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Thu 24 Feb 2011 12:00 AM

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What are your freebies worth?

Loyalty programme members spend more and stay more at hotels, but as a result, expect good earnings and easy redemption. Louise Oakley investigates the scale of their value to hotel firms

What are your freebies worth?
Loyalty programme addict and Hilton HHonors member, Up in the Air’s Ryan Bingham, better known as George Clooney: as a frequent traveller, one would think Bingham is used to packing his suitcase

Hotel loyalty programmes have been around for close to 30
years, after pioneering launches from InterContinental Hotels Group and
Marriott in the US
in 1983. Hilton joined the club in 1987 with Hilton HHonors and since then, the
business of rewarding loyal guests has become essential for hotel chains, as
well as an increasingly useful tool for F&B brands, boutique properties and
independent operators.

Most recently, Ritz-Carlton introduced a loyalty scheme,
linked with the existing Marriott Rewards, citing growing demand from guests
over the past 18 months.

Shangri-La completely restructured and extended its Golden Circle
programme, while locally, Landmark Group unveiled its Shukran customer loyalty
card covering all of the Citymax Hotels F&B outlets, standalone restaurants
as well as its retail stores.

At the same time, the offers and promotions from established
programmes have become all the more enticing and competitive - from February 1,
Marriott Rewards members will earn one free night for every two paid stays they
make through to the end of April (up to two free nights per member).

Over at Hilton, from now until June 30, HHonors members have
the opportunity to redeem free nights with 40% fewer points at participating
hotels worldwide with the Point Stretcher Rewards promotion, enabling loyal
members to earn free rooms faster at more than 1800 participating hotels.

Such tempting offers are not about good public relations;
they are designed to fill rooms, encourage guest spend and reward hotels’ most
frequent guests - the people that help to grow occupancy rates year on year.

Hilton HHonors members typically generate more than 40% of
occupancy across the portfolio - which totals more than 40 million guests,
reveals the company’s senior vice president for global customer marketing, Jeff
Diskin.

“When we keep our loyal customers happy, our business
thrives,” asserts Diskin.

A similar figure is true at Starwood, which introduced the
Starwood Preferred Guest (SPG) programme in February 1999.

Starwood Hotels & Resorts, Europe, Africa and Middle East senior director, digital, loyalty and partner
marketing, Steven Taylor, says: “Today SPG is a powerful and growing force for
us that drives nearly one out of two guests in our hotels worldwide. Our SPG
members now represent 41% of total occupancy for our hotels in Europe, Africa
and Middle East”.

Even the newer loyalty programmes from regional brands have
proved remarkably successful.

Rotana Rewards launched in April 2005 with three tiers now
available: Classic, Select and Exclusive. Already, there are 25,000 active
members with a renewal ratio of 75% yearly.

“Since its launch, Rotana Rewards Exclusive Programme had a
frequency ratio of 3.5 visits per week per member, and the revenue generated is
around 25% of the total company revenue,” says Rotana loyalty programme
director, Elie Saliba.

These figures are a mere snapshot of the value of hotel
loyalty programmes, which have become yet more important - and therefore
potentially more profitable - in the changing economic climate of recent years.

Dion Maritz, general manager at loyalty marketing specialist
ICLP Middle East explains.

“With the advent of global recession since 2008, hotels in
the Middle East are faced with challenges of
oversupply of rooms which will continue to affect the market in the next couple
of years. The impact of this on reducing price points and squeezing margins
remains a significant challenge for hoteliers. Previously, hotels in the Middle East used to have one of the highest average daily
room rates in the world - but these are now being eroded.

“With the above pressures, brands now have to look inward to
tap into one of their most valuable corporate assets - their loyalty programme.
They can use this direct channel to deliver better margins by understanding and
targeting the less price sensitive customer, and driving the data to identify
further opportunities within their databases,” explains Maritz.

“Programmes are also seeing rising redemption rates.
Research conducted on behalf of Wyndham Hotels and Resorts in the US for instance
shows that 20% of consumers believed that they would be unable to take their
next holiday without using loyalty points or miles, which suggests that the
current economic climate has increased the importance of utilising travel
rewards in holiday planning.

