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March April 2017
For Business, Corporate Travel & Meeting Buyers & Arrangers

Analysis: hotel loyalty schemes and cost to compliance

Hotel loyalty schemes are growing in importance and popularity, but at what cost to compliance?

WHEN MARRIOTT INTERNA­TIONAL merges its Mar­riott Rewards loyalty scheme with the Star­wood Preferred Guest (SPG) programme – expected to take place sometime in 2018 – it will create a 75 million-plus global behemoth of a frequent guest membership club. But it still won’t be the biggest: that honour will remain, as present things stand, with the Intercontinental Hotels Group (IHG) Rewards Club, with some 92 million members.

Marriott’s US$13 billion takeover of Star­wood Hotels (approved in late September) will give Marriott CEO Arne Sorenson the opportunity to reshape the loyalty schemes of both hotel chains to embrace the changing landscape in the way in which the global hospitality groups market their room inven­tory. His first action as soon as the deal was completed was to enable members of both schemes to link their accounts, giving them reciprocal access to the 5,700 hotels (more than 1.1 million rooms) spanning 30 brands.

The speed of the move to allow accounts to be linked came as something of a surprise, with analysts pointing out it took American Airlines and US Airways five months to enable their separate loyalty accounts to be linked after their merger in 2013. But, for Sorenson, this is still some way short of a fuller integration of the loyalty schemes.

Sorenson also made clear at a recent global travel conference in New York that adding Starwood’s well-regarded SPG loyalty programme – especially popular with frequent travellers – was one of the key reasons he fought so hard for the Starwood deal to succeed (see panel, p36). Loyalty programmes, he said, were “the principal tool we use to have direct relationships with our customers”.

A MORE PERSONALISED SERVICE

The name of the game for the global hotel chains is increasingly seen as getting closer to their guests, whether staying for business or leisure. While buying airline seats seems to be becoming more of a commoditised purchase, the big hospitality brands are increasingly opting for a more personalised service and making a hotel stay an ‘experi­ence’ in a bid to woo custom, be it on busi­ness or leisure.

Not surprisingly, this is partly being driven by the growing influence of the mil­lennial generation on hotel design and utili­sation. But there is also an understanding among hotel group chiefs that the relent­less focus on creating brands for virtually every micro-segment of the market is fuelling guests’ increased expectations of what they want from a hotel. And the key to this is data capture, starting with the booking process and continuing throughout the guest’s stay and after they leave the hotel.

Yet there has been a problem for the big hotel chains from the growth of online travel agencies (OTAs) such as Expedia and Priceline having built up such a major role in hotel distribution channels. One consequence of this is that the OTAs have jealously guarded the customer data they collect, not only to protect their future access to these clients, but also limiting the amount of data the hotels gain automatically.

Even routine information such as a guest’s email address is not always made easily accessible to hotels when booked through an OTA, denying them the oppor­tunity to market offers and information direct. Priceline’s Booking.com, for example, reportedly sends ‘personally identifiable information’ such as email addresses in an encrypted format to hotels for ‘security reasons’. The hotel can decrypt the data, but it is not a seamless transfer.

“I think the [customer] data from the OTAs is getting better,” said Sorenson at the New York conference. “But historically we haven’t really gotten much data from the OTAs.”

It is no surprise, therefore, that the global hotel chains have turned to rejuvenating their loyalty programmes, capturing key data (especially email and mobile numbers) to help build up a fuller picture of guest preferences and what will encourage repeat business.

BYPASSING THE OTAs

But hotel loyalty schemes also have another significant role to play: they are the pivotal weapon in the global chains’ efforts to encourage more travellers to book direct with hotels, bypassing the OTAs, whose commission charges range from 15 per cent to as much as 30 per cent.

Earlier this year the top chains – in­cluding Hilton, Marriott, Hyatt, IHG, and Choice International – launched new strategies aimed at encouraging travel­lers to book direct (thus avoiding paying those hefty commissions to the OTAs) by offering discounts – effectively the lowest available prices – to those members of their loyalty schemes who booked via the hotel groups’ own distribution channels. Carlson Rezidor recently became the latest player to offer special rates, in this case to members of its Club Carlson loyalty programme.

Marriott offers members a discount of at least 2 per cent on the lowest available public rate during the week, and up to 5 per cent on weekends. These rates are not only available direct but also from an “authorised travel agent or select corporate travel partner”.

This ‘book direct’ strategy has been backed up by extensive advertising and marketing campaigns by the major chains, although the jury is still out over how ef­fective it will prove to be in the long run.

ROOM FOR COMPROMISE

But there are some signs that talk of a ‘battle’ between the OTAs and ‘book-direct’ hotel chains may be a bit excessive: both Sorenson and Expedia chief executive officer Dara Khosrowshahi, speaking at the New York conference in September, separately suggested that de­scribing their relationship in this way was a mischaracterisation.

In fact Expedia, in the summer, went one step further by arranging for the small (124 hotels) Red Lion Hotels group in the US, not only to sell its members-only rates through the Expedia/Hotels.com websites but also automatically enrolling non-members in the scheme so as to qualify for the special rates.

