Sustainable Loyalty: How Independents Hotels & Vacation Rentals Can Build It for Revenue Managers

January 18, 2018 Cody Putman

 

Trust is built in very small moments

John Gottman, Professor and Co-Founder The Gottman Institute[i]

 

Of the multitude of things hotels and vacation rentals must factor into their daily tasks, weekly measures, and annual strategies, loyalty may well be the most all-encompassing. Loyalty reflects on how well a property has performed in all of its duties. Loyalty can serve as a vital measure of the overall health and potential profitability of the operation. For our purposes in crafting productive cross-channel strategies (the ones that optimally integrate online and offline tactics), loyalty directly affects booking channel strategies and guest acquisition costs.

 

As a result of the billions of dollars poured into advertising direct bookings and rewards programs, loyalty has become synonymous with steep discounts and points. However, it is so much more, and until we dive deep into the loyalty trend to reframe it for what it is, we won’t find sustainable loyalty.

 

Revenue managers must be especially tuned into the mechanics of achieving and maintain loyalty. First because generating loyalty can be very costly if it does not focus entirely on sustainable rates, and second, keeping guests in the long-term has everything to do with a properties financial health.

 

(Re)defining Loyalty

So what is it? Loyalty is historically a top-down term associated with feudalism (i.e., the king and his loyal subjects). The definition of loyalty is “faithfulness to an obligation.” Clearly, obligation is not what we are going for with loyalty in the hospitality world.

 

More recently, it has become transactional. Jeff Robertson, NAVIS VP of Marketing, notes that “big brands have turned loyalty into a transaction, a concept built on frequency. Loyalty is about the experience, good times, trust. When you look closely at what loyalty really is, it’s clear that independents and vacation rentals have an edge, but they must understand it and nurture it.”

 

A more productive and viable approach to loyalty would be for properties to seek dedication. Devotion. Fidelity—faithfulness to a relationship. And when you reframe it you see that loyalty can’t possibly be built on a foundation of transactions and discounts. These are enticements, but they do not create trust. Case in point, Deloitte notes, “Consumers who have a conscious favorite among hotel brands will spend the extra money and drive extra miles to patronize that brand—even if they don’t have rewards to use at the moment.”[ii] While it can be a challenge for revenue managers to embrace this notion of “dedication” (because what about this is quantifiable?), know that when you follow something qualitative like this with clear tactics, ROI is the natural outcome.

 

The Current Loyalty Trend

Loyalty is profitable in the long-term. Repeat guests reduce guest acquisition costs and over time they also spend more. BIA/Kelsey reports that a repeat customer spends 67% more than a new customer does.[iii] But is the current loyalty trend, which is so focused on transactions and discounts, actually profitable?

 

Even if the big hotel brands have conflated loyalty with rewards programs, the campaigns have initially shown results. This doesn’t necessarily mean that they have created more loyal customers in the long term. They have simply increased their “loyalty potential,” while generating demonstrably more revenue. Reporting on the results of the investments the brands have made, Kalibri Labs notes, “the median Net Revenue benefit for the sample was between +$9,000 to +$33,000 per hotel when taking into account all discounts, trade downs, loyalty and commissions costs for the subset of the business that was targeted by these campaigns (retail transient).”[iv] Let’s be clear, though, that with or without a rewards program in place, increased revenue is a natural byproduct of having better, long-term relationships with guests, and the first results back from the big brand loyalty push don’t tell us how well the properties have executed on this.

 

Harvard Business Review (HBR) reports that research by the inventor of the net promoter score showed that a 5% increase in customer retention increased profits by 25% to 95%.[v] There is a caveat, however. Many companies that use deep discounts as a way of increasing customer retention have what HBR calls high churn rates, that is a high percentage of people who leave a company within a particular period (measured by month, quarter, or year). Jill Avery of Harvard Business School says that “ ‘Many firms are attracting the wrong kinds of customers. We see this in industries that promote price heavily up front. They attract deal seekers who then leave quickly when they find a better deal with another company.’ ”It’s too early to understand the implications of the direct booking campaigns on churn rates.

