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In my work, I regularly create performance report of different loyalty programs. I also remember many articles that emphasized on not only the benefits of loyalty programs but also on evaluating costs regarding those programs. Therefore, I found this article interesting and wanted to see what the top academics and practitioners have to say regarding conducting and evaluating Loyalty Programs. The cherry on this cake is fact that the participants of the discussion are top specialists in this field therefore I am curious to find out their opinion and insights.
This article highlights the most important takeaways from a discussion held in School of Hotel Administration at Cornell University. The goal of this discussion was to find ways of benefiting from those programs even if they hit the maturity stage. Moreover, more firms are struggling to demonstrate return of investment from them and therefore they are not advancing them on the next level. This article is divided into sections: “What is working and what is not”, “Looking Ahead to next practices”, “Loyalty and Customer Lifetime Value”, “Conceptualizing and measuring loyalty and engagement” and “Loyalty program management ad re-launch” and I will try to provide the most important highlights from all of them.
What is working and what is not.
- Moving loyalty programs forward - the consequence of hitting the mature stage is usually lack of differentiation between players and therefore customers can’t identify difference between them and therefore they don’t fulfill their primary role of being unique. To change this stagnation, hotels should redevelop their programs based on core marketing tenets, new market segmentation and develop meaningful points of differentiation.
- Evaluating loyalty - the primary way of evaluating loyalty is based on customer behavior. However, as the world is changing and new means are becoming popular, evaluating behavior can’t limit to tracking repeated purchase. Therefore, such tracking should combine traditional and social platforms across the portfolio of brands.
- The effect of social - In the era of social media and its influence on customers, it’s important to derive new ways of identifying loyal customers and reward their affection. But it is not easy to reward social value and create incentives for future loyalty as the connection between social media actions and spending behavior has not been yet established.
- Personalization conundrum - the personalization problem is like double-edge sword. It has huge potential but also huge risk associated with it. The biggest treat is that personalization will create unrealistic guest expectations and also is not sustainable from cost perspective. Therefore, hotels need to ensure that their operations can handle personalization program before it’s implemented.
Looking ahead to next practices
- Potential practices - the key finding from years of loyalty programs is that forced loyalty (understood as purchase made simply to gain loyalty points) is not loyalty at all. In order to establish a true loyalty relationship, an emotional connection has to be established. Such a connection can be built by such potential practices of loyalty management:
- finding ways to create “predictive loyalty”, to ensure future loyalty as right now awards are based on past actions
- including surprise and delight in loyalty programs to “humanize” a program and create personal connection
- expanding into global markets to understand customer behavior in emerging markets
- using personalization in subtle way without creating unrealistic expectations.
- Next practices - The customer answer to the most important question “whom am I loyal to” is not based on points or rewards but on personalized and sincere experience. Moreover, building loyalty is a process that can take several years but when properly established, it can help the industry to maximize value and therefore it is the most efficient mechanism for marketing. The further loyalty might be built by making people feel good, surprise them and make their experience delightful. The following areas comprises next practices for monitoring the effectiveness of reward programs: customer value, optimization and broader analysis of costs and benefits.
- customer value – is crucial for firms to move away from short-term to long-term perspective. To do so, ROI models has been adapted to calculate lifetime value using flexible formulas. This is especially important for loyalty programs as some of their benefits will not appear in short term.
- optimization – once the ROI is calculated, the hotel has to optimize their programs by identifying opportunities and conditions. It can be achieved by targeting re-calibrated customers, restructuring program tier thresholds or reducing costs.
- cost-benefit analysis – the loyalty programs are usually treated as cost -centers, however, often implementation of certain program will not only generate costs but can also generate some cost savings (e.g. marketing costs). Taking not only strategic importance but also cost savings into consideration will decrease the risk that the program will be under-valued and as result under-funded.
Loyalty and customer Lifetime value
- Loyalty as share experience - indisputable customer lifetime value is calculated per individual. However, very rarely, we examine the influence such an individual has on others. Following points were derived from discussions regarding this matter:
- one out of 6 rooms is booked for small meetings. Thus, hotels need to find ways other than discounts to incentivize repeat business
- hotels should use knowledge about customers to influence revenue by “secrets of surprise”
- hotels might want to consider return on engagement rather than return on investment
- hotels may want to move beyond revenue management to total customer value
- Perception of value - the most important thing for customers is to receive a value out of loyalty program. Moreover, the customer is likely to value more when he is picked up form airport that if he received room discount. This is because, in first case the customer can experience the personalization of the offer and he will remember it as valuable memory.
