The sheer scale of the hotel industry means that hotels are in a constant battle for attention. In this increasingly competitive online booking space, they’re often forced to drive down room rates to incentivize bookings.
For many properties, this practice simply isn’t a sustainable way to do business. The reliance on OTAs has also meant that while hotels increase exposure and distribution, their profit margins are eroded once again by hefty commission fees.
When travelers have endless choice and their pick of deals, how can hotels boost direct bookings without discounting? One way is by partnering with hotel-specific rewards platforms, such as The Guestbook, StayWanderful, and Rocketmiles.
A lot of hotels remain hesitant as to whether these reward platforms really do deliver a return on investment. How much impact do they really have on driving direct traffic and increasing conversions? In the following post, we’ll address that concern against the backdrop of changing guest loyalty.
The shift in guest loyalty
Earning the loyalty of guests to drive direct bookings has become something of an obsession in the travel industry. Marriott and Hilton have both invested heavily in well-publicized marketing campaigns to promote their own loyalty programs. In the OTA space, Booking.com and Expedia have also launched loyalty programs with incentives such as discounted rates and freebies for certain hotels.
Yet traditional points-based loyalty programs don’t hold the appeal they once did. For one thing, the industry has reached saturation point. According to COLLOQUY’s biannual report, U.S. households hold 29 loyalty programs, but are only active with 12 of them.
But there’s something more deep-rooted at play: today’s traveler wants immediate gratification. They live in an on-demand world of endless choice and instant rewards. Accruing points and waiting months (or years) to redeem them suddenly feels deeply out of step with modern consumer lifestyles.
A study by PwC found that 60% of leisure travelers hadn’t redeemed their points in the past year. If the typical leisure traveler takes a vacation once or twice a year, staying loyal to a hotel for benefits they might enjoy in the future lacks the quick appeal most are seeking.
Using these platforms, travelers are incentivized to book direct with a hotel in return for earning cash back on the room rate, or gaining instant rewards to use on things such as airline miles, or services and products with companies including Amazon, Starbucks and Uber.
Yet the big question for hotels is, do these reward platforms deliver a return on investment?
A sound return on investment?
When a guest books direct with a hotel that has a reward-based platform, a hotel might question whether they’re losing money by unnecessarily sweetening a deal. Would that same guest still have booked anyway?
It’s impossible to predict how each guest might otherwise have acted, but it is possible to take a broader analysis of overall booking trends when a rewards-based platform is introduced. This allows the possibility to compare overall profit with and without such a platform.
But before that initial investment, there are certain factors hotels can weigh up to decide whether investing in a benefits platform makes sense in the first place.
Know your audience
Knowing the general level of guest loyalty at your hotel is a simple but important place to start. Are you able to rely on a decent amount of repeat bookings, or does your property have to constantly attract new customers? If it’s the latter, a benefits program may help reduce the amount you spend on marketing.
It’s also important to consider how responsive your audience might be to certain benefits. This is where you need to dive into your data. For instance, are there certain upgrades, amenities or services that your guests are particularly responsive to? Or are they driven more by the idea of saving money on future stays than receiving products and experience-based rewards
Different benefits platforms offer different rewards. Knowing what incentivizes your own guests can make it easier to choose the right one. By looking at past booking data and information from on-property interactions, you’ll get a sense of what offers and rewards your audience will mostly likely take advantage of.
Consider the added value
According to a study by PwC, guests on average are prepared to spend an additional $25 on their preferred hotel brand. They also regularly spend extra on their favorite services. So when you consider whether offering benefits to attract direct bookings makes financial sense, it’s important to consider the long-term guest value.
A separate study by Deloitte called “Winning the race for guest loyalty” argued that the true value of a loyalty program is the change it drives in consumer behavior.
Most obviously, this can be applied to guest spending on added hotel services. But there’s also something less quantifiable yet equally important to bear in mind: How do the benefits and rewards a guest receives by booking direct improve the overall quality of their experience with you?
A happier guest is more likely to rebook with you, and more inclined to give you a great review.
So when judging whether a guest would have booked direct anyway (regardless of the benefits they were offered for doing so), the guest value and potentially enhanced experience they have with you need to be carefully factored in.
Weighing up your investment
Once you’ve invested in a rewards program, the key to profitability is ongoing evaluation. This is where you really need to dig into the numbers. And the best metric to measure the performance of particular products or campaigns is by conversion rate.
After implementing a rewards program, look for an incremental lift in bookings. If you see that your bookings are increasing, you know the program is positively impacting performance.
Experimentation is key
The only way to be sure if rewards and redemptions work for your hotel is to experiment. If you’re looking for a new way to drive bookings that doesn’t rely on lowering room rates, this approach offers a potentially attractive alternative.
The modern day traveler is prepared to shop around for the best rates, and able to easily compare hundreds of hotels via OTAs and metasearch sites. With such fierce competition, the temptation to cut room rates and offer endless deals is a compelling one in the fight for attention.
Rewards and benefits offer a different way to stand out by offering guests added value. While all hotels must decide on whether it makes financial sense, those that use industry-specific rewards platforms certainly put themselves at an advantage—both in terms of competing with OTAs and rival hotels promoting traditional points-based loyalty programs.