This is an analysis of the guidelines you need to keep in mind in order for your customer loyalty program to become a real loyalty program. By: Glenn Withiam*
Most hotel companies and many restaurants maintain some form of loyalty program for regular guests, and most are modeled after the original frequent flyer programs created by airlines 30 years ago. But the problem with regular guest programs is that it's hard to prove that they actually create customer loyalty. What we know is that they cost money, and what we don't know is whether they generate more sales.
You're probably not going to cancel your regular guest program, so the best plan is to come up with ways to make it work for you, keeping guests coming back and, perhaps, creating true loyalty. A new report from the Cornell Hospitality Research Center (CHR) proposes ten ideas to make that happen. You can download the report, "Building Customer Loyalty: Ten Guiding Principles for Designing an Effective Customer Reward Program," by Michael McCall, Clay Voorhees, and Roger Calantone, chR at no cost, in http://www.hotelschool.cornell.edu/research/chr/pubs/reports/2010.html.
Here are the ten points that will help you improve your loyalty program:
(1) Keep your customers engaged. Give your customers plenty of opportunities to interact with your company, either online or in person, even if it doesn't lead to a purchase.
(2) Design your program to offer incentives that raise customer value but are low-cost. Instead of free rooms or meals, offer a free service or other incentive that customers value.
(3) Know your customers. You can structure your program and incentives much more effectively if you know what they really want.
(4) Create logical client categories. If the gap between your incentive categories is too large, your customers will give up once they have received their first category of awards. Your incentive structure can be an opportunity to further segment guests according to their wishes.
(5) Develop partnerships with other suppliers. Corporate alliances allow you to offer rewards provided by other providers, in exchange for services you provide to your partners' customers. This is how all parties benefit.
(6) Boost your customer categories. Offer different additional prizes as appropriate to those working to move into the next category.
(7) Give your customers options and make the program fair. Rewards can be made more flexible, for example, by allowing guests to choose when to receive their category reward. Customers want to feel like they've earned their category; so create a combination of incentives that keep the customer interested but also generate a sense of accomplishment for having reached a specific category.
(8) Find ways to make your program different. If all the programs for regular guests are similar, they will not give you any advantage and will continue to cost you money. The differences of your program can be extensions of your brand concept.
(9) Avoid focusing your program on financial discounts and incentives. While the segment category may involve some sort of free stay or meal, a program focused solely on discounts will draw your guests' attention to rates. So, instead of loyal customers, you'll have price-sensitive customers.
(10) Use technology to engage your guests and save money. Your guests expect to be able to monitor their accounts on the Internet, for example. In addition, you can use technology to keep track of your guests' spending and make appropriate offers based on your revenue management analysis and guest preferences.
McCall, Voorhees, and Calantone point out that so far there is no empirical evidence that loyalty programs actually work to create loyalty. However, if you use some of these principles to focus on the needs of your guests and reflect consumer psychology, your loyalty program may give you a strong competitive advantage.
*Glenn Withiam is director of publications for the Cornell Center for Hospitality Research.
