Battling for Loyalty

By Cathleen McCarthy | March 03, 2009

On the surface, loyalty programs are about rewarding and encouraging customer loyalty, a strong incentive in a slow economy. When data mining is attached to a loyalty program, the merchant is further empowered with information about guest preferences and trends, also a strong weapon in the battle for share-of-wallet. But hospitality operators are learning that the traditional "rear-view mirror" approach to tracking customer trends (that is, simply tracking and observing) doesn't have the power of more predictive tools. Hotels and restaurants alike are looking at ways to boost their loyalty programs to entice customers back and to get better insight into trends.

Motivating reluctant travelers was no doubt part of the impetus behind recent promotions offered by several hotel chains, such as Hilton Hotel's (www.hilton.com) offer in January to double hotel points for HHonors members.

Making rewards easier to use by partnering with airlines and eliminating black-out dates gives both Hilton and Starwood Hotels & Resorts (www.starwoodhotels.com) a competitive edge. So does expanding ways members can use their points, such as the You Choose promotion Starwood offered last fall, offering members twelve different ways to use their reward points, from flights to room upgrades to boosting membership status.

"Loyalty programs, in my view, were constructed for economic periods like this, to give members who've spent years with us a way to save money by using their points," says Chris Holdren, SVP of Starwood Preferred Guest (SPG) & Global Web programs.

Predict & target
While that explains the benefit to customers, most companies invest in loyalty program technology primarily to gain connectivity with those customers and to track buying behavior. Historically, data gathered this way supplied a rear view mirror look at that behavior. Now the emphasis is on predicting it. Data gathered via loyalty programs, for example, can tell an operator when a repeat customer is about to defect and what special offers might prevent that. It should also tell them which customers are worth the investment of retaining in the first place and offer a way to personalize service.

"We're doing fewer broad-based promotions now," says Adam Burke, SVP of customer loyalty at Hilton Hotels. "We've found over time that it's more effective to offer highly-targeted promotions. We may have 100 different offers but they're not generally advertised. Each is done through specific segments of our customers."

Hospitality operators are beginning to learn what telecommunications and finance companies have long recognized: an untargeted customer retention program is not very effective. Identifying the most valuable customers, then focusing on them, is more effective and less expensive than trying to hold onto everyone. The hospitality industry has been slow to adopt the primary tools behind this strategy: text mining and predictive analytics.

Firms like Andersen Analytics (www.andersonanalytics.com) find hotel operators often overlook the customer survey, for example, not realizing that one open-ended question, such as, "Why did you like or dislike your recent stay?" can provide more useful data than 20 rating scales. Text from Internet discussion boards popular with frequent travelers, such as flyertalk.com, can also provide insight not only into your customers but your competition and their customers.

Once a company has a detailed member profile, the next goal should be using it to keep that customer satisfied. "Hilton is fairly leading edge in their use of technology," says Burke. "The customer framework model we use for data mining and segmentation is very robust. We're able to put highly-targeted offers in front of our audience because our technology engine enables that."

Led by pioneering CIO Tim Harvey, Hilton created an innovative CRM solution, OnQ, and works with database partner Epsilon (www.epsilon.com) on its loyalty program. HHonors follows three priorities: identifying various segments of its audience, setting up communications channels to deliver appropriate messages to those segments, and providing a consistent view of those communications across all touch points within the company. "It doesn't matter if a customer is calling for a reservation, standing at the front desk of a hotel, or visiting our website," says Burke. "We have a common platform so that every point of the company has the same information at their fingertips."

Go mobile and expand your appeal
Loyalty programs can also be leveraged to draw in an entirely new guest population. Starwood, for one, introduced two options last year that appeal strongly to younger loyalty members: customized cards and mobile access. SPG gold and platinum members can have their cards printed with the icons of favorite hotels and interests such as the beach, wine or fine dining. Despite the fact that this does not alter card function, response exceeded all forecasts, according to Holdren, and Starwood plans to extend the offer to all SPG members this year. "The ability to express your individuality is part of what's driving social media like Facebook and the success of NikeID," says Holdren. "People are looking for something they can make their own."

With the launch of SPG Mobile in October, Starwood Hotels made it possible for members to scan the directory, check in remotely, contact customer service and read Starwood's Lobby blog via iPhones and other handheld devices. "Mobile technology is just exploding and we've had great results with this," says Starwood's Holdren. "I think this technology can really strengthen our relationship with guests. Making sure a loyalty program has a mobile presence is very important right now."

Restaurants are also discovering new ways to use mobile technology. At City Winery (www.citywinery.com), a restaurant and wine-making facility that opened in Manhattan last year, handheld devices are used to speed up check-out at this 350-capacity restaurant. Owner Michael Dorf plans to take that technology a step further this year. Members of his loyalty program Vinofile can rate the wines they try each time they dine at City Winery, allowing wine stewards to make recommendations that will appear on handheld devices the next time the customer visits.

Mobile communication is one aspect of a customized POS system Dorf is designing with the help of Digital Dining (www.digitaldining.com). "I wanted a system that would offer high-end customer service," Dorf says. "To me, that's what a membership program is for, to allow a large facility like mine to provide the kind of personalized attention the small restaurateur can offer, to remember what a customer likes and dislikes, and to make recommendations accordingly."

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