Cornell Study Examines Hotel Loyalty Programs and Internet Intermediaries

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. October 14, 2008

ITHACA, NY, April 24, 2006. Internet intermediaries such as Expedia and Travelocity may find it advantageous to award their customers points in the hotel chains' loyalty programs, but so far the chains have resisted that step. A new report from the Cornell University Center for Hospitality Research examines the complex situation that hotel chains face in dealing with the online websites that sell discounted rooms using a merchant model.

Cornell professors Bill Carroll and Judy Siguaw suggest that eventually one hotel chain may break ranks and offer loyalty points for internet merchant sales. Their report, "An Examination of Internet Intermediaries and Hotel Loyalty Programs: How Will Guests Get their Points?," which is based on earlier research by Phocuswright, is available at no charge from the Center for Hospitality Research at http://www.hotelschool.cornell.edu/chr/research/centerreports.html . Carroll is a senior lecturer at the Cornell School of Hotel Administration, and Siguaw is dean of Cornell-Nanyang Institute of Hospitality Management and J. Thomas Clark Professor of Entrepreneurship and Personal Enterprise at the Hotel School.

Carroll and Siguaw analyzed the complex relationship of the hotel chains and the internet merchants with regard to loyalty programs. The negotiations between the chains and the internet intermediaries have become critical because business travelers have begun to use the internet more heavily. Because of the desire to gain direct internet bookings, hotel companies would prefer not to award points to business travelers for those discounted rooms. The intermediaries, on the other hand, would like to strengthen their position by offering hotel loyalty-program points.

The decision of whether to allow the intermediaries to award hotel-chain loyalty points hinges in part on whether those web merchants can, in fact, shift market share to a hotel chain that is featured on their website. A game-theory analysis of the situation suggests that a first-mover chain would gain some advantage over its competitors by offering points for the intermediaries' sales. However, that advantage would soon be lost when competitors match that offer.

As a practical matter, individual properties often grant their frequent guests loyalty points even if they haven't technically earned them. Ironically, the actual cash-equivalent value of the points can be minuscule (although loyalty programs are costly for chains to operate). While the hotel executives interviewed for the report asserted that their loyalty programs encourage customer loyalty, those executives also admitted that most of their loyalty-program members also participate in other chains' programs. Carroll and Siguaw point out that the customer information gleaned from loyalty-program members are a considerable benefit of operating a loyalty program.

Given the cost of operating the loyalty program, Carroll and Siguaw suggest that if a chain did agree to award points for merchant-intermediary sales, that chain might create a different class of points or offer a reduced number of points for business customers who book on the internet. Despite the intermediaries' wish to offer loyalty points (and the fact that Travelocity has tested such a program), Carroll and Siguaw do not expect them to develop their own hotel-like loyalty programs, given the expense of operating them.

About The Center for Hospitality Research

A unit of the Cornell School of Hotel Administration, The Center for Hospitality Research (CHR) sponsors research designed to improve practices in the hospitality industry. Under the lead of the Center's 46 corporate affiliates, experienced scholars work closely with business executives to discover new insights into strategic, managerial and operating practices. The Center also publishes the award-winning hospitality journal, the Cornell Hotel and Restaurant Administration Quarterly. To learn more about CHR and its projects, visit www.chr.cornell.edu.

CHR Partners and sponsors: AIG Global Real Estate Investment, Cendant Corporation, Four Seasons Hotels and Resorts, HVS International, JohnsonDiversey, Inc., Kohinoor Group, Marsh's Hospitality Practice, Nestl'e, Smith Travel Research, Southern Wine and Spirits of America, Inc., SynXis (a Sabre Holdings Corporation), Taj Hotels Resorts and Palaces, Thayer Group of Companies, and Wimberly Allison Tong & Goo.

CHR friends: ARAMARK o DK Shifflet & Associates o ehotelier.com o Estrela Marketing Solutions o Fireman's Fund o Gerencia de Hoteles & Restaurantes o Global Hospitality Resources o Hospitality Confections o Hospitality Financial and Technology Professionals (HFTP) o HOP hospitalitynet.org o Hotel Asia Pacific o Hotel China o HotelExecutive.com o Hotel Interactive o Hotel Resource o International CHRIE o International Hotel and Restaurant Association o International Hotel Conference o iPerceptions o KPMG Japan/Global Management Directions o Lodging Hospitality o Lodging Magazine o PKF Hospitality Research o Resort+Recreation o The Resort Trades o RestaurantEdge.com o Shibata Publishing Co. o The Lodging Conference o Taste & Travel o TravelCLICK o UniFocus o WageWatch, Inc. o WiredHotelier.com