Not so long ago, hotel loyalty programs were front-runners in design and innovation. Today many programs have gone stale, commoditization has wreaked havoc on the perceived benefits and rewards of these programs, and the epicenter of innovation has shifted to industries like retail.
Many hoteliers today, especially those managing small to medium properties or chains, no longer look at loyalty programs as a straightforward investment. Customers have become disillusioned with programs which require major spending for limited returns, and with the growth of online travel agents, the average consumer has never been as disloyal to brands.
This report acknowledges the importance of loyalty programs for certain hotels and hotel chains, but is founded on the understanding that there are many other tools that can instill loyalty by improving service standards, providing a more personalized experience, and an increased and improved guest engagement. As these tools become more affordable they will be available to more hoteliers, vastly improving opportunities for hotels to win back the customer journey and loyal guests.
Do not expect a discussion on conversion rates, qualifying dollars, and blackout dates. Instead, this report will introduce an expanded view of the loyalty tech landscape, visualizing the vendor landscape and highlighting challenges and opportunities ahead.
What You'll Learn From This Report
- How loyalty can be defined and achieved
- How loyalty programs are changing
- How technology is used to improve guest engagement, personalization, and ultimately loyalty
- How the flywheel approach, as popularized by Amazon, should be used by hoteliers to move towards a customer-centric approach to loyalty
- What an expanded view of the loyalty tech landscape looks like, and where future opportunities lie
- David Berger – Founder and CEO at Volara
- Guy Cierzan – Managing Partner at ICF Next
- Christopher Grey – Chief Technology Officer at Intelity
- Steve Grout – Director of Loyalty at Collinson
- Dan Hang – President and COO at Revinate
- Vinson Lee – Director, Oracle CX Cloud Product Development
- Jean McPherson – Senior Solution Manager, Hotel at Oracle Hospitality
- Russell A. Meek – Senior Product Manager Property Hub and Guest Experience at Sabre
- Rémy Merckx – VP Digital at Radisson Hotel Group
- Allan Nelson – Co-Founder and CEO at For-Sight
- Frank Reeves – Co-Founder and CEO at Avvio
- Lauren Rothrock – VP of Product, Reservations and Guest Management Solutions at TravelClick
- Alex Shashou – Co-Founder and President at ALICE
Loyalty is a dynamic concept. It is not something a brand achieves by wooing a guest once, while retaining loyalty thereafter. Brands cannot sit on their laurels. Instilling loyalty is hard work.
There is a large body of research, both academic and business led, that grapples with the concept. From this, it becomes clear that there are many factors and drivers involved in customer loyalty. Keller’s Customer–Based Brand Equity Model is a prominent framework which highlights the importance of interaction between customer and brand (customer–brand touchpoints) to instill brand loyalty as the ultimate goal.
While loyalty programs are still popular in the industry, and are seeing major investment benefitting loyalty tech players, there are calls to focus on other methods of engaging with customers to instill loyalty. A loyalty program should be seen as one of a host of technological solutions to achieve more engagement, personalization, and loyalty.
This report proposes a more customer-centric approach to loyalty, using the concept of the flywheel, where each stage of the customer journey should be used to collect further data on the customer, which can then be used in subsequent stages. This starts in the consideration and booking stages, where browsing behavior can provide a wealth of information, through to personalized emails and messaging before and during the stay, and surveys and social media engagement after the stay.
An expansive landscape of tech vendors has formed around the flywheel, offering different tools to enhance data capturing and guest engagement at each stage. This report breaks these vendors into different categories: reservation and booking tools, guest management and marketing tools, guest-facing tech, and back-end tools. Some vendors try their hand in multiple categories with a range of tools, while others are more specialized and focus on one category.
While this report should clarify the different tech that is available today, it is unquestionable that it is hard for hoteliers to determine which tech to use and which to pass on. Consolidation in the vendor landscape is expected over the coming years as companies are starting to embrace the customer-centric view and want to offer a seamless solution for hotels in each stage of the customer journey.
This reports highlights a number of tech developments that hoteliers and tech vendors should keep in mind, including the expectation that the customer relationship management (CRM) will become more important and central to the hotel tech stack over the coming years, voice assistants have the potential to revolutionize in-room guest engagement, and investment in back-end tech should be a priority for hoteliers.
A lot has been written about loyalty in the hospitality industry, and naturally most of this centers around the topic of loyalty programs. Skift has also contributed to this body of analysis. In our report Perspectives on Hospitality Loyalty 2018 we concluded that “for all the growth and enhancements we have seen in hotel loyalty programs over the past few years, differing opinions with regard to the overall value and success of programs remain. Hotel companies should ultimately focus on driving satisfaction and providing the best service so consumers choose their brand over others and recommend it to friends and family.”
Loyalty programs undoubtedly have a role to play in rewarding and recognizing loyal customers, but as loyalty programs become increasingly commoditized, and might only target the top 5% of travelers staying in a hotel, we see a growing number of hoteliers looking beyond loyalty programs or at ways to improve their loyalty offering.
Kimpton Karma, for example, was often cited as one of the best loyalty programs (before it was rolled into IHG Rewards) as it focused heavily on recognition of loyal customers, instead of points, wallets, and redemption rates. Many other hotels and chains are doing away completely with loyalty programs and instead focus on satisfying guests’ expectations in other ways.
Loyalty programs undoubtedly increase spending amongst a select group of frequent travelers, which is why spending on loyalty tech is at an all-time high. For the vast majority of guests, however, engagement and spending drop as touchpoints diminish or rewards and recognition are not realized as instantly as expected.
As technology advances and becomes more accessible and affordable to hotels, it allows for more creative approaches to loyalty programs, while also improving the traditional point-based reward systems. For hotels that do not see the value in investing in a loyalty program, technology also allows for other ways to engage with guests in the hope of instilling loyalty through superior and personalized service.
After a theoretical discussion of the concept of loyalty, this report will look at different types of loyalty programs, as well as beyond loyalty programs at other ways that hotels can boost loyalty with the help of the latest tech.
Do not expect a discussion on conversion rates, qualifying dollars, and blackout dates here. Instead, this report will introduce an expanded view of the loyalty tech landscape, visualizing the vendor landscape and highlighting challenges and opportunities ahead.
Loyalty: A Theoretical Foundation
What Is Loyalty?