“Many of the leading brands are currently benefitting from
the kudos of being seen and being able to help their loyal customers still
enjoy a holiday by cashing in their reward points. The result of which is that
customers are engaging more readily and more often with their chosen brand,” he
asserts.

Taylor
says he has seen this trend at Starwood. “Loyalty programmes such as SPG keep
guests travelling during tough economic times. Cost crunching consumers can tap
into the power of SPG to book flights, hotel stays and more, all cash free.”

Such schemes are extremely important for a hotel’s business
to stay competitive, agrees Hilton’s Diskin, “especially in an economy where
price-sensitive consumers are looking for greater experiences at better
prices”.

Diskin highlights the need for “greater experiences”, which
is key when it comes to rewards because loyalty members do not merely expect a
discounted rate or an upgrade. They need to be looked after, valued and part of
a loyal community following that hotel chain. Rarely are they like George
Clooney’s alter ego Ryan Bingham from the film Up in the Air, which brought
Hilton HHonors to the big screen. Bingham spends at hotels merely to add to his
frequent flyer miles tally in an effort to hit the prestigious 10 million miles
- not to actually go anywhere.

“I don’t spend a nickel, if I can help it, unless it somehow
profits my mileage account - I’d be the seventh person to do it. More people
have walked on the moon,” Bingham says proudly.

The film was great for bringing loyalty programmes to the
forefront, but outside of Hollywood,
loyalty members are looking to cash in their points for something real.

As Jeff Strachan, vice president sales and marketing, Middle
East and Africa for Marriott International,
explains: “Customers can choose to earn Marriott Rewards points. Alternatively
they can swap the points into miles and earn with their preferred airline
partner. We have an excellent programme online called dreamrewards tracker.
This solution helps our customers set a goal for a dream vacation”.

Hilton prides itself on its ‘Double Dip’ approach, which
enables members to earn points and miles, or points and points, for the same
hotel stay and Hotel Reward Exchange, which offers hotel points for airline
miles and airline miles for points with participating airlines.

In addition, several chains claim to have revolutionised the
industry with no blackout policies, which means members can redeem their points
wherever and whenever they want, not just outside of holidays.

Diskin claims that Hilton was the first “and still the only”
hotel guest loyalty programme to offer members “both points and miles and no
blackout dates”.

He adds: “Last year, we announced a new partnership with
JetBlue - making Hilton Worldwide JetBlue’s very first hotel partner. Now
Hilton HHonors and JetBlue’s TrueBlue members will have the opportunity to earn
one TrueBlue point for every two US dollars spent on stays at any of the hotels
in the Hilton Worldwide portfolio”.

Pick your partners

However, guests don’t simply collect points and redeem them
for rooms. A successful hotel loyalty scheme has to be far more diversified.
Many hotel chains partner with airlines. The offer varies but the premise is
the same - if you want more people to travel to your hotel, you need to support
the entire travel process.

Taylor
explains SPG’s offering: “In 2008, SPG launched SPG Flights, which allows our
members to use their points to book flights on hundreds of domestic and
international airlines with no blackout dates. Members can simply go to our
site, search for and select their preferred flight and the class of service,
and redeem their Starpoints for the entire cost of their flight. Members may
even earn airline miles when booking airfare through SPG Flights”.

But what else can members ‘earn’? In order to make the new
Ritz-Carlton Rewards distinct and of more value to the luxury traveller,
Ritz-Carlton has placed heavy emphasis on securing the right partners for its
programme.

The Ritz-Carlton Rewards’ partners offer unique access
available only to members, including Abercrombie & Kent members-only tours
in locations such as China, Turkey and Egypt; special customer events and a
half-day personal shopping experience with fashion experts at Neiman Marcus
featuring a private consultation, fashion show, lunch, facial and make-up
application; multi-day photography workshops with National Geographic’s
renowned photographers at Ritz-Carlton hotels and resorts in locations such as
San Francisco and Miami; and the opportunity to redeem points for credit toward
wedding gowns and other select products designed by celebrated designer Vera
Wang.

Members will also be able to redeem points for flights on 31
of the world’s major airlines.

