. Lakshmi Narasimhan is the Founder of Ignite Insight LLC a New York City based consultancy, which specializes in Group Executive Training, Coaching and Consulting. Prior to founding his company, Mr. Narasimhan was the Vice President Finance of an award winning Hong Kong headquartered luxury hotel chain - Shangri-La Hotels & Resorts. He has more than 25 years of experience in the hospitality industry (14 of them in a senior corporate level) and has held diverse portfolios from a hotel Financial Controller to a group level Human Resources position, head of Corporate Internal Audit and head of Corporate Financial Systems. His career is epitomized by new and challenging roles. S. Lakshmi Narasimhan can be contacted at 201-253-5000 or narasimhan@ignite-insight.biz Please visit http://www.ignite-insight.biz for more information. Extended Biography

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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.

Coming up in November 2019...

Architecture & Design: Biophilic Design

The hospitality industry is constantly evolving to meet and exceed guest expectations. As a result, hotels are always on the lookout for new ways to improve the guest experience, and architecture and design is an essential part of this equation. Bold design is often the most effective way to make an exceptional first impression - an impression guests use to distinguish between brands. One design trend that is being embraced worldwide has become known as “Biophilic Design.” Biophilic design is based on the concept of biophilia, which is the theory that human beings have an innate tendency to seek out nature, natural elements, and natural forms. Biophilic design is more than hotels simply adding a surplus of plants; it involves incorporating specific design elements into a hotel in order to imbue it with a sense of wellness and well-being. Some of those elements include exposure to natural lighting; views of nature and rooms with a view; natural architectural patterns; salvaged or reclaimed woods of all types; reclaimed metals; sustainably sourced stone; living green walls and vertical gardens; and direct and indirect exposure to nature. Hotels that have incorporated biophilic design into their properties are reaping the benefits associated with this trend including reduced stress responses, better air quality, lower energy costs, and more positive guest reviews. Biophilic design has also been shown to improve guest moods and to satisfy consumer demand for environmental responsibility. Savvy hotel owners and managers are aware that nature-inspired elements enhance their guests' comfort and well-being, which is why this trend is becoming so prevalent. Biophilic design is just one topic in the fields of hotel architecture and design that will be examined in the November issue of the Hotel Business Review.