HSMAI Section: How To Successfully Deploy Loyalty Pricing

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October 25, 2016
HSMAI
Rajesh Rajan

AS THE BOOK DIRECT CAMPAIGN GETS MOMENTUM, loyalty pricing is coming into play.  Anyone who logs in or is a member of a hotel loyalty program is getting better prices than people who aren't willing to join the loyalty program.

As a tactic it is not a new approach overall but it is being branded and marketed differently now.  Offering a discounted price when someone logs in has been done for a while.  This was a way to create a fence around the offer and be able to make a lower than BAR price not openly available.

Red Lion Hotels has a campaign offering loyalty pricing running on Expedia.  This is in the opposite direction of what everyone else did.  As a customer acquisition tactic it might be quite effective, but RLH also needs to have customer retention strategies in place as well.  That is where long-term value for the hotel chain is created.

And, this is not truly loyalty pricing; this is pricing deployed to boost loyalty program enrollment.

However, to successfully deploy true loyalty pricing there are certain requirements.

 

FIRST, PROVIDE A WAY TO ACCESS THEIR PRICE.

Potential bookers need a way to access their price.  This means providing them the ability to log in so they can receive a price just for them.  As part of the login or account creation process, the hotel gets the guest details of new customers, and repeat customers are able to access their stay history and value.

If a potential new customer creates an account, that means the hotel has an opportunity to build a relationship with them.  This could be through long-term retention campaigns or other means.

 

THEN, FIND THE VALUE OF THE GUEST.

The customer value is determined based on the spend in a hotel.  This is not limited just to room revenue, it covers all revenue centers.  If a guest spends thousands of dollars in a restaurant but not on the room rate, it does not mean the guest is less valuable.

If the guest spends a high amount in the various outlets or has spent much on rooms when he stayed here previously, then based on that value you can give him a percentage discount.

How much has a guest spent in the past?  This is what determines what value to give him.  If it is a new guest, then we have to estimate what would be the potential spend of this guest.  And, based on the potential spend a value is given.

This is not a new concept in the casinos but newer to hotels.  This just focuses on that one person.  What they have done in the past?  And what amount of spend can we expect from them?

A customer's value can be dynamic and it can be determined with a modern revenue management system to give him a price recommendation based on their value.  In this scenario you are practicing personalized pricing rather than generalized pricing, as it is currently done.

And, without a dynamic way of determining the customer value it will just be a fenced offer.  It is still valuable, but ensure that you align your marketing teams for retention campaigns.

 

AND LASTLY, DYNAMIC PRICE BASED ON THE VALUE OF THE GUEST.

Providing a standard discount off BAR will provide the guest benefit of being part of a loyalty program.  However, it is not true loyalty pricing.  The ideal approach is to use guest spend data and marry that with the demand for the hotel over the inquired dates to come up with a price recommendation.

To be able to execute this, all hotel systems will need to be integrated so there is no loss of guest data.  The price recommendation tool has to have the ability to factor in guest value to be able to provide a personalized recommendation.  And, the hotel will have many new market segments based on guest value.  The higher the guest value, the more benefit he gets.

The current tactic of just giving a discount to book direct and hide the price behind a fence needs to be evaluated to see the impact over the long term.  It can provide a boost in occupancy in the short term, but does it also improve profitability?

Loyalty-based pricing can provide hotels a way to keep their most profitable guests loyal to them.  However, guest expectations should be factored in as well. What do your most loyal guests want?

 
RAJESH RAJAN has over 10 years of experience in growing hotel revenues and is the co-founder of website personalization platform Offerly. He has been responsible for pricing, distribution and demand optimization for both branded and independent hotels and has provided insights on the intersection of new technology, trends and tools.
 

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