It's no secret, I’m a hotel girl. Having worked in the hospitality industry for over a decade before joining rDialogue, my experience gives me a unique perspective on the industry. Today, the hospitality landscape is evolving from mergers and acquisitions and, as a result, brands are being forced to realign their loyalty programs. However, we’re also seeing brands go beyond the re-alignment. Whether fueled by the disrupters like Airbnb or taking advantage of the new technologies available, brands are looking to loyalty strategies and programs to evolve the overall customer experience.
It's worth watching the Marriott-Starwood merger because it presents a unique challenge and opportunity. The emphasis that Marriott CEO Arne Sorenson and his leadership team are putting on integrating three loyalty programs (Starwood Preferred Guest, Marriott Rewards and Ritz Carlton Rewards) demonstrates the importance of ‘getting it right’ with your most loyal and valuable guests. The acquisition has the potential to realize an estimated cost synergy of $200 million, stemming from the elimination of duplicative functions, and economies of scale. If Sorenson's thesis is correct, the company should have a permanently lower fixed cost structure and strong free cash flow margin.
As part of the plan, the team is focusing on mobile app development to personalize the guest experience. Marriott plans to use artificial intelligence to anticipate exactly what its loyalty members want in their hotel stays. Eventually, the app will enable real-time messaging, powered by beacon technology. Since Marriott has been testing beacons since 2014, with a new combined footprint of over 5,500 properties, the key will be ensuring consistent delivery of relevant messaging without being overly formulaic. If they can create a concierge-like experience via beacons, they just may be the brand to beat.
The fact that it’s going to take until at least 2018 to intertwine the Marriott programs is not surprising – I’m amazed that it’s happening that quickly. Although Marriott leadership insists they’re bringing the best of SPG and Marriott Rewards to the new, combined program (including placing a SPG veteran over the merged program), members are left wondering exactly what the new program will look like – and whether it will be nearly as good as the diehard fans of SPG believed their program was.
An evolution, not a revolution
The uncertainty left in the wake of this merger has opened the door to another big player in the industry, Hilton, which is using this opportunity to evolve its own loyalty program. Included is the ability to extend status of Diamond level members if their travel happens to slow down and they’re unable to requalify (previously, those members would lose their status). This nod to their most loyal customer base excites us at rDialogue because we think loyalty marketing isn’t about loving ALL customers. It’s about identifying and loving the ones that matter the most. Typically, that’s prioritizing your most loyal and valuable down to your base, and loyalty over non-loyalty members.
But Hilton isn’t just evolving benefits for its top tier. Starting this summer, all Honors members (and hooray for dropping the double-H!) will be able to redeem points on Amazon. While no different than when airlines and hotels allowed their customers to swap points for miles, I suspect the threshold to use those points will be lower, giving Hyatt a stronger – and more relevant – currency in the mind of the consumer. It’s also worth noting the impact to their loyalty economics: a lower threshold to redemption could lead to higher redemption, lowering point balances and thus overall liability for the brand.
Aside from Starbucks, most first-to-market loyalty shifts begin in the travel/hospitality space. Though we're primarily talking hotels, let’s not forget that Delta started the shift by changing its model to prioritize revenue and yield towards its elite qualification, a way to again recognize the customers that are most valuable. While these programmatic changes are a shift, they are still what we think of as evolutionary, not revolutionary – what we call Loyalty 2.0.
What can other sectors learn from the hospitality industry? Loyalty is not something brands can ‘set and forget.’ At rDialogue, we believe that loyalty comes from relevant dialogue: Paying attention to customers and acting accordingly. And we see the next evolution of loyalty (what we call Loyalty 3.0) as a strategy to push beyond monetary and transactional incentives into saving time, making things easier, and adding knowledge and access to build personal, unique brand attachments. It’s time to look to hospitality strategy and associated programs that are leading the way towards Loyalty 3.0.
- Do your loyalty program’s benefits still resonate with your customers? Gone are the days of punch cards and spend this to get that. Points? Percentage back? Your customers need to see that the overall value proposition is worth driving past another brand to get to you. If you think the program isn’t enough of a motivator, you may need to look at how to add more value which extends beyond points and discounts to the experience. For example, InterContinental Hotels Group (IHG) entered into an agreement with Amazon where all IHG Rewards Club members in the U.S. can receive complimentary access to a curated list of Kindle books from Amazon Publishing and Kindle Singles - creating a more robust relationship with their members that extends their brand beyond travel and into their customers daily lives.
- Do you offer experiential benefits, beyond simply transactions, to engage with your customers? Here’s where brands can truly differentiate and, most of the time, it can be less expensive than points or rewards. It’s human nature to want to feel special, and priority access (whether it’s seating, upgrades or check-ins) typically doesn’t cost much. Or, maybe it’s added value through partnerships. (But be careful -- the wrong partnership can do more harm than good to your brand if it’s not a natural alignment. I still scratch my head with the partnership between Lululemon and Stanley Park Brewing.) Experiential benefits are a great way to make changes to your program and can easily be tested first via campaigns to see what resonates.
- What are you doing to recognize your best customers? We all know the 80/20 rule: 20% of your customers are providing 80% of your revenue. So, what are you doing for your 20%? What are you doing for your cardholders? How are you making it almost impossible for them to want to do business with anyone else? If the answer is ‘I don’t know,’ looking at how you’re treating your most valuable members is a great place to start. Is your brand loyal to its high value customer? Hyatt is evolving from Hyatt Passport to World of Hyatt, the company’s new global platform. The new program includes more tiers and more ways to earn status. New tier names even reflect the aspirations of members as they travel and expand their world. One of the perks I like? Top tier members can receive four suite upgrades per year (after 60 qualifying nights). Suite upgrades for loyalty members may have happened from time-to-time, but it’s not something typically published in the hospitality space – can’t wait to see who will match that!
It’s a great time to be in loyalty. With the world at your fingertips, a consumer’s choice of which brands they give their loyalty to is greater than ever. A strong loyalty strategy and program can be the deciding factor between you and the other guys. Don’t wait on your competition to move first, and If you haven’t evolved your loyalty value proposition in a while, let 2017 be the year for you to get started!
About the Author
Laurie Efman worked in Japan supporting a global hotel loyalty program. In her spare time there she sang a lot of karaoke. There's photo proof that, at least once, she dressed up like a geisha.