Hotel Customer Loyalty: Who to reward new customers or loyal ones?
Hotel customer loyalty programs can be very tricky. Many of our hotel clients ask us which customer we think they should reward: new ones or current ones. Today, many hotels and resorts reward new customers as way to generate trial to their product, with some rewarding only those loyal customers who stay often at their properties. When considering adding a loyalty program for your hotel or resort, the question is which one of these strategies to pursue, either rewarding new customers or current customers.
The answer, just like most things, is “it depends”. Why it depends? Because every hotel has a unique scenario. However, we can provide you with a little guidance with two simple scenarios you might have and help choosing the right customer to reward in your loyalty program.
Two Camps of Thought about Customer Loyalty.
At Valorem Group we have two camps of thought about loyalty, the Business Camp that suggests that those customers who repeat often are in love with the hotel’s services and amenities, and that s/he would be willing to pay more for it, making discounting a decision that will negatively impact the bottom line. They believe that only new customers should be rewarded to generate trial and that current customers should be awarded little in the form of rewards other than low cost upgrades.
The other camp is the Loyalist Camp that believes that the only way to maintain a client is by offering them perks that keep them spending more money, more often, for more products/services. They claim that discounting leads to a loyal customer with a lifetime value that positively impacts the bottom line in the long term, and that new customers should not be rewarded without proving loyal habits. They claim that rewarding new customers only decreases the value of patronage to your loyal customers.
Two scenarios to help you decide whom to reward.
We think that both camps have valid points, but that the validity of the points depends on the hotel and resort’s competitive landscape. Lets first cover the two simple scenarios that hotels and resorts are very familiar with to help us decide whom to reward: 1) Hyper competition. We hear about it all the time, more hotels, more inventories, more options for the consumer and more tools which keep consumer focus on price. 2) A small concentration of customers that repeat often and produce most of the hotel and resorts revenue. Yes, it is the famous 80/20 rule, where 20% of your customers produce 80% of your revenue.
Discount in Highly Competitive Markets.
The rule of thumb is that if you have a highly competitive environment, you discount to new customers. If you have low competitive environment then you don’t discount to new customers, yet focus on loyalty. That should make sense to industry players who might have been at a resort in a not-so-popular area, and as more inventory comes on line have seen ADR and RevPar come down in an effort to drive trial to their resorts. Imagine for example the first hotels in Cancun and compare it to today’s hyper competitive arena. Hotels and resorts are clamoring for new business [heads in beds] and for that are continuously offering discounts for new guests.
If along with a large competitive set you also have an equal-spend-customer, meaning that every guest spends the same amount of money at your resort or hotel, then we see the path of rewarding new customers as optimal. Remember, offering rewards to frequent-stay guests will not ensure a repeat visitor if there are many low priced options from competitors in your market space. In these two scenarios, discounting to NEW CUSTOMERS is the absolute way to go.
High Competition, Low Concentration of High Paying Customers.
If on the other hand you have a high amount of spend among a small percentage of guests [the 80/20 rule exists], then you only discount to your most loyal and profitable guests. Yes, this means you measure the amount the dollar spend of those guests to make sure they are your best customers. It also means you gauge the amount of services that they consume on and off site and debit it to from their total spend [to make sure your margins are not already at an all time low].
When Your Loyal Customer is a Drain on your Budget.
Have you ever had that loyal customer that absorbs most of your front desk personnel’s time and that of the hotel wait staff , who returns more food then s/he consumes, and cancels their reservations more often? All of this is cost and should be tallied as a debit to that customer’s loyalty algorithm to ensure that you are not spending all of your staff’s time on one very loyal customer (unfortunately). Many ask us if they should “fire” their best clients, and we always say “NO WAY”. You should reassess their real costs and charge them more. Yes, charge more and provide little if any loyalty rewards for a return visit. We suggest you don.t tell them, just do it.
Are loyal customers really loyal?