Yet the new focus on hotel loyalty schemes – for so long the Cinderella of the travel marketing world, compared to airline frequent flyer programmes – has also awakened the ‘elephant in the room’ issue for corporate travel departments: how far does accruing hotel loyalty points by those travelling on busi­ness affect compliance with the company travel policy?

A GBTA survey of US travel managers last year, for example, suggested that one of the underlying reasons for non-compliant hotel spend was hotel loyalty schemes. And a recent review by Carlson Wagonlit Travel (CWT) of the impact of the Marriott-Starwood merger, based on clients’ hotel spending, suggested that the combined group would account for nearly a third of all non-compliant hotel spending among the top chains. “This is likely to have a negative impact on buyers’ leverage with the new group,” CWT says.

But others believe the corporate ap­proach generally appears to be rather more hands-off. “From our experience, we do not see corporations enforcing control over the hotel reward points,” says Paul East, chief operating officer (UK/Europe and Americas) for Wings Travel Management.

While the more-established airline loyalty schemes often are part of formal travel policies, hotel schemes can be regarded as less important, possibly because the spend involved can be con­siderably lower.

“Reward points specific to hotels are not mentioned within our travel policy as such, although airline rewards are,” says Peter Macey, travel buyer for the Medical and Dental Defence Union of Scotland, a medical indemnity union for healthcare professionals. Individual travellers are allowed to keep the hotel reward points “but they do not affect the way we book hotels or which hotels are chosen”, he adds.

Jef Robinson, a travel buyer for an international software organisation, also says that employees can retain hotel award points for “transient travel” to help improve their productivity or reduce direct company costs. So ‘best-available’ rates though loyalty schemes are helpful, where no pre-agreed rate exists, while free wifi, breakfasts and other loyalty perks both can enhance the stay and reduce expenses incurred.

The benefits of the new generation of hotel rewards are particularly useful for those companies in the unmanaged travel sphere, such as SMEs (small- and medium-sized enterprises). But they are also impor­tant in the managed world where preferred hotel agreements are increasingly popular.

“Hotel loyalty programmes do help drive compliance so long as the traveller doesn’t go ‘off piste’ and have a loyalty card with a non-preferred chain,” points out Stuart Birkin, Corporate Travel Management’s director for account management.

“If the corporate buyer selects the right preferred hotel chain in the first place, policy compliance and value should be high as travellers build up their points within that scheme,” he says. “And the hotels will get repeat business, so everyone wins.”

GETTING THE BEST DEAL

Yet one unanswered issue is whether the ‘book direct’ strategy adopted by the major chains is the only way to get the best deals for buyers. As FCM Travel Solutions’ gen­eral manager Jo Greenfield told editor Paul Revel in Buying Business Travel’s last issue, travellers can get the same benefits – such as loyalty points – booking through the travel management company (TMC) and global distribution system channels.

Paul East of Wings agrees. “We believe it comes down to a case-by-case approach between the TMC and hotel suppliers,” he says. “We understand our clients’ objectives and so when we meet with hotel suppli­ers we make these points clear. Then it all comes down to reaching the best agreement that can be made.”

Yet for those road warriors out there looking for something different from their hotel loyalty programme – such as how to use their (company-paid) points for the best-value holiday – then head to Muchopoints.com, a fledgling US website which not only helps you earn the most points from your hotel stay but will also help find a suitable holiday hideaway. But just don’t tell the boss.

Will SPG deliver for Marriott?

WHILE MARRIOTT INTERNATIONAL was one of the first hotel chains to launch a loyalty scheme way back in 1983, it was the Starwood Preferred Guest (SPG) programme (which debuted in 1999) that took the concept to a new level by scrapping the much-hated ‘blackout’ dates and capacity controls on room availability at busy times.

Starwood has remained an innovator in the loyalty world: in 2014, for example, it created a loyalty scheme (SPG Pro) for meetings and event planners, and other travel professionals who brought business to the group’s hotels. Starwood also claims to be the first to have developed a programme of special ‘experiences’ for members, called SPG Moments, which include VIP access to top sports, music and theatrical events, with opportunities to mingle with the ‘stars’.

In some respects it’s surprising that Marriott CEO Arne Sorenson has been so keen on acquiring SPG. The 2016 annual survey of North American hotel loyalty programmes, carried out by US market research group JD Power earlier this year, found that SPG came 13th out of the 14 schemes monitored.

Yet another new survey (October 2016) of six global hotel loyalty programmes, carried out by US travel marketing consultancy Ideaworks, put SPG in bottom place for reward value of just US$5.60 for every US$100 spent on room rates, while Marriott came second (US$9 for every US$100).

But SPG did finally come out ahead of Marriott in the Best Hotel Loyalty Scheme category at the 2016 Business Traveller Awards in October, as readers placed it third, with Marriott fourth. Hilton HHonors took top spot, with IHG Rewards Club second.

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