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Are loyalty programs and rewards enough to keep customers loyal to a brand? Why or why not?

The best demonstration of brand loyalty in hospitality and travel, in general, is the share of repeat business. Travel consumers are buried under an avalanche of options and offers, and if they repeatedly choose your brand over the competing alternatives, obviously your brand has an appeal above and beyond the competition. This appeal is a result of the perceived value proposition of your brand and the travel consumer’s emotional attachment to your brand.

Of course, not all consumers are brand loyal. Direct Marketing Association (DMA) defines four types of loyal customers: Active Loyals (43%) who stay loyal to brands for both routine and special purchases, Habitual Loyals (23%) who are loyal for routine purchases but shop around for special services, Situational Loyals (9%) and Active Disloyals (27%).

Obviously, the most valuable are the first two categories, especially the Active Loyals. Amazon, Apple, Google and Microsoft, the most valuable brands in the world in 2021, enjoy wide brand loyalty from the Active Loyals. In hospitality, marquee brands like Mandarin Oriental, Ritz-Carlton and Four Seasons are the ones that enjoy brand loyalty almost exclusively from the Active Loyals category.

For the rest of the "mass market" hospitality, it is impossible to nurture and maintain brand loyalty exclusively from the ranks of Active Loyals. This is why all major hotel chains use points-based loyalty programs with different membership levels in order to make their loyalty programs attractive to all four categories of loyal customers.

The major hotel chains also realized that awarding points was not enough of an appeal, especially to unmanaged business travelers and leisure travelers who typically belong to the Habitual and Situational Loyals categories. This was the reason why five years ago all major hotel chains began offering 5%-10% membership discounts to loyalty members when booking directly, in addition to the usual member perks and benefits. As a result, the loyalty programs ballooned. Marriott’s Bonvoy loyalty program now exceeds 125 million members, and Hilton’s Honors program exceeds 90 million members.

Loyalty programs with appealing membership pricing, perks and benefits are instrumental in increasing repeat direct business, lowering OTA (online travel agent) dependency and attracting a wide range of core and noncore customer segments, as well as new-to-the-brand customers.

In 2019, the last "normal" year in hospitality, the loyalty programs helped the major hotel chains:

What is the situation with independent hotels? Unfortunately, less than 10% of independents have any form of a loyalty program or guest appreciation program. This is the reason why at independents:

So, do loyalty programs work in hospitality? I believe the question of whether loyalty programs in hospitality still work is categorically answered by the differences in the share of repeat business and OTA dependency between the major hotel chains and independent hotels.

What role can social media engagement and advertising play in helping hotels expand their loyal customer base?

It is a valid assumption that customer engagement through social media may expand a customer base and encourage loyalty. However, loyalty has been the least likely driver of hotel booking, selected by only 13% of experiential travelers, as recorded by the Skift Research U.S. Experiential Traveler Trends Report 2019. The same group of guests overwhelmingly uses social media to share their vacation photos.

Therefore, the interesting question is how social media engages guests at different stages of their journey. How can hotels employ social media to enhance guests’ experience and boost loyalty?

In the pre-stay stage of a guest's journey, most hotels use social media for paid advertising to potential guests who fit the profiles of the desirable customer segments. Checking the basic demographic and geographic criteria when sending sponsored posts to users who supposedly fit the profile is not enough. Hotels could curate social media ads to match the lifestyle and interests of the targeted customer base. For example, instead of a generic sponsored post about the property or discount, emphasize pet-friendly features in the hotel to guests who post pictures of their dogs and live within driving distance of the hotel's destination. Special offers, discounts, promo codes and value deals are effective only if tailored to guests’ interests and needs.

During the stay, hotels could use social media to enhance interactions with their guests and deepen the relationships. Listen to the voice of guests by engaging them in contests and inviting user-generated content in exchange for perks, recognition and rewards. Integrate their social profiles with guest profiles to surprise and delight guests at premises.

Likewise, hotels could use their social media pages to personify or give voice to the brand by setting the tone of online conversation and advocating for issues that matter to their guests. Stories and live videos on Instagram and TikTok are raw, sincere and thus seen as more authentic by the guests.