One thing to watch out for too is the loyalty rate of your most faithful customers. So before you whip out the Perma Perks program for Mr. Smith, make sure that Mr. Smith’s company offices aren’t next door to your hotel and that he will stay there every time he is in town versus commuting 45 minutes to get to work in the morning from an alternative hotel. Make sure you are not on the way to the airport and that Mr. Smith doesn’t come in for a meeting and next morning move on to the next country. Make sure Mr. Smith isn’t an investment banker and that your hotel doesn’t already offer him/her a great image in the community. His rewards may be different. Everything must be looked at and the right program designed.
We suggest you break down your guests not by the amount they spend and number of times they visit you, but by the different types of customer “personas” carefully reviewing their needs and what provides them with value. Go ahead and reward differently for each group. Forget Gold, Silver and Platinum, segment by clusters, kind of like teams, and fulfill their needs. Maybe the investment banker needs a special table in the lobby that is reserved for him during his stay. That wont cost more, but is a huge advantage to him during his business trip.
One more note. Now that you are segmenting and rewarding, please segment internally. What I mean is, please don’t have any reservations agent respond to your most profitable clients, have a special and empowered employee handle those calls, nothing can be worse than being a top customer of a rewards program and then having to hear a customer service representative provide you with no solutions to your simple needs. Internal segmentation is critical for success of any real loyalty program. We will discuss this option in further posts.
Want more tips about how to market your resort, simply log into the Tips and News Section of the Valorem Group Website. If you are searching for corporate incentive programs and want to work with one of our partner hotels to create a corporate incentive program that will increase your bottom line, contact us at firstname.lastname@example.org
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How to Market a Resort
While we all try to avoid talking business during social dinners at the home of friends, it is evermore frequent that we get asked the most popular question: “What could I do to market my resort”, traditionally ending their sentence with “without spending a fortune to do so”.
While every scenario is different, we have decided to compile some very simple elements yet essential elements of an affective marketing plan for hotels and resorts.
As always, we will supply industry partners with more detailed plans or the with the support services needed to execute world-class marketing plans to expand your hotel and resort’s footprint.
1. Train and motivate your sales force. We have found that motivation can be as simple as awarding your sales person a Friday off for the closing a much needed group or incentive program, or telling them the more they close the more marketing dollars you throw behind helping them generate more leads. These can be:
a. Hire temporary support by contracting a telemarketing service while your sales people are traveling, working trade shows or operating group functions.
b. Design a tradeshow plan to secure more exposure for your sales team and therefore generate more leads. Most resorts don’t use a plan, their “plan” is to show up and to have material to give away, little is done to attract people to hotel and resort booths.
c. Make sure your sales team has ample face-time with their top clients, with so many competitors getting in front of your clients even if only online.
2. Email blast. Yes, email still works, but only if you do it correctly. Segment those clients who travel in a specific season by offering them perks for only those periods of time when they travel. Pay attention to guest moves across your website and when asked about specific information for your onsite spa or amenities, don’t send them emails about your snorkel excursion focus on creating a plan for what your customer wants. Personalization is key.
3. Use social media to stay in front of your meeting planners and customers. Before you start your social campaigns you must make a few decisions on which channels will best reach your specific target. You don’t have all the time in the world and your clients aren’t on all channels. See our other articles about social media specifics.
4. Search Engine Optimization. We have all heard this a million times, but it is a critical component if you are to generate leads. In the past companies executed key word analysis and then attempted to change things across your website to match those key words. See our other articles about SEO planning.
We hope this gives you a little insight into what is needed to market your resort. At Valorem Group, we help hotels sell, market and create the best content plans for their audience. There are affordable plans for resorts of all sizes and you can select one or all services.
If you would like to read more marketing plan tips and news, click onto https://valoremgroup.com/tips-news/
Contact Victor Bao at email@example.com or call 786.546.2778.
Restoring Group and Incentive Fortunes in Today’s Business Environment.
For a little over four years we have watched many of our hotel and DMC partners focus on cost-cutting activities across their organizations in order to hold on to cash in uncertain times. Cost cutting became the “new” old strategy used to reach their goals.
