Loyalty is essential to growth – Key considerations for hotel operators

Growth is the name of the game for hotel operators. While there are many approaches hotel operators are taking to achieve growth, the significance of loyalty programs is certainly a key factor. And it’s one that’s set to become even more important moving forward.

 

Hotel operator growth

In recent years we’ve seen hotel operators broaden their portfolio of brands and guest offerings to cater to all types of guests. This includes hotel operators expanding into the luxury and wellbeing sector. Marriott signed an additional 58 hotels to its luxury portfolio in 2023. And IHG launched its Vignette Collection to add to its luxury and lifestyle portfolio (which as of Q3 2023 accounted for 22% of its global pipeline). Economy brands have also grown. Hilton developed Spark by Hilton, a premium economy brand that balances affordable accommodation with the perks of a Hilton brand. And IHG launched midscale conversion brand Garner, which focuses on great value stays at high quality properties.

As a means of achieving growth, hotel operators have been creating profitable collaborations within the hospitality industry. For example, Hyatt collaborated with Lindner Hotels AG (a family operated German hospitality business) through which Lindner’s hotels joined the Hyatt brand portfolio and have been integrated into the World of Hyatt loyalty program. IHG collaborated with both Iberostar in 2023 and Novum in April 2024. The Iberostar collaboration added up to 70 hotels to IHG’s system under the Iberostar Beachfront Resorts brand. The Novum collaboration doubled IHG’s presence in Germany through the Holiday Inn – the Niu brand collaboration and added up to 108 Novum Hospitality hotels to the IHG system.

But an essential way for hotel operators to achieve growth is by enhancing customer loyalty and focusing on retaining customers. Loyalty programs offering rewards, discounts and other incentives to attract and retain consumers are a consistent theme throughout the hospitality industry. Some of the key hotel operator loyalty programs include:

• IHG One Rewards
• World of Hyatt
• Hilton Honours
• All Accor Live Limitless
• Marriott Bonvoy

 

Why use loyalty programs?

Loyalty programs increase hotel operator revenue. Surveys carried out in 2023 confirmed that 76% of consumers are more likely to recommend brands with good loyalty programs to others and 81% of consumers are more likely to use a brand if they’re members of its loyalty program. ¹ In 2023 over 60% of the global room nights in the Marriott portfolio were booked by Marriott Bonvoy members. IHG One Reward members were responsible for over 55% of room nights globally for IHG. And members of the World of Hyatt Loyalty Program represented 43% of Hyatt’s total system-wide room nights.

Against that background, hotel operators have invested to expand and develop their loyalty programs by adding incentives, including by brokering partnerships with credit card providers and other third parties such as airlines and car rental services to incentivize guests to become and remain members. As of December 2023, Marriott Bonvoy had 196 million members, Hilton Honours had 180 million members and IHG One Rewards had 130 million members. Not only do these loyalty programs garner an impressive number of members for hotel operators, they’re also highly effective at engaging and retaining guests.

Although loyalty programs have been on offer from hotel operators for decades, the recent investment and focus on loyalty programs backed by mobile apps have enabled operators to understand their guests in far greater detail. And when hotel operators understand the wants and needs of guests, they can far more easily tailor and customize their marketing and provide services that guests look for when deciding where to stay. This builds enhanced trust and affinity between customers and brands, ultimately driving up bookings and revenue.

Another benefit of loyalty programs is that they increase direct bookings through hotel operator apps, which reduces commission paid to OTAs (Online Travel Agents). And hotel operators gain significant insight about their customers’ spending patterns and interests.

 

What should loyalty operators consider when using loyalty programs?

Hotel operators should be aware of these key areas when developing their membership through loyalty schemes:

• Complying with data protection and privacy legislation: Inherently, loyalty programs provide hotel operators with large amounts of personal data and the ability to track consumer activity. This is vital to enable hotel operators to use direct, tailored, and personalized marketing, but it brings requirements to comply with data protection and privacy legislation.
• Complying with marketing and advertising regulations: Given the interaction with the public, hotel operators should ensure loyalty programs comply with applicable marketing and advertising regulations. For example, in the UK, this may include the Privacy and Electronic Communications Regulation, ICO Direct Marketing Guidance (although still in draft form) and the UK Code of Non-Broadcast Advertising, Sales Promotion and Direct Marketing.
• Consumer Protection Laws: Hotel operators should also be mindful of consumer protection laws and ensure they comply with relevant legislation.
• Competition in the market: Loyalty programs mustn’t be used in a way that could lead to anti-competitive practices, particularly when the hotel operators have significant market penetration and using loyalty programs could disadvantage competitors. Loyalty programs in other fields, such as supermarket loyalty schemes, are being reviewed to assess whether they lead to a reduction of competition in the market and are detrimental to consumers.

 

Practical steps for implementing loyalty programs

In light of the above, and the growth of hotel operator loyalty programs, we’d recommend that hotel operators looking to implement and operate loyalty programs should:

• evaluate the internal data protection and privacy infrastructure governing their loyalty program to ensure they comply with data protection and privacy legislation;
• be alive to their data protection and compliance requirements across jurisdictions;
• be ready to legally justify their approach to personalizing marketing and storing data;
• review their terms and conditions relating to their loyalty programs to ensure they’re clear, compliant with consumer protection legislation and accessible to members of loyalty programs;
• provide members with adequate information as to the nature of the loyalty program, requirements for participation in the program and the benefits associated with this;
• ensure all communications to loyalty program members are transparent, fair and truthful. Any changes to the program should be communicated to members in a prompt, clear and accurate way;
• routinely consider and assess the impact of using loyalty programs regarding anti-competitive practices and impact on the consumer; and
• seek legal advice to minimize the risks of non-compliance with the relevant rules and legislation.

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¹ IHG 2023 Annual Report – Bond survey sponsored by Visa