Hospitality Loyalty Programs 2018: A Challenging Road for Customer Loyalty

by Rebecca Stone + Skift Team - Apr 2018

Skift Research Take

For all the growth and enhancements we have seen in hotel loyalty programs over the past few years, differing opinions among consumers and hotel owners with regards to the overall value and success of programs remain. Clearly, the road to fostering real consumer loyalty will be a challenging one. 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.

Report Overview

The hospitality sector has been using loyalty programs as a marketing tactic to drive customer loyalty and acquire and retain customers for decades. What started as basic programs to accumulate points and discounts has evolved into a way to target consumers in unique ways and offer more personalized experiences. While the structure of loyalty programs will likely continue to evolve over time, the goal of increasing customer loyalty and driving a higher share of wallet will always remain the key focus for hotel brands. In this report, we take a look at what’s working and not working when it comes to hotel loyalty programs from the perspective of three different stakeholders: the hotel brands, the hotel owners, and the consumers. We then examine where hotel brands should focus their energy in order to reconcile the gaps and build programs that truly foster customer loyalty, thereby driving customer retention and increased sales.

What You'll Learn From This Report

  • The key benefits of hotel loyalty programs, including how they drive increased occupancy and sales
  • The current status of and market sizing for hotel loyalty programs
  • A summary of key enhancements the brands have been making to their loyalty programs and why
  • Skift Research’s Loyalty Brand Matrix, a proprietary ranking of seven major brands based on seven key quantitative metrics
  • Hotel owners’ perspective on the value of loyalty programs
  • General consumer sentiment about hotel loyalty programs
  • A spotlight on business travelers, millennial travelers, and affluent travelers and their usage of and sentiment towards hotel loyalty programs
  • An analysis of positive and negative consumer sentiment towards eight brands’ loyalty programs from 2013 to 2017 on major social platforms
  • A normalized ranking of hotel loyalty programs using consumer-facing rankings by five companies
  • Key takeaways on how to reconcile different perspectives to drive real customer loyalty

Executives Interviewed

  • Kristian Gathright, COO, Apple Hospitality REIT
  • Amar Lalvani, CEO, Standard International, Bunkhouse Group, One Night
  • Raymond Martz, EVP & CFO, Pebblebrook Hotel Trust
  • Sara Masterson, VP, Hotel Management, The Olympia Companies

Executive Summary

Deep customer loyalty is every business’s dream. A loyal customer believes in your business, repeatedly buys your product or service over your competitors, and acts as an advocate for your business.

The hospitality sector has been using loyalty programs as a major marketing tactic to drive customer loyalty and acquire and retain customers for decades. What started as basic programs to accumulate points and discounts has evolved into a way to target consumers in unique ways and offer more personalized experiences. While the structure of loyalty programs will likely continue to evolve over time, the goal of increasing customer loyalty and driving a higher share of wallet will always remain the key focus for hotel brands.

However, the road to real customer loyalty is not a straightforward path. Today, there are completely contradictory data points as well as ongoing debates regarding the overall success of loyalty programs, the value they create, and their ability to drive true loyalty.

In this report, we take a look at the positives and negatives, the advantages and disadvantages, and what’s working and not working when it comes to hotel loyalty programs from the perspective of three different stakeholders: the hotel brands, the hotel owners, and the consumers. We trace why loyalty in the format of loyalty memberships matters or does not matter to these stakeholders, how they feel, and what they’re looking for when it comes to loyalty. We then examine where hotel brands should focus their energy in order to reconcile the gaps and build loyalty programs that truly foster customer loyalty and drive customer retention and sales.

In our view, real customer loyalty occurs when brands establish such strong relationships with consumers that consumers choose that brand over others and refer it to friends and family. In order to do this, hotel brands must drive deeper emotional connections via a strong branding strategy, better utilization of online review sites, improvements in technology, better usage of data, and stronger personalization. At the same time, relations with owners need to be continually improved so that they recognize the full financial benefit of being affiliated with your brand. Finally, hotel brands should look outside the industry for emulation on winning loyal customers.

Benefits of Hotel Loyalty Programs

To start, we highlight several key benefits of hotel loyalty programs that can create value for hospitality companies – brands as well as owners. This includes items such as access to better guest data which can be used to enhance the overall guest experience and increase sales through better targeted marketing efforts. In addition, loyalty programs can have the dual effect of increasing customer retention and customer share of wallet spend.

Access to customer data

This goes back to the age-old phrase “Know Your Customer.” In order for hotels to better personalize guest experiences, they need to have access to the behavior and decisions of their consumers. When guests book through the loyalty program rather than through an online travel agency (OTA), the hotel “owns” the customer, in that it has access to data such as where the guest is booking from, how often they book, where they book, and what they purchase while at the hotel.

Better utilizing this data can be beneficial in two ways. For one, this type of data should be able to help hotel brands and owners better understand their consumers for future marketing campaigns and targeting. For instance, recognizing that a consumer regularly goes to Europe on what appears to be business trips can encourage the hotel to market certain types of hotels and discounts in Europe.

The other aspect is that leveraging this data may be the best way to enhance overall guest experience by creating a completely personalized stay catered to a particular customer’s personal preferences. Hotel brands should be able to recognize what types of food consumers eat, what wine they drink, whether they regularly request more towels, and more. The hotel should eventually know to have a recommendation for the best tacos in that city ready and have that guest’s favorite bottle of wine and extra towels waiting in the room, regardless of what city that consumer is located in. In doing so, the guest would feel welcomed and more at home from such simple gestures.