Customer loyalty is a popular topic, or as loyalty vendors will tell you, loyalty is big business. It is also a ‘business’ with many rules of thumb like: 20% of your customers account for 80% of your sales (the 80/20 Pareto Rule), and winning a new customer costs seven times as much as retaining an existing one. Chasing loyal customers is worth it, and major investments by companies in their loyalty programs and supporting tech highlight this. According to LoyaltyOne, a loyalty marketing provider, the customer loyalty industry is worth $323 billion.
The Oxford Dictionary defines being loyal as “giving or showing firm and constant support or allegiance to a person or institution.” This sounds straightforward, but it becomes complicated when trying to understand what makes customers loyal. This is why we have seen so much investment in loyalty technology. Getting loyal customers is easier said than done.
Academic research shows that loyalty has many facets, and makes a distinction between behavioral loyalty and attitudinal loyalty. Behavioral loyalty is quantifiable as it looks at repeat purchases and their frequency, with many studies attempting to predict future purchasing and repurchasing behavior.
Attitudinal loyalty is much harder to quantify and more elusive to research. It looks at the psychological commitment and attachment to a brand. It involves emotions, morals, feelings, and other ‘messy’ factors which are hard to capture in questionnaires.
In their 2015 paper, Alnawas and Altarifi research the drivers of brand loyalty in the hotel industry. The paper highlights the importance of brand identification to attain brand love, which subsequently drives brand loyalty. Brand identification revolves around attitudinal loyalty, with consumers self-identifying with the brand identity and community. Interestingly, the authors argue that brand loyalty cannot be achieved without brand love, which is very similar to human love, with customers feeling intimacy, passion, and commitment to a particular brand.
At the heart of it, these and other studies show that achieving brand loyalty is a process involving incremental steps toward the ultimate goal that is loyalty. It’s a fluid concept, hard to pin down, extremely heterogeneous, and ever evolving.
Kevin Lane Keller, a marketing professor at Dartmouth College, has provided a useful roadmap in his research into brand loyalty (Exhibit 1). Not unlike Maslow’s pyramid, Keller’s Customer-Based Brand Equity model provides a hierarchy that starts with brand awareness, moves up to a customer’s understanding of the brand’s quality through its perceived performance or imagery, followed by a consumer’s association with the brand, and finally full identification and loyalty to the brand, showing attitudinal attachment and active engagement.
Loyalty Programs and Their Shortcomings
Loyalty programs have often been pushed as a roadmap to help regular guests climb to the top of Keller’s pyramid. What can start with signing up to a loyalty program after booking a first stay can blossom into a lifelong loyalty and association with the brand. According to Skift’s recent U.S. Affluent Traveler Trends report, a growing number of customers want to stay loyal to the brands they like (Exhibit 2), highlighting a desire amongst many — or at least those with high disposable incomes — to spend their money with a brand they favor.
This is backed up by other research. Accenture Labs found that members of retail loyalty programs spend 12 to 18% more than non-members, while PriceWaterHouseCooper found that business travelers were willing to spend $27 more (of their boss’ money) to stay at their preferred hotel brand. This was $23 for leisure travelers.
So loyal customers and loyalty programs are important to retailers and hotels alike. LoyaltyOne asserts that loyalty program members contribute 43% of annual sales to the average company with a loyalty program.
However, loyalty programs often fall short when it comes to satisfying customer expectations. A prime example is the unbalanced focus on points and rewards over recognition of many travel loyalty programs.
As Tad Fordyce, senior vice president of loyalty at Epsilon, writes in Skift’s Travel Megatrends 2019 report: “traditional point-based loyalty programs are no longer enough, and companies risk losing market share to innovative competitors that offer more flexibility and personalization. … The transactional benefits of points alone no longer lead loyalty.” Companies need to work harder to achieve loyal customers, and this has never been more true.
Academic research supports the idea that loyalty programs which are solely based on earning and spending points are not increasing loyalty. Meyer-Waarden’s (2013) research into frequent flyer programs found that the offer of monetary rewards and promotions would only have a short-term effect on purchasing behavior, but would not increase brand loyalty. Instead, more personal motivations and identification with a brand increase loyalty.
Similar results can be found in industry studies. Expedia Partner Solutions and Points, a loyalty tech provider, surveyed 523 senior executives from loyalty providers. While the large majority were offering promotions and discounts to keep members engaged, the study concluded that it was actually the quality of offerings and the breadth of products and experiences that had a stronger impact on loyalty.
The picture does not get much better when looking at this from a customer standpoint. Skift Research found that loyalty is low down the list of priorities for U.S. experiential travelers (Exhibit 3). A study commissioned by Collinson, a loyalty tech provider, found that only 38% of loyalty members felt they were actually rewarded for their loyalty to travel players. COLLOQUY’s 2017 loyalty report found that on average, 54% of members of a given loyalty program are inactive, and that a growing percentage of members are left disillusioned and abandon programs after signing up.
How Loyalty Programs Can Work
It is not all bad, however. Almost all studies, including the studies referred to above, find that the number of loyalty members continues to increase. Marriott has grown its member base from 45 million in 2013 to over 110 million in 2018, albeit a majority of this came through the acquisition of Starwood and its Starwood Preferred Guest program. Hilton, similarly grew from 40 million in 2013 to 85 million by the end of 2018. For Hilton this meant that members represented 57% of global occupancy in its hotels by 2017, up from 50% in 2013. Clearly consumers are at least still willing to give memberships a go.
When done right, loyalty programs can be an important tool in the hotelier’s arsenal. Tech has helped to evolve loyalty programs, with data gathering and utilization improving to reduce the gap between what companies offer and what members expect.
Today there are largely two types of programs on the market, with many hybrid versions which fall somewhere between these two distinctive approaches to program design. At one end of the spectrum are the less formal programs which are often referred to as “surprise and delight” programs. On the other end are the transactional cash-back or points programs. The prime distinction between these programs is their focus on recognition or rewards.
Surprise and delight programs focus heavily on the recognition of loyal travelers. Rather than having a points system with predetermined rewards, it is often up to the discretion of the hotel manager to decide who to recognize and with what reward, on an ad-hoc basis.
In its most basic form this “is driven by people at the hotel taking action at the hotel,” said Lauren Rothrock of TravelClick. A more sophisticated and tech-intensive version of this program was used by Wyndham with its ByRequest program for the Wyndham Hotels and Resorts brand. The program provided extra amenities like free drinks, favorite pillows, late check-out, or turndown service to its most valuable members, but no points to earn rewards.
