It’s no wonder that customer loyalty is a primary goal of smart hospitality industry operators. Consider the evidence. Acquiring a new customer is five to 25 times more expensive than retaining an existing one, according to the Harvard Business Review, while a study by Frederick Reichheld shows that a 5% increase in customer retention can increase business profits by 25%.
As a result, loyalty schemes proliferate. It’s estimated by industry consultancy, The Point of Loyalty and Directivity, that the average number of loyalty program memberships per Australian adult is four while those earning over $100,000 (the kind of customers everyone wants) have five or more memberships.
But do these programs work and has loyalty been devalued by its devolution into a tradeable commodity?
Loyalty is Big Business
The power of travel loyalty programs to surprise, delight and disappoint was brought into sharp focus when Marriott bought Starwood last year. The $US12.2 billion transaction created a hospitality behemoth with 29 brands across 6700 hotels in 130 countries. There was so much to discuss but all everyone wanted to talk about was their loyalty points. It’s human nature – what about me?
Those questions were recently answered when the Marriott, Starwood and Ritz-Carlton programs merged under the Marriott Rewards banner. The outcome is a larger, simpler program with more than 110 million members who apparently will earn rewards faster and have more redemption options. At the very least there was no outcry, and for Marriott that was a victory.
Loyalty programs have become a crucial marketing tool for major travel companies over the past 20 years. They are also a big business. Qantas for example made $372 million before tax from its Frequent Flyer program in the year to June 30 on a profit margin of 24%, mostly by selling its points to credit card companies and retailers at a healthy profit.
There is a feeling among some, amplified by delegates at the Australian Revenue Management Association conference in Melbourne during August, that loyalty isn’t what it used to be, that Australian consumers are becoming jaded and a little disillusioned with the concept of loyalty programs, especially as the value of points in some schemes declines.
But industry expert Adam Posner, CEO of The Point of Loyalty and Directivity, disagrees.
“We define loyalty as both behavior and belief. Behaviour is a transactional connection identified by purchasing more and more often over the longer term where similar competitive forces are in play. Belief is an emotional connection where trust is inherent and recommendation results,” he says.
“Programs are one strategy in which to motivate the outcomes based on this definition, so I don’t believe the proliferation of programs devalue the concept of loyalty as there are many factors that contribute towards loyalty to a brand.”
Posner says while there is “no one best way” to engender customer loyalty, “every business has to be brilliant at the basics: deliver on what they promise, price versus quality, and make the experience of purchasing and interaction seamless, easy, convenient.
“Once you deliver on your promise and the customer experience, then you need to acknowledge, appreciate and reward your customers.”
Three Key Ingredients
He says loyalty programs can work for businesses both large and small – from a standalone hotel or holiday park to a multi-property network – and that there are three critical ingredients to a successful program structure, known as SPV: Simple, Personal, Valuable.
Simple: easy to join, to earn rewards, to interact with.
Personal: Be relevant and personalised with communications and rewards, recognise your members, treat your members in a unique and special way.
Valuable: provide benefits that are worth earning, rewards based on interaction as well as transaction.
“Programs are evolving all the time and are looking at new ways to reward their members such as crypto currency, ensuring mobile loyalty with payments becomes the norm, and that they reward more for interaction and less for transaction,” says Posner.
Used and Abused
Loyalty is a special word that’s been around since the 15th century and essentially means “a feeling of strong support or allegiance” that Darren Peisley, recently appointed Chief Commercial Officer at Discovery Parks Group, believes currently suffers from misuse.
“I don’t like the word loyalty because I think it is often used by businesses in the wrong way – ‘you should be loyal to me’,” says Peisley, who for many years was Managing Director Loyalty at Etihad Airways in Abu Dhabi.
His view is that loyalty must be earned not bought. “It’s about making an effort and understanding the needs of your customers.”
Not for Everyone
Peisley says loyalty programs are a useful tool for some companies in some circumstances, especially those in highly competitive markets. Others have no need.
“Apple for example through outstanding design, products and service that engenders passion among its customer base allowing them to charge high price premiums,” says Peisley.
“However, in other cases where companies are less successful in being able to differentiate themselves from the competition, loyalty programs can be a powerful tool in getting customers to commit.”
The Holiday Park sector features a very competitive loyalty landscape. BIG4 Holiday Parks recently relaunched its loyalty scheme, major park owner NRMA offers discounts to its members and Reflections Holiday Parks is set to introduce a program.
No surprise then that Discovery Parks Group, which currently operates the G’DAY Rewards program across more than 200 properties under the Discovery and Top Parks brands, is reviewing its loyalty scheme, which is essentially a discount program with membership fee.
“Today G’DAY Rewards is discount based but we are conscious of the need to provide our customer with more value and are developing a broader-based program that will recognise customers the more they stay,” says Peisley.
Exactly how, Peisley is understandably reluctant to say, but believes a central tenet is that all customers want to be recognised as individuals. They desire flexibility and, with points-based programs, be able to use their points easily and effectively.
In industry jargon, that involves getting loyalty customers to “The Golden Moment” – their first reward – as quickly as possible so they development a sense of allegiance.
After all, loyalty works both ways.