Brand confusion: Are loyalty programs part of the problem or part of the solution

white paper Brand Confusion: Are Loyalty Programs Part of the Problem or Part of the Solution?

Oඞඍකඞඑඍඟ For many of us in the hospitality business, the fantasy of true customer loyalty is that our guests will view us as do our animals – that we can do no wrong

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he focus on “customer loyalty” by most hotels most of the time is little more than generating repeat customers, something which a well-executed hotel experience should result in any way (if it doesn’t, you’re probably in the wrong business).

In brands, customer loyalty results in guests staying at other hotels within the brand family, a good and valuable outcome. But for smaller hotels, a loyal customer is a much more important and complex prize.

True loyalty, the kind of loyalty that results in guests evangelizing your hotel and feeling personally proud of your success, should be the goal of independent hotels and small chains. This paper discusses what this loyalty really is and how to achieve it.

The fact is that using the word loyalty in the context of the hospitality business is something of a misnomer and can, when not contextualized, lead to focusing on the wrong business issues and spending valuable resources on programs and projects that, in the end, achieve no real business improvement.

The Encyclopedia Britannica defines loyalty as: "Allegiance to the sovereign or established government of one's country" and “Personal devotion and reverence to the sovereign and royal family” (notably leaving out any reference to hotel or hotel brand)

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Loyalty is a strong term, massively imbued with emotional resonance that, in the end, makes a mockery of the way it is used in business: The only honest reaction and true loyalty we get is from our animals.

Once they're your friends, you can do no wrong. (Dick van Patten) While this quote is clearly extreme, there is a ring of truth to it – for many of us in the hospitality business, the fantasy of true customer loyalty is that our guests will view us as do our animals – that we can do no wrong. Or, should we do wrong, that it is really of no consequence, and we should be forgiven. Our expectation of loyalty is, ultimately, an

Excerpted from the article by Protean Managing Partner Laurence Bernstein first published in Hotelexecutive.com (http://hotelexecutive.com)

expectation of how our guests should treat us, not how we should treat them. We define loyalty as, in the end, a demonstrated behaviour toward us: how many times do “they” stay, how much do they spend, and we “reward” them accordingly.

I believe that all guests are created equal, and, while it might be smart to throw a bone to regular customers, such as a free room or drink at the bar, it’s probably not smart to treat nonstatus guests like pariah

This understanding, or, more accurately, customer loyalty fetish, is leading many brands to classify guests – those that are worthy (good guests) and those, the vast majority, who are not truly worthy (bad guests). The delineation between the two is based on how the guests behave toward us – how often they visit us – and, lately, how much they spend. Good guests, who wind up in top-tier levels of loyalty membership, receive added services in some cases, and/or free rooms (discounts); bad guests who stay less frequently (or we think stay less frequently because they have carelessly neglected to sign up for our loyalty program) are treated less well. The airlines are masters of this – they treat their bad guests even worse, giving them substandard service and rewarding good guests with services that would, five years ago, have been considered “the least they could do”.

Call me old fashioned, but I believe that all guests are created equal, and, while it might be smart to throw a bone to regular customers, such as a free room or drink at the bar, it’s probably not smart to treat nonstatus guests like pariah. In other words, loyalty programs that are focused on returning value based on frequency, are good business; loyalty programs that delineate service and experience levels based on frequency, are probably bad for business in the long run. Sure, they keep the top tier guests coming back, maybe, but they mitigate against non-status guests becoming status guests. If I am going to have to stay at a brand’s hotels 15 times in a year in order to avoid standing in line for 20 minutes to check in, and I only travel 3 times a year, surely I’m likely to look for a hotel that treats me better in the first place?

The other problem with this loyaltyprogram fetish, is that it doesn’t work – sure, it may help some hotels within a brand portfolio, but for the most part travelers are not paying attention – among those with memberships in loyalty programs, the percentage that recognise which brands are covered by the program is truly dismal (for instance, in a recent survey, only 1 in 2 US business travelers even took a guess at which loyalty program Westin Hotels and Resorts was associated with; and only 1 in 5 actually correctly associated Westin with SPG; the numbers are even more startling for other brands).

WHAT IS THIS THING CALLED CUSTOMER LOYALTY

Part of the problem in the hospitality industry is the misunderstanding of what the outcome of customer loyalty could be and should be. Customer loyalty programs are designed to generate ongoing repeat business as can be seen in this “official” definition of Customer Loyalty as published in Wikipedia: “Businesses seek to become the objects of loyalty, in order to have their customers return. Other businesses establish loyalty programs, which offer rewards to repeat customers, and often allow the business to keep track of their preferences and buying habits” The “official” definition of customer loyalty’s evil twin, brand loyalty, according to the Marketing Accountability Standards Board (yes, there is such a thing) is: “The situation in which a consumer generally buys the same manufacturer-originated product or service repeatedly over time rather than buying from multiple suppliers within the category. The degree to which a consumer consistently purchases the same brand within a product class.”

But what if, as is the case for most hotel properties, the customer is not likely to return with any frequency?