Higher customer retention and higher potential spend

The theory is that if a customer belongs to a loyalty program, that person is incentivized to make sure they book within that brand’s portfolio of hotels so as to maximize the points and subsequent rewards that that customer can obtain. This reduces customer acquisition costs and increases customer retention in the future if the hotel is able to increase the number of repeat guests.

Loyalty programs should result in a higher share of wallet at the hotel for any given level of customer spend. Rather than staying at a bunch of different hotel brands, loyalty encourages the customer to spend all of their necessary hotel stays at a specific brand to boost the potential rewards that can be obtained.

Direct booking campaigns have also helped to encourage guests to take advantage of their loyalty programs. Hilton launched its “Stop Clicking Around” campaign in early 2016 to encourage guests to book directly with the brand, which is a more cost effective booking method versus the guest booking via an online travel agency (OTA) as the brand has to pay a high commission to the OTA. Around the time of the campaign, hotel brands were also able to negotiate terms so that they could charge the lowest nightly rate available via the loyalty program. As a result, customers have even more of an incentive to book directly via their loyalty membership. While this may sound potentially costly since loyalty members may come in at the lowest nightly rate available, the benefit of them booking directly should outweigh the cost.

While the hotel brands haven’t disclosed much data indicating the importance of their loyalty programs financially, we highlight a few points that have been made recently to demonstrate the value of these programs to the companies.

IHG indicated in its 2017 results that IHG Rewards members are seven times more likely to book directly with the brand, which is a more cost-effective channel. The company also highlighted that approximately 90% of loyalty-qualified nights came from members who enrolled at a different hotel property than the one they were staying at, thereby indicating that members are likely to use other hotels within the portfolio as a result of being loyalty members. IHG’s previous VP of Loyalty Programs, Don Berg, highlighted in a 2013 article that loyalty members increased their share of wallet spent with IHG 36% more than the previous year.

More recently, Hilton CEO Chris Nassetta noted on the company’s Q4 2017 earnings call that “…close to 95% of customers, when they become an [Hilton] Honors [loyalty] member, start booking directly through us, which is obviously a much more efficient channel.”

Loyalty programs boost occupancies and sales of affiliated hotels

For the reasons previously mentioned, loyalty programs can help hotel owners dramatically boost their occupancies, and therefore sales. This can be particularly helpful during low-demand time periods, as the loyalty program can encourage members to book a property. The potential impact of loyalty programs on occupancies and sales cannot be understated. For seven major brands, their respective loyalty program’s contribution to either sales or occupancy (as defined by the brand company) ranged from almost one-third to close to 60%. As a result, losing access to a loyalty program can have a critical impact on financial results.

In order to encourage owners to fully recognize the value of having access to a loyalty program, the brand companies have been working diligently to improve the value of the overall programs and encourage customers use to the programs regularly. This focus on improving the contribution that loyalty is having on performance can be seen from Hilton’s annual filings, which have indicated an increase in the loyalty program from 50% of occupancy in 2013 to 57% as of 2017. A large jump occurred in 2016 due in part to the company’s “Stop Clicking Around” campaign and increased focus on Hilton Honors members. That contribution may not be something a hotel owner can afford to lose.

In general, an appropriate and thoughtful loyalty program can be critical to the success of both brands, managers, and hotel owners. In the sections that follow, we highlight perspectives on loyalty from brands, hotel owners, and consumers.

Brand Perspectives on Loyalty: Strategies for Enhancement

The hotel brands’ loyalty programs have reached massive levels and continue to be growing considerably. In this section, we highlight what the major hotel brands are doing to enhance the value of their loyalty programs, draw consumers in, and create more value for hotel owners. We then present a Loyalty Brand Matrix to show which brands can be considered successful on a number of quantitative metrics pertaining to loyalty.

Changes are constantly being made to the hotel loyalty programs to enhance their overall value for both hotel owners and consumers. However, we highlight a few items here of interest over the past couple years to demonstrate brands’ focus on enhancing their programs for owners and for guests and how those enhancements directly impacted results. We note this is not meant to be a comprehensive list.

