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Does your hotel need a loyalty program? Here's how to tell!

Loyalty and cutting out the middleman, but not only that. Discover all the benefits of loyalty programs!

Hotel loyalty program: all the advantages and how to understand if you need it | Smartpricing

Earning customer loyalty, knowing how to cultivate and maintain it over time, is one of the fundamental premises for the growth of any type of business. Harvard Business School has estimated that increasing the customer retention rate by 5% can increase profits by between 25% and 95%.

And the hospitality sector is no exception. According to recent research conducted by Skift, loyalty program members contribute between 30% and 60% to RevPAR and tend to pay a higher ADR compared to other customers.

But how do you ensure the loyalty of your guests in a market where competition is fierce and where customers seem to be driven mainly by the search for the best price, a feat in which they are largely favored by OTAs?

One possibility to do this is to create a loyalty program. In this article, we will look at what they are, why they are important, and what are the most common types.

What are hotel loyalty programs?

Hotel loyalty programs are a marketing strategy designed to thank and reward your guests for choosing to stay with you, encouraging them to return again and to try new services or products offered by your accommodation facility.

It is therefore a decisive tool for building lasting relationships thanks to rewards, incentives, or experiences tailored to your guests, making them feel special and connected to you in a relationship that goes well beyond the simple stay.

Beyond loyalty, loyalty programs also aim to promote direct bookings, crucial for reducing the commissions normally paid to tour operators, travel agencies, and online portals.

The benefits of loyalty programs for accommodations

But the benefits of a well-organized loyalty program go even beyond loyalty and the increase in direct bookings. Here they are:

  • Increased revenue: it has been estimated that the likelihood of selling to an existing customer is up to 14 times higher than the likelihood of selling to a new customer and that loyal customers are more willing to try new products and spend, on average, 31% more compared to new customers.
  • Reducing acquisition costs: acquiring new customers is always expensive. Intermediaries can retain between 10% and 25% of the stay in commissions, while marketing campaigns require the advance outlay of a significant budget, without guarantees of return on investment. Loyalizing a customer is therefore an absolutely necessary operation to reduce the costs associated with their acquisition.
  • Collection of valuable data: loyalty programs allow you to collect detailed data on guests, such as their preferences and spending habits. This information is fundamental for further personalizing the offer and attracting new customers with similar interests.
  • Attracting business travelers: many companies and event organizers prefer hotels with loyalty programs, as these offer tangible benefits for frequent travel or groups that return regularly.

How to understand if your hotel needs a loyalty program

All the benefits just described should have clarified why it would be a good idea to create effective loyalty programs for your hotel. 

However, wanting to understand how much a facility would need to loyalize its guests and based on our experience, we can identify three levels:

  • Moderate need: if the annual percentage of revenue from intermediaries (tour operators, agencies, online portals) is less than 30%.
  • Medium need: if the percentage of revenue from intermediaries is between 40% and 60%.
  • High need: if the percentage of intermediated revenue is higher than 70%, it is highly recommended to implement a disintermediation and guest loyalty strategy. Not so much for the high intermediation expenses you incur as for the dangerous dependence on intermediaries who, in fact, hold the commercialization of the accommodation's services in their grip.

If you want to delve deeper into the topic of disintermediation, you can read our article on methods to reduce OTA commissions!

Most common types of loyalty programs in the hospitality sector

Born for the first time in 1983 by the hotel chains Holiday Inn and Marriott, loyalty programs have continued to evolve over time. Here are the most used loyalty programs by hotels.

Points system

The points system is the most common model in loyalty programs. Inspired by the now well-known "frequent flyer" programs of airlines, points systems allow their members to accumulate points for each stay that can then be redeemed for various types of benefits such as discounts, free services, or exclusive experiences. 

Points systems are particularly suited for the business segment and in general for those customers who travel very often during the year and who often return to the same locations.

The best way to manage this type of program is not to set an expiration date for the points and include a wide range of activities that allow earning them, not just limiting them to the amount spent for the stay. 

In fact, the points system can also be used to encourage guests to book directly on your website and to act to increase your visibility. For example, you can assign a certain number of points for the reservation, which double if it is made directly through your booking engine. Or, you can award points to customers who share a post of your accommodation on their social media channels.

Instant rewards

This approach is particularly appreciated by customers because it offers them immediate gratification. It can include instant discounts, room upgrades, or other benefits enjoyable during the current stay. 

The instant reward is a good loyalty tool because it is based on "added value" and not on discounts and gifts, moreover, despite being most effective on frequent guests, it adapts quite well even for low-frequency or occasional users. 

Another advantage is that, if you associate a series of possible benefits linked to the program, you will be able to choose which ones to deliver based on your needs at the moment (for example, depending on the time of year, it may be more convenient to offer a bottle of champagne in the room rather than a free upgrade).

Partnership programs

Some programs rely on partnerships with other companies to offer exclusive benefits. This means collaborating with local businesses such as restaurants or tour operators, for example offering a discount on the meal or half-price tours. 

This type of program can be more complicated than the previous two because it requires finding the right partner under the best partnership conditions. The effort required by the creation, however, will surely be paid back by the high effectiveness of this kind of program.

Now that you know how convenient it could be for your accommodation facility to create a loyalty program, all that's left is to get to work!

If it's your first time, however, it might not be easy to immediately understand all the steps to succeed. That's why we've created a complete guide, where you'll find advice and practical examples to understand how to structure a loyalty program from scratch!