Rothrock calls the surprise and delight program a “low-tech and high-touch” program, but tech can undoubtedly enhance the offering. A strong customer relationship management system, with up-to-date guest profiles and integrations with other systems like the property management systems (PMS) and an email marketer, can vastly improve the ability of a hotelier to decide which guests provide the highest value, are most engaged, and which rewards are likely to be appreciated.
Points programs are more common amongst larger chains, as chains want a consistent program and image across their brands, while guests feel it is easier to stay enough nights to attain rewards. The sizeable investment needed to run a sound program is also more sustainable for these larger companies. Most major hotel chains run their loyalty programs as separate businesses, and are increasingly sourcing out the management to loyalty tech vendors.
Guy Cierzan of ICF Next, a loyalty tech provider, argued that loyalty programs are critical to financial results for major hotel chains. He sees loyalty programs as “a bank account of goodwill, which is vesting the customer relationship over time, so in times of trouble — be it a bad experience the customer has with the brand or an economic downturn — that vested bank account allows you to sustain and weather the storm.”
Most points programs have credit card partnerships to help members boost their earning potential by rewarding points for everyday shopping, as well as partnerships with other players like airlines or ground transportation providers. Points can be exchanged between different providers at different rates, and in most cases can be spent with hotel players on free nights, upgrades, experiences, or goods.
This can all become slightly complicated to a novice, but there are many people who enjoy playing along. Steve Grout of Collinson pointed out that “there are still many people that game the system and know it very well. This should not be underestimated. Whether they play the field knowingly or unknowingly, many consumers are still attracted to the point-based systems.”
While earning rates have generally gone down (members get less value for money spent), in the past years many programs have become more flexible when it comes to spending points. Many hotel chains now offer more ways to redeem points, with less blackout dates, more experiences and exclusive events to spend them on, or linking to other providers like Amazon to spend points.
Marriott relaunched its renamed Bonvoy program with a stronger focus on experiences. Kelly Oberg, Marriott’s chief financial officer, told Skift that it moved into alternative accommodation with its Homes & Villas brand to keep loyalty members engaged, rather than for direct financial gain.
Accor, meanwhile, is rebranding its LeClub program to ALL (meaning Accor Live Limitless) in late 2019 with more elite experiences and an “invitation only” top tier to keep things spicy. Accor has always been less reliant on its loyalty members for bookings (around 30 percent of bookings, compared to 40 to 60 percent for some of its competitors), but this is something the company wants to change with the rebranded program.
Hyatt and Best Western have introduced “instant redemption” to enable members to walk into a hotel and get a room for the night by spending their points, rather than having to book months in advance. Hilton and Wyndham allow their members to use points for only a part of the total value of the stay, offering more flexibility to those travelers who might otherwise quit the program as achieving enough points for a free stay might seem impossible.
Luxury hotels are especially struggling to find the right balance between recognition and rewards. Langham Hotels, for example, has no points program as it does not feel that luxury hospitality should be commoditized. In contrast, Ritz Carlton started offering a points program during the 2007 global recession as it recognized a shift in consumer expectations, with even luxury guests looking to earn points for free stays and experiences.
It is likely that we will see continuing shifts and attempts from hotel companies to pilot new ways of rewarding and recognizing loyalty members. One example of a points program that has strong potential of becoming more commonplace is the paid-for-loyalty program.
Intercontinental Hotels has had its Ambassador program for many years, where a fee of $200 gives guests guaranteed room upgrades, one free night per year, late checkout, and other benefits. So far this type of program has not caught on with other players in the hotel industry, but with Amazon’s immensely popular Prime program, which costs members a yearly fee, customer expectations are changing.
Steve Grout of Collinson told Skift that the company is working on a paid-for-loyalty product, with an airline and hotel signed up. “It is a completely different financial model, but provides a lot more transparency to the customer. You pay X, and you get Y back. It is all about recognition, status, benefits, and services,” said Grout.
Loyalty Beyond Loyalty Programs
There are growing voices in the industry calling to also look beyond loyalty programs to instill loyalty in guests. As a highly fragmented industry with a very long tail of mid- and small-sized chains and independent hotels, loyalty programs and all the necessary technical infrastructure simply do not work for many hotels.
According to research by Revinate, for large organizations with more than 30,000 rooms, a point-based system works, but for smaller hotel players the overhead tends to outstrip the benefits. “So if you fall in that smaller camp, what you need to be focused on is how you personalize the guest experience to delight guests and ultimately bring them back,” said Dan Hang of Revinate.
The argument goes that technology has improved, and has become more affordable and accessible for smaller players to help achieve loyal customers by focusing on engagement and personalization without the need for point-based programs.
Allan Nelson of For-Sight, a CRM and email marketing provider, said that today “loyalty can be inferred from the data. Cards and points is not something that groups and resorts at the middle range go for, because it is not something that generally works for them. It’s a pain in the backside to administer.”
There is an unmistakable opportunity here to engage with all customers, whether they are loyalty members or not. Similarly, offering a personalized service should be available to all guests, not just those that have signed up to a rewards program. Modern tech can enable this interaction and make hotel staff more knowledgeable and approachable, and make the customer journey more customized and personal.
Research by So and colleagues (2016) has shown that consumer engagement is a strong predictor of hotel brand loyalty, stronger than brand evaluation (which includes drivers such as service quality, value for money, and purchase satisfaction) and brand trust. As the authors note: “consumer engagement represents a strong customer-brand relationship beyond purchase, making it a stronger contributor to establishing truly committed loyal customers.”
Salesforce, meanwhile, surveyed over 6,700 consumers from around the world, and 80% of respondents agreed that the experience provided by a company is as important as its product or service, and 63% rated instant, on-demand engagement as very important. Real-time messaging to contact support staff was one of the most important factors when rating the service of a company.
With guest engagement also comes greater expectations of personalization. In the same Salesforce study, 84% of consumers said that “being treated like a person, not a number” was important to winning their business. Research by Google found that 57% of U.S. travelers feel that brands should tailor their information based on personal preferences and past behavior.
A 2013 Online Personal Experience study by Janrain found that 74% of consumers get frustrated when information on websites is not tailored to them. Sitecore, furthermore, surveyed 6,800 consumers and found that 96% of respondents had encountered bad personalization from companies. Prime examples were using out-of-date information, getting personal details wrong, or making premature assumptions based on a single interaction.