  • January 2016 – AccorHotels announces its “Elite Experiences” offering, allowing members to use points earned during hotel stays to enjoy one-of-a-kind experiences around some of the biggest events in the world, such as Grand Slam events, concerts, and more.
  • February 2016 – Hilton launches its “Stop Clicking Around” campaign highlighting the benefits of joining Hilton Honors and booking directly with Hilton, which include items such as preferential pricing, free Wi-Fi, and the ability for guests to check in and choose their own room online at various hotels.
    • During the following quarterly earnings call (Q1 2016), CEO Chris Nassetta indicated Honors enrollments increased nearly 90% since the launch of the campaign, helping drive Honors occupancy to a record 55% of occupancy in the quarter, 4 points higher than the previous year. He also noted that the company’s share of web-direct channels was growing five times that of the OTA share growth in the quarter, and business generated from the company’s mobile app was up ~150% year over year with more than 70,000 downloads per week, which was 200% greater than the year before.
    • The following quarter (Q2 2016), Honors enrollments were up nearly 80% year over year, adding 2.4 million new members. Hilton Honors’ share of occupancy was ~56% in the quarter, up 4 points year over year. Revenue growth from web channels outpaced the OTAs by almost five times in the quarter. CEO Chris Nassetta also highlighted that the app, which is the lowest cost channel, accounted for 23% of all direct web traffic, and downloads were up 66% year over year in the quarter to nearly 1 million downloads, doubling the growth rate from Q1 2016.
    • Digital Key, which allows loyalty members to use their mobile phone as a key, is now available at more than 2,500 hotels.
  • May 2016 – Wyndham launches member levels and the ability to receive an additional local experience when redeeming points for a stay in one of the program’s top 25 destinations.
  • September 2016 – The same day Marriott completes its acquisition of Starwood, the company announces linking aspects of the two loyalty programs (along with the Ritz-Carlton Rewards) so that members can have their status matched and be able to transfer and redeem points across programs (3 Marriott Rewards points = 1 SPG Starpoint). Marriott also announced the ability for members to have free Wi-Fi when booking directly through the app as well as to receive preferential rates.
  • October 2016
    • Hyatt announces an overhaul of its own loyalty program Hyatt Gold Passport, renaming it World of Hyatt. World of Hyatt was launched in March 2017 with an increased focus on designing unique experiences for Hyatt’s guests with a broader range of benefits and more attainable rewards.
    • Wyndham announces the ability to redeem free nights at hotels, condos, and homes globally.
  • February 2017 – Hilton announces several enhancements to its loyalty program. Members can use a combination of points and money for a hotel stay, use points at, and use point pooling to combine points with up to 10 friends or family members for free beginning April 2017. Members can also receive a one-time, one-year extension of Diamond status for any reason beginning March 2017.
  • March 2017 – IHG offers Fuel rewards savings for members participating at Shell gas stations.
  • May 2017
    • Hilton announces its new guest room, “Five Feet to Fitness,” to provide road warriors and fitness enthusiasts the ability to maintain their exercise routines from the comfort of their own hotel room.
    • Choice announces complimentary welcome gifts or bonus points will be offered to Elite Members at check-in, with the company reinforcing its commitment to providing rewards more frequently and faster. These rewards are in addition to standard complimentary upgrades, extended booking windows, exclusive reservations, etc.
  • November 2017 – IHG Rewards becomes the first hotel loyalty program to offer members consistent point-earning benefits for ordering delivery to the hotel or dining on or off property.
  • December 2017
    • Hilton announces “Connected Room,” the first mobile-centric hotel room with plans to roll out the product in 2018. Hilton Honors members can use the app to manage temperature, lighting, TV shows, and connect to multiple devices to access their own individual content. The product should not only enhance and personalize the guest experience but also make it easier for the brand to roll out new tech capabilities via the app rather than having to do a major tech overhaul.
    • Choice announces a sweepstakes offering members who use the company’s new mobile app with weekly chances to win more than 10 million points in prizes.
  • March 2018 – Hyatt announces the ability to earn and redeem World of Hyatt points with Oasis Collections, a private home rental platform that offers personalized services, which Hyatt made a minority investment in in August 2017.
  • April 2018
    • AccorHotels announces Le Club points can now be used for redemptions at Onefinestay.
    • Marriott announces that all three of its loyalty programs will be joined under one program of benefits and rewards in August 2018, though the three separate brand identities will remain for the time being.

We again note that this list of changes is not comprehensive. However, out of this itemized list, we see four fundamental shifts in focus arise.

  • Creating more personalized services and offerings. Hilton’s “Connected Room” attempts to offer guests everything they use at home from the convenience of their mobile app. Hyatt’s new World of Hyatt program is catered to benefit Hyatt’s specific higher-end customers.
  • Offering more experienced-based benefits. Wyndham and AccorHotels are offering the ability to redeem points for experiences. The two companies, along with Hyatt, are also adding vacation rental or short-term accommodation offerings to their loyalty platforms. This is likely to cater to the more experiential-minded consumer who might look for the opportunity to redeem points for experiences.
  • Using points as a currency. Many changes to loyalty programs have made points look increasingly like forms of currency. Whether it’s co-branded credit cards (discussed in more detail below), Hilton offering the ability to use points on, or IHG allowing points to be used to order food, points are starting to look like money —currency you can use almost anywhere. While these perks are obviously nice for consumers and likely drive more revenue, the ratios involved (i.e. cost in points for a free night versus making a purchase on remain debatably disadvantageous for consumers.
  • Reducing distribution costs. Many of the changes have centered on reducing bookings through online travel agencies and increasing bookings through mobile apps, which are one of the cheapest forms of customer acquisition for the hotels. This gets at the heart of what hotel owners want out of their operations. By lowering distribution costs as much as possible through loyalty programs, the brands help offset the costs of free breakfasts, free Wi-Fi, and other benefits that are offered to the brand to the loyalty member but paid directly by the hotel owners.

Hilton CEO Chris Nassetta put it well during the Q4 2017 earnings call when he said, “… We’ve been working very hard on strategies that have more direct relationships with customers, which I know sometimes can get interpreted as a marketing campaign like “Stop Clicking Around.” But … it is a much more complex and holistic approach, which has to do with making sure what we’re doing with product, what we’re doing with service, importantly, what we’re doing with technology, what we’re doing with very specific parts of the Honors program to drive more — not only deeper engagement — but more frequent engagement with customers.”

The other aspect of enhancing the value of the loyalty programs pertains to their relationship with hotel owners and managers. The major value that brands can offer hotel owners choosing a branded manager or franchisor is through their loyalty programs. The better job a brand does in incentivizing customers to be loyal to one hotel group, the more a hotel owner will likely see the benefit of affiliating with that brand.

Where do co-brand credit cards fit in the mix?

Many hotel professionals and investors have been hyper focused on the brands’ co-brand credit card agreements, as several including Marriott, Hilton, and IHG, announced new co-brand credit card agreements in the last year.

Consumers enjoy co-brand credit cards, because they are able to earn points on everyday purchases and redeem those points for free nights and other rewards. However, what is likely missed is that the brands receive license fees from the credit card companies every time consumers use the card. In addition, they receive brand visibility and access to the credit card member’s data, from demographics to shopping behavior. They may even get other benefits such as being absolved of credit card fees on transactions purchased directly from the hotel company or a kickback when consumers pay interest or late fees.

