How to Create the Best Hotel Loyalty Program for Maximum Customer Retention?

The sales and marketing team is the backbone of every hotel. After all, they are the ones bringing in room and banquet sales at your property.

Bringing in guests via corporate or GITs (Group Inclusive Tours) or FITs (Foreign Independent Travelers) on a day-to-day basis is a challenge indeed. Therefore, you should focus more on existing guests.

Getting the same guests to stay with you again depends on two factors – 

• High Quality of Service
• Best Available Rates

However, service quality is directly proportional to SOPs (Standard Operating Procedures); which is regulated by the management and can be followed for years.

Whereas, best available rates depend on the market situation. You have to update them daily as per the demand and supply. The sales and marketing team works on various strategies to provide guests with the best available rates. One of the trending strategies is the hotel rewards program.

In this blog, we will learn about hotel loyalty programs, their benefits and how they work.

What is the Hotel Loyalty Program?

The hotel loyalty program is a reward based marketing strategy used for guest retention as well as new guest acquisition. It is also known as the hotel rewards program.

Generally, enrollment in such programs is free of cost. Whereas, rewards are based on different levels.

The rewards include a discount offer on room rates, food and beverage coupons, and many more. Some reward programs have a point-based system, where the guests can redeem points as per the policy.

Vaguely speaking, the hotel loyalty program is somewhat similar to credit card memberships but unique of its kind. You must’ve seen how frequent travelers have exclusive discounts from airlines.

Some of them are in the form of points, some as cashback, or ancillary service-based. Various hotel chains have implemented such programs identically. 

Let’s study more about the hotel rewards programs, their benefits, and their types.

History of Hotel Loyalty Program  

If we talk about loyalty programs, it was the aviation industry where it all started. It all goes back to 1981 when American Airlines introduced the frequent flyers program. The idea was a massive hit. 

Later on, two major brands introduced this idea in the hospitality industry. In February 1983, Holiday Inn launched the first-ever hotel loyalty program. Later on, in November 1983, Marriott rolled out its own program. 

Initially, the loyalty scheme was in association with airlines. The reward cash earned could be used to book free or discounted partner flights.

But after sometime, hoteliers noticed that these loyalty programs proved more beneficial to airlines. 

Following this, hotels started to design and develop their own loyalty programs. Over the time, these loyalty programs evolved drastically. If we take a look at the current scenario, guests can now use these reward points to book a room night or other ancillary services.

Four large hotel brands – IHG, Marriott, Hilton Worldwide, and Starwood Hotels & Resorts Worldwide – were the first to implement this.

As per the recent developments, the existing guests can now enjoy maximum benefits of hotel loyalty programs. It includes discounted rates, concession on food and beverage bills, and much more.

What are the Types of Loyalty Programs in the Hotel Industry?

Ideally, loyalty programs don’t have any fixed guidelines or protocols. They are designed depending on how your property works. 

There are various types of programs you can run, based on factors like: 

• Frequency of stay (Like bronze, gold or silver, depending on the duration of stay)
• No. of points collected (Bookings have certain points associated with them)
• Use of program (Redeeming of membership or points in forms of services)

On the basis of the above-mentioned points, the hotel loyalty programs are classified into three categories as follows –

1. Partnership Rewards
2. Points System
3. Personalized Rewards

Let’s study in detail what these categories are, so you can select the right one for your property.

Partnership Rewards

Partnership rewards is a traditional way of running loyalty programs. As you know, every hotel has some ancillary services such as cab, laundry, WiFi, spa; which can be either paid or free. Sometimes, hotels partner with vendors to outsource certain facilities or activities.

The way this partnership rewards programs work is pretty simple. Guests can receive the benefits (provided by your vendors) once they reach the benchmark you have set. These benefits can include airport transfer, discounted rates in the pubs, free spa therapy and such likes.