Enhancing Loyalty Through Tech
Loyalty programs, then, can operate in parallel with other tools to further increase engagement and personalization throughout the customer journey. The importance of customer interaction and engagement to achieve loyal customers is clear from Keller’s model.
The hotel industry is in a great position to act on this, with guests coming to stay in properties and interacting in a myriad of ways with hotel staff and services. While hoteliers might prefer the human touch and face-to-face interactions, this is becoming harder. Expectations and behaviors are moving toward more tech-centred interactions. As Jean McPherson of Oracle points out: “Hotel guests book online, check-in through their phone, interact electronically during their stay. Hotel staff may not interact with the guest at all from an operations point of view.”
This is not to say that technology is necessarily destroying the human element that is synonymous with hospitality. As Russell A. Meek of Sabre said: “We are starting to develop AI, but we don’t believe at all that AI is going to replace the human part of hospitality. If anything, it is going to enhance the ability to show the humanity in hospitality at scale.”
It is indeed a story of scale. Interactions have not only moved online, they have also become more personalized, on-demand, and instantaneous. Without technology, hotels would not be able to offer engagement to the level that is expected by guests today.
Rémy Merckx of Radisson Hotel Group is a strong proponent of technology to enhance the customer experience, but feels that there is an urgency lacking amongst many hoteliers. “You need to make sure the general manager understands that your users have and are using an app, and the quality of that user experience is as important as having a good shower, a delicious breakfast, and a good bed to sleep in.”
He refers to technology as “an accelerator to get in touch with the customer.” Technology not only increases the number of potential interactions, it also improves the personalization capabilities during traditional touchpoints like check-in or at the concierge desk. For example, with a strong CRM system, hotel staff will be able to better understand the expectations, preferences, and history of each guest.
Tech is also pushing the boundaries of what loyalty means. Social media has instigated an era of online advocates and ambassadors for brands. Loyal guests are repeat guests, ambassadors help attain new guests. Loyal guests identify with a brand, advocates convince others to do the same.
“With the emergence of digital data and social media, there is a next destination beyond what was traditionally considered loyalty, which is advocacy. If your customer is an advocate, you can affect their broader network to the degree that they are willing to speak on your behalf and recommend and refer your brand to their social network,” said Guy Cierzan of ICF Next.
Frank Reeves of Avvio highlighted how this could work in practice: “You can give guests a dynamic code for a discount that they can share. Isn’t that exactly what people want to share on social media? Something that adds value to those communications.”
The Customer Centric Approach to Loyalty
It is clear that discussions around loyalty have moved beyond loyalty programs. The traditional loyalty program should be placed in parallel with other engagement and personalization tools, all to provide an unforgettable experience for the guest. This way a one-off guest can be turned into a repeat guest, into a loyal guest, into a brand ambassador.
The Hotel Flywheel
“We need to move toward the experience where you put the guest in the middle, and the hotel communicates with the guest how the guest wants, rather than the other way around.” This may sound obvious, but for many hotels this is still a new concept, as Allan Nelson of For-Sight explained.
Gone are the days where hotels send out general email blasts to their entire database in the hope of seeing results. It is about connecting with the customer at the right time, through the right medium and with the right information or offer. Not only should modern hoteliers not want to send out those email blasts, they do not need to anymore as technological capabilities and data collection are vastly improving.
“There is a huge convergence of loyalty, digital transformation, and customer experience initiatives, and as that happens the traditional boundaries of loyalty are blurring quite a bit. While the loyalty programs still exist, there are now a lot more places where we can go and impact the experience” said Guy Cierzan.
We can look at Amazon here as a best-in-class example. The concept of the “Amazon flywheel” has impacted business thinking in many industries, and can be applied to the customer experience in the hotel industry. We explain more about the flywheel in our report Amazon: Lessons, Threats, and Opportunities for Travel, but the concept can be boiled down to having a business model that can build on its own positive momentum.
Rather than looking at the customer journey as a linear model with the guest booking at the start and hotel checkout at the end, the customer journey is a flywheel — a cyclical process with every stage providing the hotel with further information about the guest to enhance future experiences and drive retention.
Identifying potential customers can start early on in the consideration stage. Paid advertising can be targeted at customers based on past browsing behavior. If a potential customer has visited the brand.com website, the opportunities become infinitely greater, as visit behavior can be analyzed and used to tailor further outreach.
Good website design and a strong booking engine allow the brand.com website to be personalized based on the information available about the customer. If a website user has spent 30 minutes browsing the spa facilities page, hotels might want to offer a package that includes a spa treatment. A person searching for a place to stay for their family holiday might want to see more images and information about family amenities.
It is now pretty standard to receive an email three to five days before a stay with further information, and this is increasingly done through text messaging or in-app messages. This is a strong upsell opportunity if the hotel provides the right offer to the right person, which again depends on the amount of information available about the guest.
During the stay, text messaging, and in-room technology like tablets and voice assistants can greatly increase the real-time interaction between guests and hotel staff, improving service and providing an opportunity to right any wrongs.
Check-out is not, and should not be the end of a hotel’s interaction with its guests. Email or in-app surveys offer additional information about guests, and also provide an insight into those guests that are engaged and those who are not. Seeing who fills in a survey in itself is valuable information.
All the information collected from the guest by now, from the consideration, booking, in-stay, and post-stay stages should provide the hotel with a much clearer picture about the guest, which can feed back into retargeting emails and the brand.com website experience if the guest returns.
None of this flywheel approach to guest interaction is revolutionary. None of the tech is particularly advanced, but there are barriers to this approach.
The integration of different systems and tech, as well as data consent and privacy offer challenges. We will come back to these later. A more relevant and basic challenge for the flywheel approach is getting the amount and quality of data that is needed to personalize the offering. As already explained, hotels can extract insights from website visits or in-stay messages, but how often does the average guest really visit the hotel website?
Google and Amazon have nearly daily opportunities to capture data about its customers, while hotels need to do so with far fewer touchpoints.
Increasing Touchpoints, Improving Interactions
Accor is one company that has put considerable effort into increasing the volume of interactions with its customers. The company has invested in many peripheral companies to expand its reach beyond just hotels into things like coworking, alternative accommodations, and sporting events. It has also introduced the AccorLocal app to increase touchpoints beyond the hotel stay.
