Is Hotel Loyalty Dead? What We Learned From McKinsey | Revinate

Hotel Loyalty is Dead…or is It?

Back in 2016, I first took a closer look at loyalty, ultimately asserting that hotel loyalty is dead. Well… not dead, but rapidly evolving, with points and redemption models failing to impress the modern traveler. After nearly two years of healthy debate with numerous hoteliers on this topic, and some alarming new research from McKinsey, it’s time to revisit this complex and sometimes controversial topic.

Holiday travel provides ample time for podcasting, and McKinsey’s recent episode on the consumer decision journey (CDJ) caught my eyes and ears. McKinsey has been researching and tracking the fascinating evolution of the CDJ for almost 10 years. Their latest installment has some mixed findings for marketers:

  • Let’s start with the good news. The good news, or opportunity, is that there is a fundamental shift happening in marketing, more centered on the consumer than ever before. This means that smart brands can capitalize and gain competitive advantage
  • The bad news? Across 125,000 consumers and 30 categories, only three of those categories were “loyalty driven.” This means that the majority of consumers aren’t repurchasing the same brand without shopping around, sobering news for any marketer

So what does this all mean for hotels?

Get considered

First of all, your brand is highly vulnerable. You’re up against competitors, OTAs, and increasingly Google and Airbnb. Consumers basically have endless options when booking a trip. Second, travelers can be fickle as they move through their research, adding and subtracting brands as they go.

Therefore, it’s critical for hotels to focus on initial consideration, meaning you’re top of mind when travelers have an upcoming trip or purchase occasion. And even if you’re in the initial consideration as a brand, you have to stay there. Let’s dive further into these concepts.

Unlock your guest data

All too often, I hear hoteliers fall into the trap of paying for initial consideration, pouring money into paid search and loyalty programs. For example, I spoke with a hotel marketer last week who said her usual PPC budget is $20K/month and the ROI is only 3 to 1. Ouch!

Same goes for costly loyalty programs. In the McKinsey research cited above, they also found that while loyalty membership is increasing, engagement is decreasing. According to McKinsey Partner Bo Finneman, “[Loyalty programs] are not necessarily something that we’ve seen be quite successful driving initial consideration and, ultimately, growth.” This means that many companies, including some hotel brands, are falling into what I’ll call “the loyalty trap,” launching or maintaining costly loyalty programs because they think the industry demands it. I’m oversimplifying of course, but I can’t tell you how many meetings I’ve had with mid-size brands launching or considering new loyalty programs to model themselves after Kimpton (Karma Rewards) and others.

Before you think I’m anti-loyalty program, let’s take a step back. Why do consumers and travelers join a loyalty program in the first place? Primarily for unique benefits. For example, Kimpton benefits include free wine hour, pets stay free, bikes available to borrow, and complimentary WiFi. And that’s great, guests love and look forward to these perks. However, offering these “surprise and delight” experiences can be done with or without a program; if anything, the surprise factor will be greater without a program. The challenge is, to pull off the latter, you’ll need a strong understanding of your guest data.

Unlocking your guest data isn’t rocket science, but it’s still science. Not sure where to start? Step one is asking the question, what’s in your property management system? Who are your repeat guests? What are your top segments? Once you have a handle on your data, step two is then focusing on segmenting and targeting your most loyal and active guests with personally relevant offers. This approach is more likely to foster loyalty and a personal, direct connection with guests.

What if I already have a loyalty program?

While loyalty programs tend to be the domain of the largest brands, programs can make sense for some medium-sized brands. If you have a loyalty program in place, one piece of advice is to ignore vanity metrics, like the number of members, and focus on engagement, like lifetime revenue and cross-property stays. Attribution challenges can actually mask an unprofitable loyalty program. Instead, loyalty (program or not) should be focused on your most profitable customers. For example, Southwest offers rewards based on the amount of money the flier spends, versus just miles flown. In other words, membership alone isn’t sufficient.

Ultimately, loyalty is not the same as a loyalty program. At the end of the day, hotel loyalty is all about identifying and incentivizing your best customers to come back and to come back through a direct booking. Of course, it’s not that easy. But by personalizing marketing to your best customers, you can start to win guest loyalty over your compset and high-cost 3rd party channels.

Drop us a note if you want to discuss further — we’re always here to help you get started!