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Customer loyalty is not frequency for most hotels most of the time…(loyalty) is a guest that wants to help us be successful, as a loyal subject wants the sovereign to reign supreme and is willing, in the extreme, to die for him or her

Most travelers don’t travel all that frequently, and most frequent travellers don’t travel to the same city or destination, all that frequently (and those that do can be seduced to stay in the same hotel by any number of personalised, meaningful arrangements). Chains are in a slightly better position because there is a higher probability that frequent travellers will travel to one of the destinations where they have a hotel, but independent hotels or small boutique chains are hard pressed to find many travelers that are likely to visit their properties “frequently,” even if they capture every visit to their location.

The business outcome of a customer loyalty program in a smaller hotel is something like selling one or two room nights to a small percentage of guests every one or two years. Not a huge upside potential. Besides which, if the operational objective of every guest’s stay is not to ensure they stay at your hotel the next time they’re in town, you are probably in the wrong business.

If, in reality, customer loyalty is not frequency for most hotels most of the time, what then is customer loyalty; or what is the objective – the attitude or behaviour – that we are looking for as a result of a customer loyalty focus? Obviously we want to make sure that the guest will stay in our hotel the next time they are in the city, but loyalty must be much more.

Loyalty in the context of smaller hotels and chains must be defined in broader terms: a loyal guest (as opposed to a guest that stays in our hotel whenever he or she is in our city, which is simply a repeat customer) is a guest that wants to help us be successful, as a loyal subject wants the sovereign to reign supreme and is willing, in the extreme, to die for him or her. A loyal hotel guest is one who, for emotional reasons that he or she probably cannot verbalize, feels a vested interest in supporting and evangelizing your hotel.

A loyal guest will: 

Always stay in your hotel when visiting your city

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Feel vested in your properties success, celebrate your triumphs and sincerely want to help when you are in difficulty



Want to ensure their friends and loved ones experience the joy of your hotel as soon as possible (not just whenever they happen to be in your city)



Feel a sense of personal actualization when recommending your hotel



Feel personally proud and accomplished when their friends and loved ones return and comment on how much they enjoyed your hospitality

It goes without saying that a few “loyalty” points, equalling approximately 5% of the cost of the first night’s stay, will not accomplish this; nor, for what it’s worth, will the best made bed or the unfailingly cleanest washroom (toilet paper origami aside, nothing in the bathroom will make any significant difference to the emotional depth of loyalty).

EXPERIENCES THAT LEAD TO CUSTOMER LOYALTY

While the redefinition of loyal guests may seem frightening at first glance, it is not really that hard to achieve with a bit of thought and a lot of sincere commitment.

The formula: You've got to give loyalty down, if you want loyalty up. (Donald T. Regan) Simply put, if the customer experiences loyalty from you, they will demonstrate loyalty to you. Probably (although I have no scientific proof of this) to the same degree.

Guests will translate or process various experiences as signals of sincere loyalty (or not): meeting their expecPage 3

Guest loyalty is earned by making the guests feel strong emotional responses to how you treat them.

tations or delivering value on the dollar is probably the base line (anything below these would be processed as negative loyalty or, “they don’t give a sh_t about their customers and I don’t give a shxt about them). At the base line, guests are likely to return if there is not better value on offer. They’re not likely to rave about you to their friends (“The hotel was okay, but there are probably better options, check Expedia or Hotels.com”).

Exceeding expectations might result in a good Trip Advisor review, which is nice, but it’s not enough.

You need to move above the base line – guest loyalty is earned by making the guests feel strong emotional responses to how you treat them. Specifically , there are five emotional responses that seem to stand out as determinants of intention to stay again, and it is our belief that the stronger these emotions are experienced, the more loyalty the guest will feel you are showing them and the greater the loyalty they will show you: Do you make your guests feel: 1. That you are interested in them and not just interested in their business?

2. That you like them as people, not just as room-occupiers or heads in beds?

3. Excited at the prospect and the actuality of being with you?

4. A connection between themselves and your hotel (here’s a clue – people don’t connect with things, they connect with people: do your people connect with your guests)?

5. Trusted, or do you make them feel like a nascent felon (another clue – telling people not to steal the bathrobes or chaining the iPad to the wall don’t make people feel you really trust them) There are others, but these five are enough to start with.

Making these emotional experiences happen is obviously hard work and takes a particularly intimate view of the business you are in. This is why boutique hotels do so well, as do, in their own way, bed and breakfasts.

But one thing is absolutely clear, the loyalty formula must extend throughout the business: I can’t make any guarantees, but I am pretty sure if you, as owner or manager of an independent hotel or small chain that takes pride in the experience your guests enjoy at your property, focus on these five emotional experiences (not, let me stress at the expense of general excellence in everything you do) rather than obsess about point based loyalty programs, you will develop an army of messianic guests eager to help you

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Protean Hospitality is a boutique brand strategy advisory firm focused on helping our hospitality clients drive growth. We combine our business/category expertise with tenacity, balancing rigor and creativity, to uncover new opportunities for hotels, resorts and hospitality brands.

For further information on this and other Protean Hospitality studies contact: Laurence Bernstein, Managing Partner, 416 967-3337 x 101; Bernstein@proteanstrategies.com Www.proteanhospitality.com Page 5