Former AccorLocal CEO Scott Gordon explained the thinking behind the app to Skift at its official launch in 2017: “For us, AccorLocal is a tremendous game changer. It’s changing our interactions with our guests from an occasional interaction to a daily or weekly interaction. It will change their connections to our brands, especially the corporate brand. That’s what we’re really focusing on with AccorLocal — becoming the daily life enhancer for our guests, during holidays, business travel, or even when you’re at home — anything you might need in your daily life.”
Rémy Merckx of Radisson Hotel Group agreed with this sentiment. “Of course we have very loyal members, but they are not our only customers. We need to significantly expand the reasons to engage with our customers outside of just making a hotel booking.”
If loyalty is based on offering a seamless and personalized experience, increasing touchpoints is important to get more and better data about customers. But hotels also need to get better at using the data available to them.
Understanding the ecosystem, understanding where the added value lies, and where to approach the customer is important. Or as Christopher Grey of Intelity put it: “You can’t just simply put out a mobile app and expect guests to adopt and embrace it.”
As the AccorLocal app shows, technology can be used to increase touchpoints and provide a more seamless customer experience with the brand. For local residents, using a nearby hotel for yoga classes or to have a package delivered when not home greatly enhances engagement with the brand and places the hotel at the center of the community.
It is, then, not only about increasing the volume of touchpoints with customers, but also improving the quality of these touchpoints. David Berger of Volara is quick to point out that: “if tools are implemented poorly, you can have negative engagement with your guests that leaves them feeling negative toward your brand.” We should question whether more engagement is always better, especially when it does not lead to a more personalized service.
“Ultimately, the holy grail in this space is to deliver Netflix or Amazon experiences, where the hotel — within the realms of GDPR — is able to deliver a service where they can say ‘look we understand you,’” said Allan Nelson. To do this, major steps need to be taken first to improve the capturing of data, and how this is transformed into actionable insights for the hotel manager.
Cleaning Up the Tech-Stack Mess
Even for the less technologically advanced hotels there are many potential touchpoints to capture customer data, and this only grows for hotels that are at the forefront of introducing new technologies. But whether you look at a tech front-runner or a tech straggler, every hotel has to be content with a web of back-end systems that do not always sing from the same hymn sheet.
A spaghetti diagram of all the different systems and their potential to capture guest data shows the complexity of the problem. Is the complex tech stack and shortcomings of individual cogs in the larger communication machine holding hotels back in collecting data and utilizing it to increase quality engagement, personalization, and loyalty?
“I think if the hotel market was invented tomorrow, the solutions that would be deployed would be very different from the ones we see today,” said Allan Nelson. This is a sentence you hear surprisingly often when speaking to hotel tech vendors. Hotels are known to deal with up to 30 or 40 different tech vendors to keep their hotel operational. It does not take a McKinsey consultant to figure out this is not the most efficient way to operate.
A lot of new tech vendors have entered the market, which has provided hotels with more access to the tools they need to attract and engage customers, but this democratization has not necessarily made things easier. Today there are so many players on the market, all offering slightly different products, that it is hard to know where to invest and where not to invest.
The flywheel approach would involve a host of different types of tech (messaging, email marketing, in-room tablets etc.) and back-end systems. Integrations between different systems, for example between the hotel’s PMS and CRM needs to be strong to support the sharing of all this information. Currently, there are shortcomings in the depth of integration and the amount of information that can be shared between systems.
Let’s shed some light on the different systems, their potential, and their shortcomings. What follows is an expanded view of the tech that supports loyalty and guest interaction.
The Loyalty Landscape: An Expanded View
Exhibit 8 provides an overview of a very select number of tech vendors that provide tools that can be used to enhance guest engagement. We believe the total number of vendors runs into the high teens, potentially even into the hundreds. This is not the place to provide a complete list of all players. The loyalty tech vendor landscape has many players, all slightly different, offering different solutions and integrations.
We have split the vendors into different buckets and below we will discuss the competitive landscape and future direction of each bucket.
Reservation and Booking Tools
Battling the OTAs
There is some interesting innovation happening in the direct booking space. Booking engines and website design are big topics in the hotel industry, as online travel agent (OTA) commissions have increasingly come under scrutiny.
In the U.S., Marriott now takes OTA commissions into consideration when accepting bookings, and therefore might take lower-priced direct bookings over higher-priced OTA bookings, as the profit from the latter will be lower for Marriott.
Marriott and other major chains are in a position to invest in advertising campaigns to make customers aware of the benefits of booking direct, but small and independent hotels do not have this ability. This however, does not mean that small and independent hotels get no chance to convince customers to book with them direct. To the contrary, the hotel website remains an important touchpoint for many guests.
Research by McKinsey & Company in 2018 highlights that a typical hotel booking journey involves 45 touchpoints with search engines, OTAs, and the hotel itself.
Furthermore, the “billboard effect” means that OTAs will generally be involved in the booking process, but that many customers will also visit the hotel website to see additional information or photos of the hotel, or find information they cannot get through the standardized view provided by players like Booking.com and Expedia.
Source: McKinsey & Company from Verto Analytics U.S. clickstream panel data Q4 2017 – Q1 2018
Many hotels, however, continue to fail to convince customers to book directly. Booking.com and Expedia have not only been very successful at convincing customers that they always have the lowest rates, they also know more about customers than most hotels do.
Hotels might be getting better at personalizing the website experience, which will improve retention and should help convince travelers to book direct, but we should not forget that these websites do not function in a vacuum. Some of the latest movements in this space, however, could be helpful to hotels if they play their cards right.
Beyond the growth of OTAs, Google is ramping up its travel functionalities. This provides hotels an opportunity to win back the customer journey. Google Hotel Ads offers a channel that bypasses OTAs, and while costs will be similar as those taken by OTAs, the major difference is that the booking will be handled by the hotel itself, so the hotel will have all booking and customer information.
In the social media space, Instagram has made a number of attempts to start selling travel through its app, and started partnering with European low-cost carrier Easyjet to link destination images to Easyjet’s booking page. It is not hard to imagine that similar functionalities will be in the works for hotels, which would provide hotels with another opportunity.
The future of direct booking
So what about the future of the hotel website?
Investment in hotel websites and booking engines has lagged for many years, resulting in a major gap between hotel booking functionality and that of tech players, especially OTAs.
A recent report by D-EDGE found a 6.3% drop in market share for brand.com website bookings among European hoteliers between 2014 and 2018, with Booking Holdings the largest winner.