Conceptualizing and measuring loyalty and engagement
- Brand loyalty - similar to hotels where the managers make a distinction between loyalty and rewards, also the customers are either attached to rewards earned or they are truly loyal to the brand. Creating a relationship that is based on loyalty is difficult but measuring it is even more difficult because of the multiple interrelated factors that effect it.
- Loyalty ROI - usually ROI should in the end of the day reflects profits, but in terms of loyalty profits shouldn’t be evaluated in initial phase. Every log-term goal needs some initial investment especially when building loyalty is a process that might take years.
- Brand identification - loyalty occurs in this finest form when the customers choose one brand over other because it can deliver unique experience. Therefore the ultimate benefit from brand loyalty is having customers dedicated enough to be at the point of having integrated certain brand as a part of their identity.
- Engagement - is one of the new metrics to reflect the customer loyalty. The more advance metrics should recognize cultural differences and different needs of different customers. The next step is not only measuring customer engagement but also customer influence and reward customers for their supportive actions toward a firm. This would create a separate segmentation of customers – based on size of their social network. However, we don’t know enough yet about customer expectations for equal versus equitable treatment to evaluate its acceptance.
Loyalty program management and re-launch
- Loyalty as a symbol - in many industries and cultures, loyalty is not seen as a way to receive a reward but rather as a symbol of status. Some customers are willing to pay extra for being treated in special way as member of high-ranking exclusive group. Being inside such a group is valuable for social reasons even if there are no or not significant benefits associated with it. If there are, they should also emphasize the special status. On example of such reward could be availability to board on plane before other passengers and without waiting in queue.
- The on-going dilemma - the key dilemma to connect the plan with consumer hierarchies and elements of status that customers value is to decide whether to: give loyal customers discounts or provide premium service. The decision should be made based on big data and customer behavior analysis.
- Re-launch of loyalty program - is worthy consideration if the management has an idea how the change will create more value for the best customers and as result establish long-term relationship. The hotel should firstly examine what should be different and what features could be retained from the old program, having in mind that a change in loyalty program can take up to three years to demonstrate positive ROI.
As I mentioned before this article is derived from the discussion between academics and practitioners in School of Hotel Administration at Cornell University. Following the list includes all participants:
- Chris Brogan, Senior Vice President, Hyatt
- Bill Carroll, Senior Lecturer, Cornell University
- Stephan Chase, VP Consumer Insights and Analysis, Marriott International
- Jonathan Copulsky, National Managing Director, Brand and Eminence, Deloitte LLP
- Carolyn Corda, Vice President, Epsilon
- Christine Eberle, Managing Director, Accenture Hospitality
- Allison Fitzpatrick, Partner, Advertising, Marketing, & Promotions, Davis & Gilbert LLP
- Robert Karin, Davis & Gilbert LLP
- Jeffrey Low, Founder and CEO, Stash Rewards
- Michael McCall, CHR Research Fellow & Editor, Center for Hospitality Research Series, Cornell School of Hotel Administration
- Kelly McManus, Director Guest Experience, Hilton Worldwide
- Natalie Osborn, Senior Industry Consultant, SAS
- Umar Riaz, Managing Director, Accenture Hospitality
- Michelle Sarkisian, President, P3 Advisors
- Michael Sturman, Professor, Associate Dean for Faculty Development, Academic Director of the Center for Hospitality Research and the Kenneth and Marjorie Blanchard Professor of Human Resources, Cornell School of Hotel Administration
- Rohit Verma, Singapore Tourism Board Distinguished Professor in Asian Hospitality Management, Cornell School of Hotel Administration
- Clay Voorhees, Associate Professor, Michigan State University
- Mark Weinstein, Vice President, Commercial Services Strategy, Loyalty Programs & Strategic Partnerships, Hilton Worldwide
- Jeff Zidell, Senior Vice President, Hyatt
Main article: McCall, M., (2015) “What’s Next in Loyalty Programs: Highlights of the 2014 Cornell Loyalty Program Management Roundtable”. The Center for Hospitality Research. Cornell University.
Author: Mateusz Konopelski