“No other luxury hotel company comes close to providing such
a full range of opportunities to earn and redeem points and experience some
truly exceptional and exotic adventures,” asserts Herve Humler, president and
chief operating officer, The Ritz-Carlton Hotel Company. “This is just the
beginning.  We will continue to add
global partners offering our members the very best in customised and
one-of-a-kind memorable experiences.”

There are great incentives at some of the other groups too:
Starwood offers SPG Moments, an online auction that offers SPG members the the
possibility to use their points for a chance to win experiences such as VIP
concert tickets and behind the scenes access to major sporting events while
Hilton Worldwide focuses on variety, with 56 airline partners, 62 merchandise  partners, 24 charitable partners and eight
online retail options.

Online ‘stores’ are also becoming increasingly popular
across the hotel groups.

Strachan explains: “Marriottrewards.com provides a fantastic
platform for redemption with the options on our online store changing
continuously. There is a wide variety over and above hotel stays, for example,
customers can even choose to take a cruise”.

Meanwhile, Rotana has placed strong emphasis on food and
beverage with its loyalty programme. Every Exclusive member dines for free in
any F&B outlet when accompanied by another person and gets 15% off
beverages when dining and all members receive points on food and beverage
purchases.

The group is currently in the process of revamping its
entire programme in line with its “existing brand image”, but the F&B
aspect is “equally as important as the accommodation aspect”, says Saliba.

The full rewards offered by these loyalty programmes, and
the countless others available, are too far reaching to mention here. One point
that should be made, however, is the balance between the value offered to the
guest and the cost of delivery to the hotel.

ICLP’s Maritz says: “The aim is to make every guest feel
special - but profitably. This is particularly so for regional groups who have
limited economies of scale, as they have limited global coverage and,
therefore, providing a reward-based value proposition for a global traveller is
a challenge. Overall, loyalty programme owners have a constant struggle between
managing programme profitability and their ongoing costs”.

He warns: “Programmes that do not deliver (i.e. constant
poor performance of their programmes and spiraling costs) are
unsustainable. With no clear return on
investment, ultimately this results in the withdrawal of support from the key
stakeholders in the scheme.

“Similarly, poor programme performance often dilutes the
profitability of a customer and therefore destroys corporate value, brand value
and customer relationships,” observes Maritz.

Targeted marketing

Maritz makes a valid point, for loyalty programmes are not
there simply to reward guests, but to build a relationship with them. They
enable hotels to understand their guests in detail and therefore, to ensure
more tailored marketing and a differentiated loyalty proposition.

“The loyalty programme provides us with the opportunity to
continue a dialogue with our customers even when they are not in our hotels,”
says Strachan. “Our online platforms provide interaction and assistance. If you
visit marriottrewards.com you will find a Marriott Rewards online community.
The programme also provides us with the data to have a much more relevant
marketing conversation with our customers”.

Maritz expands: “Loyalty initiatives operate at multiple
levels. Its biggest value story is in the data it collects. The loyalty
programme encourages customers to identify themselves, which then gives
marketers the ability to capture and analyse purchase and behavioural data.
Analysing this data enables you to understand the total value potential of
individual customers, both in their professional and personal life. It helps
you evaluate the opportunity to get a greater share of each customer’s (and
potentially their family’s) requirement.

“Unlike traditional marketers who think market share, loyalty
marketers think share of requirement or potential (i.e. what potential the
member has and how can I divert this to my brand),” he says.

“With these insights the marketer is then able to direct
timely, relevant communications and allocate dollars towards surprise and
delight experiences. This in turn results in higher measureable customer spend.

“Equally so, members see loyalty programmes as a rational
“value (rewards and benefits) exchange” and as long as this value is apparent,
the programme will influence customer behaviour positively,” explains Maritz.

The real key to success, however, comes back to the fact
that the hospitality industry is a service industry and as a result, the guest
experience once they are actually in the hotel is all important. If the service
is terrible, the room uncomfortable and the food disappointing, even your gold
or platinum members - Ryan Bingham aside - are unlikely to come back.

As Strachan puts it: “We
operate great hotels. It all starts there.
Let’s be honest, if we are not
running great hotels, no amount of loyalty programmes will ensure a guest stays
again and again
and again”.

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