With the newly renegotiated contracts, all of the major brands were able to increase the license fees that were set years ago and were not reflective of current market rates. The brands stand to gain a lot from these co-brand credit card agreements, and the benefit to their loyalty programs could be significant. We expect both brand companies to benefit as well as consumers. Consumers are likely to enjoy obtaining more points for spend on everyday purchases, which encourages them to remain loyal to a particular brand.

However, hotel owners seem to be the ones who get hurt as they have to front the costs associated of redeemed nights from loyalty members. The brands are responsible for paying a redemption value to the owners which is intended to reimburse them for the cost of giving the guest a free night’s stay and other benefits, but, if the redemption value is well below a normal average daily rate, the owner would potentially be far better off renting that room to someone else in the market rather than letting a loyalty member stay there for the night.

Loyalty Brand Matrix

In our report, A Deep Dive Into Operating & Branding Strategies for Hotel Owners, we published our Brand Matrix, a proprietary ranking of seven major brands, Marriott, Hilton, Hyatt, Choice, AccorHotels, IHG, and Wyndham according to 13 quantitative factors. Here we modify this Brand Matrix to focus more specifically on quantitative metrics that speak to the value or offerings of the brands’ loyalty programs.

The seven metrics we included in this analysis are as follows:

  1. Loyalty Members: Brand chains with the largest loyal followings theoretically have the greatest population to target versus having to rely on OTA customers. Note: We are likely overly punitive in this category towards Hyatt, as Hyatt only discloses its active loyalty members.
  2. Loyalty Contribution: Either disclosed in the company’s 10-K filings, investor presentations, or other various filings, this is the percentage of room nights or occupancy (depending on how the brand defines it) that comes from loyalty members.
  3. Rooms per Member: A Skift metric that attempts to demonstrate the breadth of the portfolio offering available to loyalty members. The higher the metric, the greater the breadth.
  4. Rooms per Country: This is defined as the total number of rooms divided by the number of countries and territories that the major brand chain operates in. This is another metric to demonstrate the breadth of a portfolio.
  5. Direct Traffic: SimilarWeb estimates the percent of desktop traffic that comes via direct. Although this is not a perfect metric for the percentage of direct bookings, we assume the more direct activity on a website, the better the brand loyalty.
  6. Social Following Rank: We took the average rank of Facebook likes, Twitter followers, and Instagram followers for the company’s main corporate account, the loyalty account, and a couple concierge-type accounts for those that offered one. A stronger social following not only suggests that the brand has a loyal customer base, but that the company recognizes the importance of having a social media presence with guests.
  7. Average Consumer Sentiment 2013-2017: Discussed later in this report, we worked with Crimson Hexagon, an AI-powered consumer insights company, to perform an analysis of online consumer sentiment towards loyalty programs. We ranked the companies by the highest average sentiment over the time period of January 1, 2013, to December 31, 2017. Marriott’s average includes 2017’s average ranking for Starwood’s program, as the company was acquired by Marriott towards the end of 2016.

Based on the average of each individual rank, we found the brand that ranks the highest across all seven metrics is Marriott, followed closely by Hilton, IHG, AccorHotels, Choice, and then Hyatt and Wyndham.

Owner Perspectives on Loyalty: Value, but at a Cost

For hotel owners, there are pros and cons in terms of the value that loyalty programs can provide them. Access to data, increased contribution to sales, a better ability to personalize guest experiences, increased customer share of wallet spend and higher customer retention all point to the pros of having access to a loyalty program. However, at the end of the day, everything comes at a cost. Hotel owners pay a percentage of room revenues to the brand for every loyalty member that stays at their hotel, and they also pay the brands for the marketing and promotion of the loyalty program. How much the hotel owner gets paid by the brand for each brand redeemed room (meaning when a loyalty member uses points to redeem a night’s stay) can sometimes be just low enough to cover the cost of the room so the owner will accommodate the guest for free. As a result, the hotel owner must be able to see that the financial benefits of having access to the loyalty program outweigh the associated costs.

There is also some level of doubt about the effectiveness of loyalty programs to drive long-term consumer loyalty. Some hotel owners think that loyalty programs are critical for bringing in occupancy and sales, while others point to the high cost of programs as well as the current state of programs being a bit of a bribe, simply giving consumers discounts periodically in exchange for their spend, rather than driving true loyalty.

How Hotel Owners Actually Feel About Loyalty Programs

As part of Skift Research’s report, A Deep Dive into Operating & Branding Strategies for Hotel Owners, we interviewed several hotel owners to get their perspectives on the advantages and disadvantages of brand affiliation versus remaining independent when it comes to management and franchise contracts. One common theme that came up in many of those conversations centered around loyalty and how successful hotel loyalty programs are.

In this section, we provide a Hotel Owner Roundtable focused on loyalty. All interviewees were asked a variation of the question “How important is access to a loyalty program?” Some hotel owners view loyalty programs as completely critical to their operations, while others felt differently.

Kristian (‘Krissy’) Gathright, COO, Apple Hospitality REIT

“Loyalty programs are extremely important, especially in an environment of rising customer acquisition costs. Each loyal customer that we can maintain is one less guest that we need to go out and acquire. For our brands, the loyalty occupancy percentage is in the mid-50% range. As such, we would lose a material amount of business if we lost access to those programs.”

Skift Take: Loyalty programs are critical to the success of a hotel, as they help reduce customer acquisition costs and drive a meaningful amount of business to the property.