 

The takeaway for hotels and vacation rentals looking to boost loyalty is to maintain focus on the segments that are appropriate for your properties. Pursuing volume alone is a waste of budget, and adopting a loyalty program as a means to generate a long-term guest base won’t solve a loyalty problem, even if it might generate some up-front revenue. The key is to avoid focusing only on discounted rates, which can lead to high churn rates while diminishing the brand, and instead put affordable online and offline programs in place that nurture relationships and create trust.

 

How Do Independents & Vacation Rentals Create Trust

What independent hotels and vacation rentals require more than programs and deep discounts is trust. Author Brent Gleeson says of quantifying trust, “Low trust organizations suffer in the areas of high employee turnover, customer churn, slow speed of execution and increased costs for getting things done.”[vi]

 

Researcher and Professor Brene Brown, in her talk “The Anatomy of Trust,” notes that trust it like filling a marble jar—each marble reflecting on small moments that create something that can be shared.[vii] Every interaction must be a marble, but in the hospitality world, some marbles are weightier than others. Interaction with your agents, call centers, front desks, housekeeping, restaurant staff - these go much further in creating trust, and in the long-term fidelity, than websites and apps and tablets.

 

“Trust doesn’t mean you have to be perfect (except when it comes to data security; there you really do have to be perfect). It means you must be honest and reliable and have integrity,” says NAVIS CEO Kyle Buehner. “Of course, the message is delivered through your people and their interactions with guests, but to be all of these things, you must also have the systems in place that have the guest relationship as their top priority. If your mobile key malfunctions or your PMS assigns the wrong room, your systems are undermining creating trust.”

 

Conversely, implementing technologies that build those moments of trust can create loyal guests. A seemingly simple feature that re-routes a guest to the agent she spoke with on her first call builds trust. It demonstrates an investment in making the guest experience efficient from the very beginning. Recalling a guest’s name builds trust. Remembering something about a guest—a special occasion, a love of swimming, the need for quiet—either by memory or by having made a note in the PMS/CRM that can be accessed by others on property… this builds trust. It is a dance of savvy, invested staff and technology to support them.

 

How To Sustain Trust in the Long Term

A surprising amount of the time properties rely on sending an occasional offer or package to encourage repeat visits, but this approach fails to maintain a relationship with the guest—and relying too heavily on discounts negatively affects top line growth. A relationship depends on engagement, dialogue, showing interest. Asking for feedback shows interest. Having an agent make an outbound call creates a dialogue. Segmenting your list so that only certain guests receive certain messages increases engagement. According to Strativity, frequency of interaction builds loyalty and advocacy; that is, the more frequent the interaction, the more loyal the customer.[viii] In the same way that a first-time reservations sales lead should be nurtured so, too, should loyal guests. Doing so involves both online and offline tools. When it comes to digital marketing, over half of marketers report that email marketing far exceeds other tactics in successfully building customer retention.[ix] Perhaps it is the set-and-forget nature of email, or the ability to segment and personalize, but conversions on email continue to be some of the highest for the low cost of delivery. The only thing better: a phone conversation, which delivers on cost to value.

 

Do You Need a Program?

Loyalty programs for both independents and vacation rentals are available, but they aren’t the path to guest fidelity. While they can bring in new guests, rewards programs are just one among many tools in engaging with guests. And for some guests, they are too complicated. Seventy percent (70%) of consumers do not sign up for a loyalty program due to the inconvenience just to complete registration.[x]  Over a third of air travelers report that they never collect points when flying, according to Skift.[xi]

 

As Prasad Dhamdhere notes, “It’s very hard for the loyalty framework to break away from the transactional spirit... loyalty, which in essence is an emotion, may not be gauged by the loyalty programs.”[xii] Even with a loyalty program in place, guest loyalty comes down to far more than points and discounts. It is created from enthusiasm, service, and trust. And the more trust you can generate over time (remember the marbles collecting in the jar) the more loyal the guest will be, and the more profitable your operation will be in the long run. Implement tactics, training, and technologies that are relationship builders and you will inevitably exceed guest expectations and keep them coming back.

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