Hotel brands know who their best customers are. They are the high-value guests that travel frequently and always – or at least consistently – book and stay at properties in the brand network. They are active members of the hotel’s loyalty program. They book higher-tier rooms, have a high average cart size on the hotel’s ecommerce site, and spend money on property for ancillary services, food and beverage and entertainment. They refer other travelers and are advocates for the brand.
Lower-value guests, on the other hand, stay at the hotel brand’s properties less frequently, have a lower average cart size and exert relatively low referral influence. But these guests do have one key advantage – there’s a lot more of them.
Hotels need to court both segments of customers to survive; they cannot live on ultra-high-value guests alone, and relying solely on anonymous, transient clientele is a recipe for stagnant revenue growth. Ideally, hotels want to convert lower-value guests into high value guests, breeding brand loyalty and increasing average spend incrementally over time. But how can they achieve that goal?
Each segment has its own priorities. Infrequent guests (including many leisure travelers) are often price sensitive, while business travelers and high-value guests place a premium on exemplary service and room quality (only 21% of this segment will sacrifice comfort for lower price). But both high- and lower-value guests respond to loyalty, and vote with their wallets – a PwC study found that the majority of travelers will pay an extra $10 to $50 to stay at their preferred hotel brand.
This means that hotel brands can adjust their loyalty program and rewards strategies to more effectively appeal to both segments of guest. Offering the right rewards to the right people and at the right time increases loyalty program participation across all guests at all levels, and boosts the overall customer experience. Specifically, hotel brands can use points + cash redemption options to target lower-value guests, and advanced personalization and segmentation rules to reward their higher-value guests in ways that will maintain their loyalty and increase their conversion rates and margins.
The Cumulative Effect of Points + Cash
Lower-value guests often have lower points balances, if they participate in the hotel brand’s loyalty program at all. This can be for a number of reasons: they don’t travel frequently enough to accrue points at an appreciable rate, or they burn their points relatively quickly upon earning them to secure a discount, or they’re simply too new to the brand or to travel in general to have accumulated many points. Whatever the reason, rewards that offer immediate redemption value are best for this segment, as they add value that can be instantly recognized. This value creates brand affinity, and encourages participation in the loyalty program. Most importantly, it means that these guests don’t have to wait for a long period of time to earn enough points for a larger purchase, and allows hotels to earn revenue from these guests in the short term.
By offering points plus cash redemptions, hotels can drive guests to make these larger purchases sooner than if they had to wait to accrue enough points. Guests often consider their loyalty balances as a separate “bank account,” and feel freer to “splurge” with points than they might with cash. Allowing guests to combine their loyalty points with cash encourages them to carry that “splurge” mentality over to larger purchases – it doesn’t feel like they’re spending that much, because a portion of their purchase is covered by their points. According to Switchfly’s internal data, guests who use points plus cash have a larger average cart size.
“Just for Me” Rewards that Resonate
High-value guests already have a larger average cart size and greater average spend overall. Rewarding this segment is more about ensuring they stay loyal to the hotel brand, catering to their needs, and guiding them toward ancillary products and services that are tailored to their preferences. Presenting this guest segment with personalized, curated offers, rewards and inventory is a way for hotel brands to increase their “stickiness” with these guests, ensuring that their brand remains top-of-mind whenever they consider travel.
To enable this level of personalization and curation, however, hotel brands need to be able to leverage their loyalty program data (and other sources of data) and have the ability to set advanced segmentation rules. With these capabilities, hotel brands can present tailored inventory or rewards to individual guests, increasing the likelihood of conversion and giving the hotel brand the ability to sell higher-margin products.
The good news is, personalization and segmentation rules work for all guests. For example, high-value guests may receive offers for luxury rooms or a butler service, while users who fly on low-cost carriers may receive offers for budget hotels.
Deploying effective loyalty rewards and personalization strategies is possible if hotel brands have the systems in place to understand their guests’ past behavior and preferences – and if they have a technology partner that can provide insights from across a guest’s travel journey. With the right technology and partnerships, hotels can crack the code of appealing to both high- and lower-value guest segments, and eventually convert more of the latter into the former. And that’s a recipe for sustainable revenue growth in any lodging market.
About the Author
Douglas Gaccione is the executive vice president of global growth at Switchfly. He works with multiple teams to generate omni-channel engagement experiences, deliver progressive technologic solutions and provide digital brand building recommendations for hospitality clients.