There is hope though. We are seeing some promising changes. The democratization of big data and the latest technology has opened a door for hoteliers to start competing directly with the more sophisticated tech players on website functionalities, but it has also brought a whole host of new vendors which promise to help hoteliers to achieve this.
Right from the start, a vendor like Travelsify is doing interesting things around search. The vendor uses reviews from over 150 websites to identify the key experience attributes of hotels. These attributes are translated into weighted tags, providing each hotel with a unique “DNA.” The company has been working with Accor for a few years and helps hotels to provide a more personalized search by matching hotels to the members’ past behavior and preferences.
Vendors like Triptease and Hotelchamp optimize hotel websites, ‘layering’ additional information over the standard hotel website to make it more interactive and personalized. Vendors like Avvio, Siteminder, and Travel Tripper improve conversions through a more personalized booking engine which remembers returning customers and offers products and services which are likely relevant to the customer.
As Frank Reeves of Avvio points out, this is where hotels have an opportunity. “Hotels have a major opportunity with packages. If I have come to your website and clicked on the restaurant and spa, and told you via a family page visit that I have a family coming with me, put that custom package in front of me, because I can’t book that package anywhere else. I can book the room for a Friday night on one of 100 channels, but you’ve now created something highly personalized to cut through all the noise.”
This is also where vendors need to step up. There are major opportunities to analyze the behavior of customers on hotel websites and to feed this analysis into the personalization plug-ins or booking engines. This, however, is done only sparingly. Rather than just seeing that John Doe has booked a room for Friday to Sunday, it would be very interesting to the hotelier to know that John spent 15 minutes browsing the spa page, so that the hotel can attempt an upsell during the pre-stay or at check-in. Hoteliers tend to lack this information, resulting in many missed opportunities.
Similarly, when a customer has booked a hotel for a future visit and returns to the hotel website for further information before the stay, the website should not try to sell a room. Instead it should recognize the future guest and offer information and upsell opportunities. We now see vendors like Avvio starting to offer this, but overall there is still major scope to enhance this aspect of the website experience.
An interesting development which might increase both direct bookings and personalization is attribute-based pricing. Skift spoke to Craig Eister, SVP revenue management at InterContinental Hotels Group for The Hotel Revenue Management Landscape 2019 report. He said: “Personalization is critical to driving customer preference. It’s no longer enough to just look at ‘the demand for a room.’ AI is enabling us to truly understand the demand for very specific attributes.”
If a hotel understands that a particular guest likes a corner room with a view of the pool and as far away from the elevators as possible, this could be used to offer a more personalized service when she comes back. At present, OTAs are not in a position to offer this level of detail in their booking experience, which could give hotels a head start.
Guest Management and Marketing Tools
Focusing on the most valuable guests
Research by Hospitality Technology found that 14% of hotel IT budgets are spent on CRM and loyalty tech. This is much less than the 30% spent on the PMS, but nevertheless a significant sum when considering that it is not always seen as a core part of hotel operations by hoteliers. Hoteliers know how to manage and operate a hotel, but they are not necessarily taught or interested in finding the best ways to market their properties to an increasingly global and heterogenous customer base.
The CRM and Direct Marketing space is a crowded one. Enterprise behemoths like Salesforce and Adobe (owner of Marketo) dominate the business landscape, but there are many smaller-scale CRM systems focused on the hospitality industry, like Revinate, For-Sight, Cendyn, Serenata, and many more.
At its core, a CRM is a data management tool which allows hoteliers to get a better understanding of their guests. Traditionally, data has not been a strong point for hotels. They are generally outperformed by tech players like the OTAs, which are now in a strong position to own the guest journey before and after the stay.
A PMS is the core of the hotel stack, but is not necessarily set up to or powerful enough to distribute personal data to the right channels. For this reason, CRM, direct and digital marketing tools, and possibly a loyalty engine, are paramount in allowing for personalized communications with guests both online and in-person.
As Dan Hang of Revinate points out, a CRM should make “it very easy to surface all RFM data — Recency, Frequency, Monetary value. All of that information can get surfaced in rich guest profiles so that [hotel staff] can see it, use it, and act upon it.”
With this information, a hotel can choose whether to invest in a loyalty engine, or provide the surprise and delight type of loyalty where information from the central reservation system (CRS) and CRM are used to determine which guests are most valuable and should be rewarded.
This is another area where the CRM can add value: by helping hotels focus on the most valuable guests. Many of the players we talked to either had implemented a lifetime value feature in their tools, or were planning to do in the foreseeable future. Net Promoter Score is another feature which can add further insights around spending and satisfaction of guests, all to help hoteliers make better decisions on who to spend marketing dollars on.
We believe that the CRM will take on an increasingly important role in the hotel tech stack. It is likely to move up in the tech stack hierarchy, becoming an important operational tool rather than just a marketing tool. The growing expectation of customers to be treated as individuals and be offered personalized service pushes the CRM to the forefront of hotel operations.
One-to-one communication is coming
Where a decade ago hotels had face-to-face as their most important communication method, and printed surveys left on pillows as the only form of feedback, the rise of affordable tech has increased the touchpoints, channels, and — in many cases — quality of communication.
While much of the direct marketing used to be a single email blast sent out to the entire hotel database, today most hotels use a form of segmentation to ensure messages are slightly different for different guests or loyalty members. The next phase, which is expected to make great strides over the coming years, is one-to-one communication where hoteliers have the opportunity to send a marketing campaign to a single guest. This is true personalization.
Rather than segmenting the hotel database in large buckets, one-to-one communication means the hotel knows enough about its guests and loyalty members that it can send a personalized offer to each guest based on preferences or past behavior. Rémy Merckx of Radisson said: “Everything we are building is to allow one-to-one communication and engagement with every customer, because every customer has different needs, is in a different stage in their journey.”
The continuing importance of the loyalty engine
So is the importance of loyalty engines diminishing if a CRM and direct marketing tool can help hotels communicate with guests at a one-to-one level and identify which guests are most valuable?
Well, no. Loyalty engines remain attractive to larger chains which have the portfolio and customer base to ensure a healthy return on investment, as loyalty programs continue to bring in big bucks.
Many small and independent hotels, however, are not investing in a programmatic loyalty system, which is understandable as costs will often outweigh the benefits when having only one or a few hotels.
