How Hospitality Loyalty Programs Lead to Revenue Growth and Personalization

From digitization to consolidation to expanded partnerships, hotel loyalty programs have evolved far beyond their initial role as a method for rewarding frequent stays with perks. That evolution includes changes in the rewards portfolios offered by major hospitality brands. For the past four years, we’ve tracked these changes in our annual State of Loyalty: 2023 Hospitality Rewards Report, and we’ve been able to identify trends that indicate not only the general direction of hospitality loyalty but how the industry is approaching technology, customer engagement, and the guest experience as well.

This year, our analysis revealed a flattening of total point-integrated reward categories, in contrast to the rapid expansion and diversification of reward portfolios in the pandemic years. This indicates that hotels see less urgency in connecting with customers when they’re off-property, most likely due to the resurgence of leisure travel demand (and the resulting high occupancy and average daily rates).

Digging deeper into the data, however, other trends emerge. Unbundling and upselling are key themes, as several hospitality brands provide guests with the opportunity to upgrade their stay by opting for special amenities. With some major hotel banners – notably Choice Hotels - expanding their programs’ points-earning capabilities for on-premise dining and others (Radisson) allowing points redemption on wellness services, there is also a renewed focus on on-property ancillary integration with loyalty structures. And while it’s not directly indicated by our analysis, the continued expansion of loyalty program touchpoints is fueling a rise in AI-powered personalization.

The commonality between all these trends is giving the guest more control. From the ability to pick and choose which amenities and upgrades are right for them, to having more earning and redemption options during their stay, to providing more tailored recommendations and offers through personalization, guests can create their own experiences.

What does that mean for hotel operators? To keep up with the competition, they must prioritize initiatives and technology that empower guests and give them more choices. And often, the ideal platform to enact these initiatives and investments is the loyalty program.

Tailored guest experiences through unbundling

While “unbundling” and “ancillary revenues” are well-worn concepts for airlines, they’re only recently gaining momentum among hotels. A study by Skift and Oracle released last year found that 85% of hoteliers expect ancillary revenues to make up a larger share of their annual revenue by 2025.

Because hotels have taken an alternative track toward unbundling than their airline peers – there's a difference between allowing a guest to upgrade the floor they’re on and charging a passenger a fee for seat selection – travelers have generally viewed this as an opportunity to curate their own experience. The American Hotel & Lodging Association’s recent State of the Industry report found that 54% of travelers are willing to pay more for choosing their hotel room’s view, and 38% would pay extra to select a specific room.

Hotel brands wanting to emulate this trend should focus on the revenue potential and the potential that unbundling has to improve the guest experience. Incorporating add-on amenities into the loyalty program can be an excellent way of introducing an unbundling strategy.

On-property opportunities

The rising availability of on-property ancillary options coincides with the unbundling trend. And the more ancillary services a property can offer, the more opportunities it has to integrate them into the loyalty framework. According to our analysis, on-premises dining and wellness services are the main avenues for this trend, as hospitality brands have consistently increased their earning and redemption options at restaurants and spas since 2019.

But as the on-property ancillary options expand, there will be many more potential tie-ins to the loyalty program. And with more integrations, there will be more program interactions, giving hotels access to broader guest behavioral data and providing valuable insight into which products or services resonate or are best perceived by members. The relative lack of loyalty-integrated on-property options beyond dining and wellness represents an opportunity for hotels to gain a competitive advantage by expanding their rewards portfolios.

Personalization and AI

As they expand their portfolios and on-property loyalty options, hotels also gain a data advantage they can leverage for greater personalization. AI has earned headlines for its ability to create bespoke experiences for travelers, but only with a robust pool of data can AI deliver on its personalization potential. That potential is compounded by the additional value loyalty members generate beyond their data.

An analysis mapping loyalty member data to transaction data on the iSeatz travel rewards platform found that members who frequently earned and redeemed points on rewards like car rental and tours and activities had a 5X higher 10-year average customer value and had a 10X higher spend on core products. Hospitality brands that want to improve their personalization capabilities and boost revenue can do so by leaning into their loyalty programs.

Even though the analysis of hotel rewards programs showed little overall growth of loyalty-integrated rewards categories, the trends toward unbundling, on-property ancillaries, and data-powered AI-enabled personalization show that the hotel loyalty program is as relevant as ever.

Hospitality brands that want to capitalize on the current high-demand environment and create the guest relationships they need to sustain them should focus on investing in the technology to support a flexible, option-rich loyalty platform and a rewards portfolio that favors both on- and off-property lifestyle options.

ABOUT THE AUTHOR

Andy Hermo is the Chief Commercial Officer at iSeatz, a loyalty technology company.

As iSeatz CCO, Andy leads the development and implementation of the iSeatz commercial strategy to drive enterprise growth, profitability, and improve customer satisfaction. Andy has over 30 years of leadership and commercial strategy experience in the travel and hospitality, consumer packaged goods/retailing and financial services industries. Before joining iSeatz, he was VP and General Manager of Enterprise accounts at Sabre Hospitality Solutions and a founding partner with Hudson Crossing, a Travel Industry consultancy. Andy also held commercial leadership positions with other esteemed brands, including Cendant Travel Distribution Services, Dun & Bradstreet, and GE.