Since most General Managers and executives had not lived a recession of this magnitude, they quickly searched through their memory banks and latched onto a familiar strategy: cutting wherever possible. Cut marketing, sales people, support staff and even c-level suite positions. Marketing and sales staff worked in a permanent “triage” mode handling a multitude of tasks with as much speed and efficiency humanly possible. This left teams in complete disarray and now executives must consider the Post Economic Stress Disorder (PESD) this recession and job cuts will cost them when they inevitably transition to a sales strategy for growth.
With this apparent shift from cost cutting to growth, the main question is whether executives should dive back into the familiar sales and marketing efforts in a new era, or do they reinvent the entire sales and marketing process. Since no substantial thought was used to solve the economic woes of companies in 2008, I am fearful that no real brainpower will be used to reevaluate the sales process and marketing strategy for the years to come. Some say “if it isn’t broke, don’t fix it”, but it is broken and it is time to fix it.
That being said, I offer a few quick observations for hospitality leaders to consider before they move forward on growth plans and strategies.
What’s the solution? It’s time to rally your troops. These crisis years have taken their toll on your team and they may not be ready to fight in the new battle ahead. You must eliminate their nervousness, their guilt from having remained while their colleagues were let go, and remove their anxiety. How? Reinstate a training program, organize an effective retreat, involve them in change and reward them (using simple rewards) for their conscious efforts.
It’s also imperative to reevaluate the way you lead. A good exercise is to make believe that you have just been hired to do your job. What would you do differently? Now go ahead and do it. Past methods will not produce great results in the years to come so forget them and start anew.
2. Break away from past year’s blueprints. Yes, in order for you to transition from cutting costs to growth strategies you must reinvent the way you and your teams operate. Start with candid conversations about what you have learned about your customers, your service and your real shortfalls as a hotel or DMC.
Your first plans should not be market plans, but plans on how to regain your footing with the new customer sentiment. Don’t forget, you have gone through changes and so have your customers.
3. Reevaluate your competitors. Yes, you knew them, but lost track of them over these years while you were busy cutting costs. Take a good look at their entire sales and marketing structure. Are they less competitive because of a reduced staff? Did they not cut back staffing at all? Is their service worse or is it now better than yours? Has their price point changed?
Take a careful look at your market share and see which competitor has walked out of this recent war with the most amounts of victories. Understand your new situation before you start charting your course.
4. Interview your clients. Yes, it has been some time since you have engaged your clients and asked them what they would change about your hotel, its amenities and its service. Know that customers have moved up and down the star rating line so analyze which ones moved from a 5 star property to your 4 star resort but without changing their deluxe expectations.
Consider changes in customer migration patterns as they moved around the U.S. searching for new jobs, relocating to affordable areas, etc. Check the gender of your current consumer base. At one of our client properties we pulled a full data feed from customer check ins and discovered an increase in women as business travelers of 12% making them the dominant guest while all marketing plans still catered to men. It is not time to step back, but to step forward with clarity.
5. Plan differently. Most plans are created in sync with the hotel’s fiscal year or calendar year to better understand the year’s budgetary needs. This year you will need to develop an annual budget, but want short term gains from this long term planning. It isn’t going to happen unless you change the way you create plans.
We suggest you not write a plan. Write everything that your team believes will impact sales throughout the year on a long list. Put these activities into a “backlog” of items. Now that all items are listed, make sure that costs are associated with each activity along with a quick ROI figure (yes quick ROI). Have your team tell you what they will take from the backlog list and execute during the next 30 days. If one person decides they will go on a sales blitz to say New York City in the next 30 days, ask the rest of the team how they are going to help him make that trip as successful as possible.
Perhaps one person will help make appointments, the other will send an email to people in New York they have had contact with and one will set up a breakfast training at a high-end agency. The key is to generate a tactical plan where the entire team is engaged in the attack. No war was won without all elements of front line soldiers combined with back end services and support.
Our message is clear: generate renewed energy to fight the battles to come and do this by motivating your team, changing the way you plan and lead, and understanding your new competitive set, market positioning and demographics.
Victor Bao is a Fellow of Valorem Consulting Group and a Professor of Marketing strategy at Florida International University and a Professor of Market Research at the University of Miami.