However, vendors like Stash and The Guestbook are now shaking up this space. They offer independent hotels a way of becoming part of a major loyalty program, not unlike the Preferred Hotels’ I Prefer program. In return, hoteliers get extra exposure and marketing opportunities, as well as lower commissions than they would pay to OTAs. The drawback — and this is no different from an OTA booking — is that ownership of the customer journey and important personal data continues to sit with a third party.
If nothing else, one important reason for hotels to implement a loyalty program, beyond the potential business case — which is different for each hotel — is the provision of consent that a structured loyalty program brings with it.
As Lauren Rothrock of TravelClick put it: “One benefit of loyalty programs is getting consent to collect data from a guest.” With regulation around data collection and usage becoming stricter, especially in the European Union with the GDPR legislation and in California with the Californian Consumer Privacy Act (CCPA), a loyalty program can function as an extra communication channel to learn more about the guest’s preferences and behaviors, all while the guest has provided clear consent by signing up.
The Cambridge Analytica scandal and data breaches of hotel loyalty programs, such as the latest which saw the personal data of 350 million Starwood Preferred Guest members stolen, have put data privacy in the spotlight. The New York Times reported an estimated $1 billion is lost to loyalty program related crime per year in the U.S. alone.
High-profile cases have brought about discussions on the amount of personal data consumers would and should share with brands in return for a more personalized experience.
Many customers, of course, want a more personalized service and understand that sharing their data and preferences forms part of this. Over 75% of consumers are happy to share personal information with brands they trust, according to Columbia Business School research based on 8,000 survey respondents.
A survey by Skift Research, however, found that the large majority of respondents did not trust travel brands enough to share personal data in return for a more personalized service. It is likely this trust has suffered from scandals and data breaches.
Steve Grout referred to data sharing as a value exchange: “People tend to be willing to share their data if they can see the benefits of doing so. Brands have to show customers that they use data responsibly to build that much-needed trust.”
According to Allan Nelson, the hospitality industry has always been based on trust, which makes it easier to gain trust when it comes to the sharing of personal data. “We trust hotels immensely. We go there and we trust them to put us up. We trust them to protect us when we are asleep. We are willing to talk to the concierge and trust to get good recommendations. We trust them a huge amount, so it’s a natural thing to be handing over a certain amount of data to hotels, as long as the consumer understands how that is being used.”
In the case of the Cambridge Analytica scandal, this is where Facebook failed its users. Users were happy to use Facebook and share certain nuggets of personal data, but trust was lost once it turned out that data was used and sold without the users’ knowledge.
The European Union’s GDPR feels like a preemptive attempt to ensure that big tech companies have restrictions on the amount of data they can hoover up. Frank Reeves said it has had an impact on hotel marketing operations: “The customer is in charge. It’s not CRM, it’s now a customer-managed relationship, CMR. At any point they can see and pull back their information.”
Technology today allows tech vendors and hotels to do many things with personal data, but data privacy laws are now in place in the EU, California, and China, with more countries expected to follow. This is starting to put some parameters in place to determine what is allowed and what is not.
Technology can take personalization further than is allowed under these laws, with for example a prohibition on matching of social media accounts to internal data. With the world trying to find a balance between the possibility of data collection and data privacy, these regulations have clarified some of the boundaries while still leaving ample opportunities to continue personalization through data collection in the coming years.
For hotels, if nothing else, GDPR was seen as an opportunity to clean up their databases, removing disengaged and fake email addresses. Asking their contacts to re-consent under the new regulations might have lost hotels thousands or tens of thousands of contacts, but at least it was a good exercise to determine which customers to invest in for further personalization.
Dara Khosrowshahi, when still CEO of Expedia, said it well when he told a group of hoteliers at a conference: “You guys all criticize me for how much I charge you for guests to come to your hotel. I think you’re looking at it wrong. Look at us as the cheapest source of referrals that you could imagine. If they come through me, you pay me once, and if they come back to me again and again, shame on you. You should make them a loyal customer.”
From the time a booking has been made, whether through the hotel website or an OTA, hotels have many opportunities to interact with their customers to instill some form of loyalty in them. Tech is playing an increasingly important role.
We are seeing an uptake of technologies that enhance interaction with guests, especially those that are not inclined to search for face-to-face interaction, and technologies which enhance the guestroom experience.
You will find very few hoteliers or tech vendors who would argue against the idea that the most important touchpoints between the hotel and customer remain in the hotel. Improved tech has increased the capabilities of hotels to interact with customers before their stay and afterwards, but the on-premise experience is undoubtedly what can make or break a loyal customer.
“Alexa, turn off the lights”
There is some eye-catching tech out there, with Marriott releasing its concept of the Internet of Things (IoT) room in 2017, IHG launching AI-powered rooms in China in 2018, and “the hotel room of the future” concepts now a popular addition to any hotel trade show.
Not all of this tech focuses on greater engagement. Much of it is gimmicky, like closing curtains and changing lighting with a click on the in-room tablet or through a voice command. But as David Berger of Volara points out, this is only a small part of the market, and of tech’s capabilities: “It is the minority of hotels that are using voice for room controls. There is a market for it, at the high end of the hotel industry, but most hotels do not have Wi-Fi connected lights and drapes, that is the top 0.5%.”
Intead, tech should be positioned as an additional channel to engage with guests, which can be connected to the room, but also other hotel services and amenities. Voice is a rapidly growing channel in this respect.
The development of a personal assistant which could help in the guestroom was initially driven by large hotel chains. IHG worked with Mobiquity to develop a Skills Kit for Amazon Alexa which could control lights, temperature, music, order room service, and be a virtual concierge.
Marriott, meanwhile started testing both Amazon Alexa and Apple’s Siri in its Aloft property in Boston in March 2017. Marriott has since become the launch partner of Amazon’s Alexa for Hospitality program. Volara partners with Marriott to provide customized interactions and to connect Alexa to workflow systems. Alexa for Hospitality is a less-discussed way back into the travel industry for Amazon, and one to watch for the future.
The benefits of a voice assistant as a virtual concierge in the hotel goes beyond the current novelty it is offering to the few hundreds of hotels that have implemented it in their hotel rooms.
As Alex Shashou of ALICE points out: “When [hotels] create a directory it is basically telling the guest, here is what we can give you. With voice in theory the guest could ask anything, and if the hotel collects that data, they might be able to understand what they are not giving their guests.” Through voice, the engagement with guests can be improved.