Amar Lalvani, CEO, Standard International, Bunkhouse Group, One Night

“Loyalty programs work, but they are a cheap form of loyalty. It’s essentially buying loyalty as opposed to earning loyalty. The loyalty that we want to generate is based on providing unique and addictive experiences … We earn loyalty by connecting with guests on a social and cultural level. Knowing not only who they are and what they like but knowing who they want to be when they stay with us.”

Skift Take: Loyalty programs attempt to buy customer loyalty using points and instead should focus on connecting better with guests.

Raymond Martz, EVP & CFO, Pebblebrook Hotel Trust

“What we’ve found is, yes, there is a small percentage of people who … have a strong preference for their one hotel company, … because they want to get those points, but to them, travel is, a lot of times it’s just a commodity, less like an experience. … [But] there’s a lot of people who want to travel and have an experience. When they go to San Francisco, they want to have a San Francisco experience … In that way, it’s less about the points and more about the experience when you get there. For those travelers, the points don’t matter as much.”

Skift Take: Loyalty programs are becoming increasingly less important in an age where consumers are craving more experiences. Loyalty programs can also be costly to the hotel owners if ill-managed or poorly executed.

Sara Masterson, VP, Hotel Management, The Olympia Companies

(Note: The Olympia Companies is a member of a soft brand collection, Preferred Hotels & Resorts. The question, therefore, focused on the value of the I Prefer Program.)

“…If I’m a road warrior, I’m on the road all the time, and if I’m a Hilton person, I’m always going to be a Hilton person for those particular road trips. Maybe when I go on vacation with my family, I’m not as committed to that, I’m looking for something that’s more experiential. You’re probably not going to pull those people away, but I do think that people who naturally gravitate to a more independent style of hotels, they really do appreciate the benefit of [I Prefer, Preferred Hotels & Resorts’ loyalty program]…”

Skift Take: Loyalty programs may have particular appeal for road warriors, or people who travel primarily for business. More leisure-oriented travelers may be less prone to stick with a specific program, or they may be drawn to smaller, more independent or experiential programs.

Consumer Perspectives on Loyalty: Deal Seeker with Little Emotional Attachment

Ultimately, loyalty isn’t just about the points, but also about the experience or the quality of the product. Maintaining consistency and high quality while offering a generous number of benefits via rewards can be a delicate balance.

How do consumers feel about companies’ ability to handle this balance? Skift Research took a look at general consumer sentiment for loyalty programs to get a better sense of how consumers feel about loyalty. It appears that while travel and hospitality loyalty membership growth has been outpacing that of other types of loyalty memberships, consumers are not necessarily emotionally attached to particular brands when it comes to hospitality companies, and they care more about price than anything else. While they are willing to belong to or sign up for loyalty programs, consumers do not necessarily feel the need to regularly engage with or utilize programs. Therefore, we believe that hospitality loyalty programs have failed to foster real customer loyalty, and there is a lot more room to grow.

We then looked at specific loyalty programs to get a better sense of whether consumers feel certain companies are more successful than others. Our analysis of various rankings of loyalty programs indicated that Hyatt’s revamping of its loyalty program, World of Hyatt, has been very successful (discussed in more detail below) despite being poorly received by business travelers thus far. Marriott Rewards and Wyndham Rewards follow behind. It will be interesting to see how Marriott Rewards stacks up after the integration of Starwood Preferred Guest, given SPG came in fourth place. In addition, our collaboration with Crimson Hexagon, an AI-powered consumer insights company, indicated Marriott Rewards has the highest average positive online consumer sentiment towards its loyalty program over the past five years, suggesting consumers are enjoying the program.

General Consumer Perspectives on Loyalty and Loyalty Programs

Our key takeaways from general sentiment trends are that while consumers are more willing to sign up for loyalty programs, general usage remains in question. It appears consumers have very little emotional attachment to hotel brands and remain very price sensitive.

Signups growing, but overall usage in question

Overall loyalty program memberships have been growing tremendously. According to Colloquy, a loyalty, customer engagement and data analytics company, there are approximately 3.8 billion total loyalty memberships in the U.S. as of 2016 versus only around a billion in 2000.

When it comes to travel and hospitality memberships, Colloquy estimates there to be approximately 1.1 billion, making up almost a third (29%) of all U.S. memberships. Travel and hospitality loyalty program members are also increasing at a faster rate than overall memberships, growing 20% since 2014 compared to 14% growth for all memberships. This represents a 9.5% two-year compounded annual growth rate versus 7% for all memberships. Canadian loyalty memberships are growing at an even faster pace, up 35% since 2014 with 175 million memberships as of 2016. The “travel or other” category for Canada accounts for 24 million of those memberships, which increased 33% versus 2014.

However, overall usage remains a question mark. Approximately 54% of U.S. memberships are inactive, which is a decrease compared to 2014 at 58%, but is still relatively high. Research by Olson 1to1 found that among people who traveled in the past 12 months (using commercial airlines, hotels, rental cars and/or trains) and who were a member of at least one loyalty program, only 49% used any sort of loyalty program as part of that travel. Hyatt’s disclosures about its loyalty program also illustrates this issue. The program went from 20 million members in the 10-K filed by Hyatt in 2015 to only 10 million as the 2017 10-K when the company began defining loyalty members as only those who are “active.” Clearly, active usage is quite low.

Little to no emotional attachment to hotel brands

Because hotels are, in some ways, a replacement for “home” when on the road, a place where guests rest their heads at night, one might think that consumers would have a strong emotional connection with brands where they find comfort. Yet, it appears the hospitality industry fails to evoke a sense of emotional connection, particularly relative to leaders in other industries. According to research by Customer Thermometer, 1% of men and 3% of women felt an emotional connection to hospitality brands. This is compared to 9% and 33% respectively for electronics brands. For reference, airline brands were also low at 2% for both men and women.