Points System 

This is the newly developed system, which is generally preferred by branded hotels. A specific set of points are rewarded in the guests’ profiles every time they make a booking in any hotel of the same brand. Once the points reach the minimum threshold, guests can redeem them in the form of free stays. 

Guest profiling is the basis of this digitalized concept.

While creating guests’ profiles, the system by default enrolls them in this loyalty program. It also helps in understanding their behaviour, booking patterns, and service expectations.

Personalized Rewards

This is kind of an upfront rewards policy, more or less. There aren’t any set criterias for these rewards. It entirely depends on the hotel’s capacity (whom to offer and what to offer). For example, many hotels have a policy of giving gifts during check-out.

Some hotels run reference based rewards for attracting guests. In such a policy, if the guests book the property through any of the references, then the referrer would be entitled for the rewards. 

These rewards again could be free meals, a gift hamper, free night or anything which hotel finds suitable as per their budget. This kind of hotel loyalty program is suitable for newly opened and budget properties. 

How to Create the Best Loyalty Program for Your Hotel?

The main motive hoteliers have behind implementing these loyalty programs is to maximize guest retention. While creating a loyalty program, these three points should be considered-

• Voluntarily Acceptance – Now, hotel PMS (Property Management System) does the task of guest profiling. This includes capturing basic information such as contact details, work details, preferences and so on. Once the guest profiling is done, the PMS automatically enrols the guest in the hotel loyalty program. This should be kept in check.

Also, to help you get the right hotel PMS, we have a dedicated guide. Do refer to it.

• Easy to understand – The program policies are generally too elaborated and loaded with technical terms. As a result, it becomes too complex for the guests to understand; leaving them baffled. Hence, the rules and policies of the loyalty program should be simple.

• Benefits – The benefits or rewards should be interesting enough to grab guest’s attention. However, you should also keep in check the effect on your revenue. Sometimes, hotels go way too far in terms of providing rewards to lure guests. This in turn adversely affects the business and leads to heavy loss. The rewards should seem attractive but should not be overwhelming.

Do Loyalty Programs Impact Hotel Revenue?

As per Johnson and Wales University’s research –

Acquiring a new customer is anywhere 5 to 25 times way more expensive than retaining an existing or old one.

According to the inventor of the net promoter score (NPS) Mr. Fred Reichheld

Increasing customer retention rates by 5% increases profits by 25% to 95%.

These benefits are not just limited to FITs, but even the corporates avail them. Many business travelers have their membership in certain hotels, providing the properties with bulk business benefits. Since every hotel has a separate customized loyalty program, they tend to opt-in for these hotels.

As per Phocuswright’s October 2016 report,

“Loyalty program members account for three-quarters of hotel website bookings, compared to just 36% for airlines.”

With these corporates in the picture, the hotels tend to get full rooms blocked for a reasonable time. Sometimes the stay period gets extended to even a month! This gives hotels a hassle-free revenue generation opportunity. 

What are the Benefits of Hotel Rewards Program for Guests?

The guests who have opted for a hotel loyalty schemes tend to receive benefits as per the membership policies.

Apart from usual rewards, it can include service-based rewards such as complimentary room internet, no blackout dates, instant redemption on food and beverage services. 

Hotel brands often have properties across various locations. Hence, they offer their privileged members an option for a free stay at any of their hotels across the globe in their reward programs. 

Can You Make the Best Out of a Hotel Loyalty Program?

Once you’ve designed a loyalty program, you need to work on promoting it to the guest. The best way to do this is by following the AIDA system.

The AIDA system is an acronym for - Attention, Interest, Desire, and Action.  

The important task is to grab the guests’ attention through effective advertisements and promotions.

In this case, the guest database and feedbacks help a lot in understanding their interest and behaviour.

You should do marketing with a motive of achieving desired results. It should be interesting enough for compelling guests’ take an instant action on it.

FAQs: We’ve got answers to your immediate questions

While I have tried to address every aspect of hotel loyalty programs, I am sure you might be having a few questions from below.