With Four Seasons Hotels even about to launch new elite rewards, it’s become clear: loyalty holdouts lose out. The principles of loyalty marketing apply to all travel businesses, and to other industries too.
- Ritz-Carlton used to claim it didn’t need a loyalty program. Customers chose the brand because of the service and product they offered. It somehow seemed beneath them to bribe guests with points. And then the Great Recession happened and they joined Marriott Rewards.
Of course they kept their own, separate branding (“Ritz-Carlton Rewards”) but the programs were identical, except for segmented promotions. It took the ‘big bang’ of Marriott, Ritz-Carlton and Starwood programs to bring them all together as one.
- Wyndham used to eschew points and elite status. They used to have a program called ‘Wyndham ByRequest’ and they’d customize your stay from pillows to soft drinks. The idea was they too would attract business by treating every guest well on every stay. They, too, learned they needed to compete with a points offering and to take better care of their best customers than their median guest.
Now Four Seasons is expected to roll out a more robust elite program in January, too, now that business is suffering. What’s going on here?
There are fundamental principles that explain why loyalty marketing works.
- Recognition (elite program) customers who feel special and well-cared for come back.
- Reward (points or rebate) incentivizes share shift and incremental business.
Even if a customer loves a brand enough that the way they’re treated means they like a product, when other brands are offering rebates it’s important to match. That’s especially true when spending ‘other peoples’ money’ (you get something in your pocket for directing employer dollars) it’s also true when spending your own because it’s part of the net value proposition.
It works out best when the points cost less to provide than the value a consumer derives from them (the concept of a saver award and getting outsized value, something hotel programs are gutting when they move to high and low season pricing of redemptions that push programs towards average value).
There are ‘me too’ or also-ran programs, JetBlue early on was reluctant to roll out a loyalty program. Low cost carriers often focus on revenue-based or pure rebate programs. As they matured it began to matter more and they have realized the program does make a difference filling seats.
Adam Aron, former VP of Marketing for United and Hyatt and CEO of Starwood Hotels and Vail Resorts, explained to me several years ago that introducing a customer loyalty program even drove significant incremental business when he ran the Philadelphia 76ers. It’s no coincidence they have a co-brand credit card.
How much it makes sense to invest in a customer depends on a product’s margins, and the extent to which elite benefits versus rebates matter to a customer depend on their profile and subjective preferences – but the basic principles are the same across customer groups and even industries. What form the program takes can vary, but recognizing and rewarding customers matters.
@ Gary — I heard that Four Seasons’ new program includes free passes to the nearest adult bookstore.
@Gene — Well I heard it also includes discounts on crematory services.
I wish hotels focused more on customer service than points. Consistently great customer service will drive loyalty (as will points). I left my job ‘stuck’ with 2 million Marriott points. Rooms are consistent but customer service varies widely. I will willingly pay 10% more for the same item/room when customer service is great, consistently great. I wonder why hotels do not seem to take treating people like people rather than someone filling a bed.
@Thomas Z – great point, this is the fundament difference between Marriott (a rebate program) and legacy Starwood (a true customer service program).
I saw the writing on the wall (experienced it too) and thankfully jumped ship to Hyatt last year. The grass can be greener on the other side!