In fact, 60% of the top emotionally connected brands were in the technology space and included companies such as Apple, Nintendo, Samsung, Amazon, Google, and Microsoft. Others included companies such as Nike, Coca-Cola, and Disney, but none were hotel brands.

Price sensitive when it comes to booking decisions

In general, travel consumers appear to be very price sensitive rather than loyal to a particular brand. A study by Google indicated that only 9% of U.S. travelers “always” know which brand they want to book prior to researching, further demonstrating most consumers feel very little connection to a specific brand. Over two-thirds of U.S. elite hotel loyalty program members indicated to Google that they would pick a different hotel for a better price, and over 60% of U.S. travelers would consider an impulse trip based on a good hotel or flight deal, which points to the particular brand not really mattering.

Skift Research’s proprietary survey work has also questioned how much loyalty truly matters to consumers. Our 2017 Outlook on Hotel Direct Booking survey found that, while branded hotels had more loyalty members stay at their properties, the overall percentages were not that high (27% for branded and 21% for independents). Additionally, loyalty to independents only came at a 6-point delta to branded loyalty. In our U.S. Experiential Traveler Trends 2018 report, we found that avid travelers care more about the surrounding area of their accommodation and its price when booking hotels than their loyalty or affiliation with a particular brand.

Clearly, consumers are willing to belong to numerous programs, but they feel little emotional attachment to any particular brand and their priority of travel purchase decision is mainly price rather than engagement with brands.

Spotlight on Business Travelers

It is important to recognize that the majority of loyalty program usage comes from business travelers rather than leisure travelers. These members take advantage of loyalty program travel for business to earn points and then redeem those points for leisure. Leisure consumers, who likely travel less frequently, are more likely to be swayed by good deals or more advantageous prices. Therefore, many consumer surveys need to be evaluated with a critical lens as they might not be able to truly assess consumer sentiment from the those who use loyalty programs the most.

Business travelers look for a variety of benefits from hotel loyalty programs. A study by Colloquy found that the majority of business travelers surveyed care about ease of redemption and a higher level of service. Interestingly, 61% of business travelers put diversity with regards to types of redemptions they can make at the top of their list in terms of what they look for in a loyalty program. They are also willing to invest their energy into one loyalty program should it provide great benefits via a tier status. This should encourage hotels to heavily invest in catering to business consumers.

Spotlight on Millennials

When it comes to millennials, there are several conflicting statistics. According to Access Development which aggregated a number of statistics on loyalty, 81% of millennials do not consider themselves to be loyal to a particular hotel brand, but 75% of millennials would remain loyal to a hotel brand even if they lost all of their rewards points.

This presents an interesting dichotomy: how can millennials be both loyal and not loyal to hotel brands?

What Skift Research would suggest is that millennials care more about the product or the perceived value of the product than just the ability to belong to a program that allows them to earn points when they travel with that brand. Several studies have pointed to millennials valuing experiences over products and their willingness to pay more for experiences. Perhaps catering to this generation should be more about the experience of the offerings provided and connecting to guests at an emotional level, rather than merely providing them the opportunity to obtain points that can be redeemed for various rewards.

Spotlight on Affluent Travelers

We recently published our U.S. Affluent Traveler Trends 2018: Annual Survey on Travel Behavior report which analyzed the responses from 1,304 respondents who live in the U.S., have combined household incomes of at least $100,000, and indicated that they had taken at least one leisure trip in the last 12 months. A leisure trip was defined as at least a two-night stay, 200 miles or more from home.

Our survey results suggest that brand loyalty remains important for affluent travelers, and they are more likely to stay loyal to a brand when they can perceive the value they are getting for their money through the excellent quality of a product or service.

Consumer Perspectives on Specific Hotel Loyalty Programs

One way to assess consumer sentiment regarding specific loyalty programs is via social media platforms such as Facebook and Twitter. Many hotel brands have accounts specifically for their loyalty programs, and consumers often provide feedback or ask questions via the various platforms.

Skift Research worked with Crimson Hexagon to perform an analysis of online consumer sentiment towards these loyalty programs. We assessed consumer sentiment for eight hotel loyalty programs (Starwood was separated out as it has not been joined fully with Marriott) during the time period of January 1, 2013, to December 31, 2017. The sites or programs monitored included Twitter, Facebook, QQ, Reddit, Blogs, Comments, Forums, Tumblr, and Instagram, and the search was performed so that the commentary had to include terms such as “loyalty” or “loyalty program.”

Based on this analysis, we found that Marriott’s loyalty program has had the most positive consumer sentiment on average over the past five years, while Choice had the lowest. The majority of hotel companies’ loyalty program sentiment has been improving over the past five years, particularly for Hyatt and Accor. This is perhaps due to some of the enhancements all of the companies have been making. Given our view that consumers tend to post publicly when they have strong opinions (either negative or positive), this trend appears to indicate people’s view of loyalty programs is, in general, improving.

In the exhibits below, we provide the percentage of online commentary that was categorized as positive and negative for each hotel brand on average over the time period 2013 to 2017 (Left hand side chart). We then provide the percentage of online commentary that was categorized as positive for each individual hotel brand over time (Negative sentiment would be the inverse) to show how each brand has been trending over the past five years. Finally, we also include one quote from an online source as an example of what an individual consumer said online about the corresponding hotel brand’s loyalty program in 2017. If positive sentiment was trending up, we included a positive quote. If positive sentiment was trending down, we included a negative quote to help readers better understand what individual consumers were saying about the corresponding program.