Post-stay social media activities could be focused on evoking good memories via throwback posts to remind guests of their stay or to promote the perks of loyalty programs and referral programs to convert loyal guests into advocates who would attract new guests. This is the time to stay relevant in the guests’ eyes through occasional posts and inviting engagement while avoiding spamming.

A ValuePenguin study revealed that during the pandemic, 48% of millennials have booked multiple stays at Airbnbs, while only 24% have booked multiple stays at hotels. In your opinion, what can hotels do to appeal more to younger generations?

Before providing recommendations for hotels, it is important to understand why millennials book more home-sharing on websites such as Airbnb and VRBO than hotels. According to a Lightspeed/Mintel study, 40% of male and 27% of female millennials (born between 1980 and 1994) prefer home-sharing over hotels. These preferences were much higher than those of Gen X (born between 1960 and 1979) and baby boomers (born between 1940 and 1959). According to the study, 25% of male and 16% of female Gen Xers prefer home-sharing over hotels, while only 7% of male and 9% of female baby boomers prefer home-sharing over hotels.

Why do millennials prefer home-sharing over hotels? According to the Lightspeed/Mintel study, 53% of male and 40% of female millennials consider home-sharing a better value than hotels, while 45% of male and 29% of female millennials consider home-sharing more convenient than hotels.

Based on these results, hotels could do the following to respond to the millennial's preferences for home-sharing rentals over hotels.

Implementing steps one, two and three will be tough given that for some millennials, hotels do not even make it to their consideration set of lodging options. A good example is a 28-year-old who stated that "Hotels don't even come to mind when I consider where to stay. I go immediately to the Airbnb app and start searching and curating my whole vacation experience."

Are loyalty programs and rewards enough to keep customers loyal to a brand? Why or why not?

Loyalty and reward programs are effective strategies for creating brand loyalty. However, "effective" does not translate to excellent, in that, while they are effective, such strategies are also the obvious ones. Think of any grocery store saving card or sandwich store "buy 10 sandwiches and get the next one free" card. While such programs motivate a customer to use the services of the brand, it really does not create a meaningful relationship. In most cases, such loyalty programs are short-lived and do not create any meaningful impression on the mind of the customer.

In order to create a meaningful relationship, there must be an intrinsic motivation on the part of the customer to be associated with the brand — there must be some kind of a resonance, a feeling of being in sync with the brand. Such feelings will be generated, for instance, if it is perceived that the brand has the best intentions regarding the customer. The primary question then is how to reflect the caring aspect of the brand in terms of the customer. One way can be to show solidarity and support for causes/charities that the customer cares about — not just provide lip service, but real and significant support.

In essence, while loyalty and reward programs are likely to work as short-term tactics toward building loyalty, the long-term strategy ought to include more carefully thought through and researched avenues to draw the customers closer to the brand. Hence, using both is likely to be an excellent strategy.

Are loyalty programs and rewards enough to keep customers loyal to a brand? Why or why not?

Loyalty programs overall are extremely effective. Not only do people find value in the rewards points and the opportunities for free nights, but they also come with prestige. As you increase reward levels, you gain access to more features such as expedited check-in, late checkout and overall more attentive service. People also value consistency in their experience. Marriott does not usually rank high in terms of quality, but people are loyal to Marriott because it is a consistent, reliable experience. Think McDonald's.

What role can social media engagement and advertising play in helping hotels expand their loyal customer base?

The greatest value of social media in the hospitality industry is the ability to quickly respond to and address complaints before things go viral. Social media has become an excellent customer service tool for the travel industry overall.

Overall, advertising is most effective at reinforcing people’s existing preferences. Seeing ads for their favorite hotel brands serves as a reminder of their good choices. With programmatic advertising, we now have the ability to personalize the ads to people based on their online and offline behavior.

A ValuePenguin study revealed that during the pandemic, 48% of millennials have booked multiple stays at Airbnbs, while only 24% have booked multiple stays at hotels. In your opinion, what can hotels do to appeal more to younger generations?

I think every traditional brand is asking this question lately. I think it all comes down to personalization/customization. Younger generations don’t want cookie-cutter, they want to feel like they’re curating their own experience. It is difficult for hotels to adapt, as their business model is a very cookie-cutter/consistent experience (see my point on Marriott above). However, there are things that they could do in terms of in-room amenities to create the feeling of a more personalized experience.

They could also use their common spaces to host events or activities where people can get together for shared experience.