Are Transactions Untracked Really “Loyalty Unclaimed”?

Scrolling through the latest Loyalty 360 email blast, was happy to see an article giving some exposure to our friends at InfoTrellis. They have recently published a whitepaper highlighting some of the challenges facing loyalty programs, with a specific focus on hotel programs and how they may be leaving money on the table due to "a reluctance to embrace and implement technologies that would have added the needed sophistication and driven the needed innovation." The thesis is generally that hotel companies aren't leveraging the data they have available inherently through the transaction, supplemented through footprints left in social media, to personalize the experience and drive increased loyalty. Makes sense.

The paper makes some great points:

  • Growth in membership represents a false accomplishment, made more obvious when it is framed by declining levels of active program participation
  • Few hotel customers are motivated to stay at a hotel by pure loyalty to a brand - and "loyalty programs aren't delivering the results they're specifically designed to achieve"
  • Lack of differentiation across programs hampers success across the board because they become a commodity
  • In order to gain loyalty, hotels must provide a differentiated experience that goes above and beyond price point

Of course, the paper also raised some questions for me, and although my only experience with hotel loyalty programs is as a member (probably for almost all major chains), it made me wonder about a few things they might want to consider to refine their thinking in an effort to further understand why even the most loyal hotel guests may tend to spread their spend around:

  • There is no cost to join any hotel program of which I am aware, so that means even the casual traveler can and will enroll, swelling membership counts.
  • Most of the programs have a fairly high hurdle to earn a reward, that may be out of reach for most of their members, making benefits less tangible and contributing to the low active participation rate.
  • The hotel decision process is generally more complex than, say, choosing among orange juice brands. There is often a big difference in offered prices, even among competitors in the same quality tier in the same general vicinity, and this is often different from airlines, which offer a much more similar experience and often have identical prices. Oftentimes for hotels, perceived experiential differences aren't enough to overcome price differences, depending on the circumstances of the stay. And of course, specifics of the desired location can trump everything.
  • There are a lot of generalities in the discussion, and it doesn't consider the differences between personal and business travel, high and low-price hotel tiers, and how the decision criteria in each may differ.

There were additionally a couple of points where I would have a different take:

  • "Existing loyalty program members must be given a higher quality experience…"

    I don't think this is true across the board; long-term value of a program member should be taken into account, because for many casual program members, additional investment in the relationship is not warranted. The authors eventually seem to get there, but it is not as emphatically stated.

  • "Hotel loyalty programs can stand apart from others of their kind…"

    There are no barriers to any program affecting the prescriptions they suggest, unless you consider the potential for a chain like Holiday Inn to implement the same changes as a higher-end chain like Ritz-Carlton. Additionally, many of the suggested enhancements might more reasonably fall under the category of customer service, and don't require the existence of a loyalty program, an especially important distinction in a category like this in which transaction information is inherently captured.

  • "Personalized and differentiated doesn't mean marketing to traditional segments with three or four variations…"

    But that's a starting point for most programs, because even with a machine-driven rules engine, at some point the manpower requirements of personalization can become overwhelming, especially in a high-touch service category like hotels.

Their derivation of $20B in "unclaimed loyalty and wallet share waiting to be captured" is also somewhat overstated. The starting point for the calculation is 223MM loyalty program members (from the 2013 Colloquy census) but that is memberships, not members; per the Deloitte study they mention, 45% hold one or more cards, meaning the pool of members is <120MM, and the end point of their calculation would therefore be <$10B. Still a big amount, but how susceptible to changes in leveraging loyalty program technology is not clear.

Posted by jkeenan on 05/07