In addition, there are a number of rankings of hotel loyalty programs from various organizations that are catered to consumers. We compiled the rankings provided by U.S. News, FlyerTalk, IdeaWorks Company, The Points Guy, and J.D. Power to determine the current standing of numerous hotel loyalty programs on a normalized basis.

There are different methodologies amongst the providers that we summarize here:

  • U.S. News 2017 – 2018: U.S. News evaluated 17 major hotel loyalty programs using a methodology that weighs factors such as member benefits, the average number of paid nights required to earn a free stay and how easy it is to earn and use rewards. Their approach emphasizes ease of earning points and redeeming free nights for basic members. They ranked Marriott Rewards as #1 and Wyndham Rewards as #2, with scores of 4.92 and 4.74 respectively out of five in categories such as property diversity, geographic coverage, ease of earning free nights, and other benefits.
  • FlyerTalk 2017: Voters rank their top four programs in each category, Best Program, which signifies the best combination of value, ease-of-redemption and customer service, and Outstanding Benefit for the past year. The awards are broken down by three regions, Americas, Europe/Africa, and Middle East/Asia/Oceania, for three categories, Fly (airline programs), Stay (hotel program), Drive (car rental programs). We ranked Starwood Preferred Guest as #1 for hotel programs as it received the award of Best Rewards Program for Americas and Middle East/Asia/Oceania. We ranked Hilton Honors as #2 for hotel programs as it received the award for Best Rewards Program for Europe/Africa as well as the best Outstanding Benefit (free breakfast) in all three regions.
  • IdeaWorks Company 2017: As part of the 2017 CarTrawler Hotel Reward Payback Survey, IdeaWorks Company conducted 1,350 queries for six hotel programs of the lowest reward price in points and the corresponding room price in U.S. dollars to estimate the average reward payback. Wyndham Rewards ranked the highest at 16.7% on average for the reward value returned for every dollar spent on hotel rooms, with Marriott Rewards #2 at 8.8%.
  • The Points Guy 2018: The Points Guy ranked 10 hotel programs across 10 categories: Number of Hotels/Rooms (10%), Geographic Spread (5%), Percent of Luxury Properties (7%), Percent of Economical Properties (3%), Ease and Value of Earning/Redeeming Points (40%), Perks (10%), Elite Status (10%), Co-Branded Credit Cards (5%), Promotions/Bonuses (5%), and Non-Hotel Benefits including the ability to transfer points to airlines, etc. (5%). The most emphasis was placed on consumers’ ability to earn and redeem points. Under this analysis, Starwood Preferred Guest ranked #1 and Wyndham Rewards ranked #2.
  • J.D. Power 2017: The J.D. Power 2017 Hotel Loyalty Program Satisfaction Study measures member satisfaction by evaluating four categories, ease of earning and redeeming rewards (35%), program benefits (27%), account management (22%), and member communication (16%). The study received 4,682 responses for program members who took five or more trips in the past 12 months. Under this analysis, Marriott Rewards ranked #1 with a score of 806, with World of Hyatt close behind at 805 out of a possible 1,000 points.

The goal behind looking at all of these rankings to better assess how consumers are feeling about different loyalty programs is to understand which brand companies are having the most success with their respective programs. However, the five organizations’ rankings have very different methodologies. In order to normalize for the different methodologies within the datasets, Skift Research calculated the z-score for each provider’s ranking. A z-score measures a value relative to the average in a group of values. This statistical measure is used to analyze datasets with comparability issues relative to each other.

The table below provides the z-scores calculated for the ranking of each hotel loyalty program. We then took the average z-score for a given hotel loyalty program and took a ranking of those values.

Hyatt’s newly vamped World of Hyatt tops the list, with Marriott and Wyndham following behind. We note the results could be very different if all loyalty programs were included in all studies, but our analysis aims to offer a way to get a sense of how the various loyalty programs are viewed by consumers.

Bringing Different Perspectives Together to Drive Real Customer Loyalty

Clearly, the massive investment in loyalty programs in hospitality has not completely paid off. While there is evidence that rewards tied to loyalty membership incentivize consumers to stay more with the hotels, consumers are doing so only because of the rewards and the sense of loyalty or emotional attachment seems low across the industry. Loyalty programs also have mixed benefits to participating hotel owners. For long-term customer retention, hospitality businesses need to strive for real customer loyalty.

Real customer loyalty occurs when brands establish such strong relationships with consumers that consumers choose that brand over others and refer it to friends and family. In order to do this, hotel brands must drive deeper emotional connections via a strong branding strategy, better utilization of online review sites, improvements in technology, better usage of data, and stronger personalization. At the same time, relations with owners need to be continually improved so that they recognize the full financial benefit of being affiliated with your brand. Finally, hotel brands should look outside the industry for emulation on winning loyal customers.

Skift Research suggests hotel brands consider the five points below to better bridge the gap between superficial and true loyalty.

1. Establish a deeper relationship with customers

A deeper relationship with customers can be established by driving a stronger emotional attachment to the brand.

  • Determine a brand association that resonates with consumers. With what is your brand associated? Is it a social responsibility, a product with which customers interact, developing employee empowerment, or something else?
  • Develop a brand marketing strategy that clearly defines your brand association and drives the point home for consumers. The key will be to create a message that clearly resonates with consumers and causes them to want to engage with or interact with the brand.

2. Encourage and reward customer advocacy

Real loyal customers are your best ambassadors. Increasing retention helps drive stronger referrals, lowers customer acquisition costs, and, of course, results in sustainable loyalty.