Volara’s David Berger has some impressive stats to back up his vision of a future with voice assistants in every hotel room: “Today, of all weekday travelers, which are mostly business travelers, 60% are engaging with our voice assistants. On the weekend almost 80% of guests are engaging. If they engage one time, they are going to engage with it eight times per night.”
In May 2019, Volara and Westin Buffalo started offering a more personalized service where users that have an Amazon account can login to the Alexa device in their hotel room. This would give access to things like personal music playlists. The companies stress that devices are wiped of all guest information at check out.
There is major potential for voice assistants or in-room tablets to proliferate in hotel rooms. The functionality of Alexa is limited in most homes, because very few households have all their appliances connected to Wi-Fi. Through workflow systems this is different, and guests can actually ask Alexa to prepare their breakfast.
According to Skift Research, 76% of U.S. travelers use their mobile phone for hotel-related reasons in-destination, including to check room availability and pricing and to access hotel info. This figure goes up to 82% for air travel-related reasons like tracking a flight’s status or to check in.
There are some staggering numbers about the use of messenger services. According to data by Statista, WhatsApp has 1.6 billion monthly active users, Facebook Messenger 1.3 billion users and WeChat 1.1 billion. Mobile phones are penetrating in every aspect of travelers’ lives and these apps are increasingly used as business-to-consumer communication tools.
There are specialist vendors in the hotel industry that allow hotels to communicate through text or messaging apps with guests, with messages stored on the back-end systems and integrated with work-order systems to manage specific requests.
Players like ALICE, Intelity, Kipsu, Whistle, and Zingle provide this form of communication which could be used from the time of booking (when the guest provides a telephone number), and once the number is stored the hotel could theoretically use this at any point afterwards.
There are some considerations around the best times to use this type of communication with most guests likely to be happy to interact through text or messenger while at the hotel or a few days before, but possibly not months after. The real-time functionality works well when requesting a toothbrush to be delivered to your room, but might feel invasive for offers a year later. Hoteliers need to determine where they want to draw those lines.
An interesting feature of messaging which might find more traction in the coming years is the potential to use text to book hotel rooms. “Guests aren’t trained to do that yet,” said Alex Shashou of ALICE, but we can anticipate a future where regular guests to a hotel are able to book a room through a simple WhatsApp message. Emojis to the rescue ヾ(＾∇＾).
Specialist players or jacks-of-all trades
In the guest-facing tech space the discussion of specialist vendors versus jacks-of-all trades becomes especially relevant. Players like ALICE and Intelity provide a host of systems and tech solutions, all seamlessly integrated, whereas players like Volara, SuitePad, or Zingle specialize in one tool and build integrations with other players.
An argument can be made for either approach. ALICE has been very successful because it offers the end-to-end platform solution, while Volara has been successful in voice and is seen as the most prominent expert in this field. The discussion of integrations makes a reappearance here, where the end-to-end platforms will argue they have seamless integrations between all their systems, while specialist providers will show you a long list of tech vendors they have integrated with.
It is likely that more consolidation will happen in the coming months and years — as we have already seen in other tech areas with, for example, the recent merger of Availpro and Fastbooking into D-EDGE — and that more players will attempt to offer the end-to-end platform as hotels try to cut back on the number of vendors they have to work with.
Guest facing technology cannot function without infrastructure in the back-end that supports it. Be it through a mobile app, messenger service, tablets, or desktop software, when a guest makes a request for service, this information needs to be relayed to a staff member who can take action.
We have already seen how many systems a hotel needs to operate, and these are just a few more to add to the stack. There has been a strong growth in vendors offering housekeeping, maintenance, and concierge systems to help hotels log, track, and complete day-to-day tasks.
Many hotels are not there yet, and still rely on Excel spreadsheets, radio, and internal phone calls to manage the workflow. ALICE, for example, was founded six years ago on the back of the growth in the service-and-demand industry through companies like Uber, Deliveroo, and OpenTable, and wanted to offer a similar service experience in the hotel industry. But as Alex Shashou of ALICE explains, the hotel industry was not ready.
“The hotel industry had no underlying infrastructure. When we started, hotels were either operating on pen and paper and radio; or they were operating on closed, siloed pieces of software. We were initially building a [guest-facing] app, but we quickly realized that we could not create a connected experience as the hotel staff was not online to connect the guest with. We had to shift our focus, and built the back-end for hotel staff,” said Shashou.
Staff buy-in is paramount. Staff need to understand why it is important to log any service provided, just like front desk staff needs to understand the importance of having up-to-date contact details and preferences of each guest in the CRM system. Systems which are seamlessly integrated and offer simple user interfaces will win.
Loyalty is a dynamic concept. It is not something a brand achieves by wooing a guest and then sitting on its laurels. It is hard work that never stops.
It can be achieved in a myriad of ways, and different guests respond differently to brands’ attempts to instill loyalty.
Loyalty programs might make some guests loyal customers, while they do not work on others. Loyalty programs work for some hotels, but do not for others.
Without doubt, the increasing availability and affordability of tech, new ways of communicating, and growing expectations around instantaneous gratification and real-time interaction are questioning the idea that loyalty programs result in loyal customers.
It is not the end of point-based loyalty programs, which remain extremely valuable to some players, but there is a clear shift towards increased recognition and more experiential rewards.
Loyalty programs should be seen as one of a host of technological solutions to achieve more engagement, personalization, and loyalty.
This report has introduced an expanded loyalty tech landscape which to date remains largely opaque, is ever evolving and rapidly growing. It is not unheard of for hoteliers to deal with 30 to 40 different vendors to keep their hotel operational.
Consolidation in the industry is likely to reduce this in the future, but a more imminent improvement could be the accelerating drive for open architecture, marketplaces, and more seamless integrations between players, which will make it easier for hoteliers to connect different tech systems and to switch suppliers if results are below expectations.
We believe that the CRM will start taking up a more central position in the tech stack and in hotel operations, as data can be collected from an increasing amount of touchpoints with guests before, during, and after their stay.
Hotels should consider increasing their investment in tech, but this should not only be focused on ‘flashy’ guest-facing tech. Back-end operational tech has come a long way in the last few years and will be important to efficiently run a hotel, and will be paramount to capitalize on the potential of guest-facing tech.
Voice assistant technology is one area which is still largely unexplored, but could have a big impact on guest interaction and engagement, as well as on the operational side. Hotels and tech vendors alike should consider its future applications. With the two largest players in voice assistants being Google and Amazon, this might be another way into the travel industry for these players.
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