  • Create channels for consumers to spread the word about your brand and brand strategy by better utilizing social media and other online, collaborative platforms.
  • Offer benefits or rewards to loyal customers who spread the good word. Rewards should not just be additional points, but personalized for that individual loyalty member.
  • Encourage consumers to regularly engage with review websites and other platforms to help reach friends, family, and other consumers about your brand.

3. Relentlessly focus on improving the quality of products and services

Ultimately, having a subpar product or service will drive customers away and towards other brands. The key, then, is for continuous improvement, and the quality and consistency of your product will speak for itself, and drive higher loyalty.

  • Continue to invest in technology. With technology changing every day, it is important for hotel brands to work towards being where their customers are.
    • Take an omnichannel approach, as consumers today may access several different devices within the same minute and are quick to stop using a certain site or app if it does not work on a certain device.
    • Invest in mobile in order to increase user friendliness, drive customer engagement, and stronger direct bookings.
  • Stay abreast of other technologies and their potential application in hotels.
    • Use of artificial intelligence is going to become increasingly important to help understand consumers better, improve targeted marketing, and give better recommendations based on consumer behavior.
      • Voice search could be a good application of artificial intelligence. Using artificial intelligence to provide a recommendation based on that guest’s preferences and previous behavior patterns when that person asks “Where should I go to dinner?” could be really powerful.
    • There are special applications of blockchain that could become imperative. Because hotel loyalty program have different points scales and redemption ranges, blockchain could help streamline systems, allowing for essentially one “wallet” of points. Blockchain could help make redemptions occur more smoothly and drive seamless transfers of points among various partnerships.
  • Improve personalization in services offered and provided.
    • Hotel brands should tailor consumer information based on personal preferences and past behaviors, meaning when consumers are looking at brands online, what they see should be catered specifically to them.
    • Regularly communicate with consumers and loyalty members on what they are looking for in a program.
    • Develop new and better ways to utilize data on hand.
    • The ultimate goal is to provide a deep, emotional connection with consumers such that they feel they cannot get a similar experience anywhere else.

4. Improve relations with hotel owners

The further the major brands get away from the day-to-day operations of the hotels as they increasingly employ asset-light strategies, the more critical it will be for brands to maintain healthy relationships with hotel owners who better understand what consumers are looking for. As many hotel owners appear to be frustrated with aspects of loyalty programs that hinder their business operations, it may be critical to get everyone on board with loyalty programs to release their full potential.

  • Evaluate and consider improving brand redemption programs for hotel owners. Given the high cost of providing loyalty member benefits when a guest redeems a free night with the brand only reimbursing them for a fraction of the cost or average daily rate, hotel owners may, at times, be incentivized to list a room on an OTA at a higher ADR rather than have that room be redeemed by a loyalty member.
  • Continue to focus on driving distribution and procurement costs down for the hotel owners via direct booking efforts and other negotiations.
  • Set up a strong feedback loop of communication with hotel owners utilizing data to provide owners what they need in order to provide guests high quality, personalized experiences.

5. Take a page out of the loyalty playbook of other industries

Finally, the major hospitality companies should take a page out of the loyalty playbook of other industries. Tech companies like Amazon and Apple have incredibly loyal followings, with different strategies and focuses.

  • Consumers pay a premium to be a part of Amazon’s Prime membership, because they perceive there to be a greater value to the program than the cost of being a member. Hotel brands should strive to offer such great value for their rewards programs that consumers would be willing to pay to be a part of it.
  • In Apple’s case, it revolutionized the consumer tech market not only by its premium product that focuses on design and seamless user experience, but most importantly, by creating an emotional attachment, thus resulting in a large number of loyal followers. Hotel brands should look to provide a consistent, seamless experience such that a customer will feel at home whether they are in London, New York, or Atlanta.

Endnotes and Further Reading

  1. Hotel News Now, “The history and evolution of hotel loyalty,” August 2013
  2. Bethany Huan, Cornell University School of Hotel Administration, “The Implications of Bank Loyalty Card Programs for Hotel Owners,” 2017
  3. SimilarWeb
  4. Crimson Hexagon
  5. Colloquy, “2017 Colloquy Loyalty Census,” June 2017
  6. Oliver Wyman, “The Blockchain Revolution For Loyalty Programs,” September 2017
  7. Olson 1to1, “Humanizing Loyalty: A road map to establishing genuine emotional loyalty at scale,” March 2018
  8. Customer Thermometer, “10 brand loyalty statistics for 2017,” May 2017
  9. Think with Google, “How to win travelers in the age of assistance,” January 2018
  10. Skift Research, “2017 Outlook On Hotel Direct Booking,” May 2017
  11. Skift Research, “U.S. Experiential Traveler Trends 2018: Annual Survey on Traveler Behavior, Motivations & Preferences,” October 2017
  12. The Business Journals, “The rewards business travelers desire most,” November 2016
  13. Colloquy, “Travel and Loyalty: On a Journey Together,” August 2016
  14. Access Development, “Millennial Loyalty Statistics: The Ultimate Collection,” October 2017
  15. Deloitte, “Deloitte survey: For Millennial travellers, it’s the experience that counts,” September 2014
  16. Skift Research, “U.S. Affluent Traveler Trends 2018: Annual Survey on Travel Behavior,” April 2018
  17. U.S. News, “Best Hotel Rewards Programs,” February 2018
  18. FlyerTalk, “FlyerTalk Awards 2017,” April 2017
  19. IdeaWorks Company, “2017 CarTrawler Hotel Reward Payback Survey,” October 2017
  20. The Points Guy, “The Best Hotel Loyalty Programs in the World,” March 2018
  21. J.D. Power, “2017 Hotel Loyalty Program Satisfaction Study,” November 2017
  22. Lodging Magazine, “The Urban Hotel Market Challenge,” February 2016