Loyalty Schemes – What Really Matters - By Rob Rush

Hilton took an immediate PR hit and competitors pounced, offering Hilton HHonors members special deals to "earn back" the points they had "lost;" Hilton defended its move by reminding folks that they have not changed redemption levels in six years.

As hotel companies and travelers continue to struggle through the recession, not surprisingly, loyalty program redemptions are up about 20%, with most banked points being used for free night stays. With increased usage comes increased scrutiny, so these plans are getting more attention. The real question, however, is does any of this really matter?

For the average traveler, with an average status level in a loyalty program, if the hotel is in the right location at a reasonable rate, that room will be booked. All things being equal, in a market where many hotel brands have been unable to differentiate their offering, point schemes can clearly influence purchasing decisions. If a customer truly loves a brand, however, then points don't matter; they'll simply seek out the gratification of their favorite brand. Strong emotional connections (what true loyalty is really all about) will always trump any kind of points program, period.

This dynamic changes, however, at the elite status level; once that hard-earned elite-level status is attained, customers will go through hoops to retain that status and reap the benefits they've become accustomed to. In the "points and rewards" business - which I do not confuse with the "brand loyalty" business - status matters. It's just hard to go backwards. And it's even harder to come to grips with the fact that for most companies, "loyalty" is not a two-way street; in this troubled economy, most hotel brands are missing out on the opportunity to foster true loyalty from a subset of their most important guests by addressing the sense of loss and betrayal that results when an elite-level customer loses status. Considering that these customers can contribute 10-to-15 times more revenue than the average Joe, keeping these folks engaged in the program is a good long-term strategy, even when their spend doesn't reach required levels.

I don't think your lapsed Hilton HHonors Diamond VIP guest really cares that Hilton is struggling under an enormous debt load. He just knows how much business he's given to Hilton over the years; losing that status, oftentimes as a result of a career or lifestyle change, hurts. While a small shift in point redemption policy may result in short-term negative PR, it is in this lack of two-way loyalty to historically high-value customers that hotel brands are really damaging their long-term health. Why not extend elite status over a longer grace period and continue benefits in full, keeping in mind those elite-level customers made a very significant, long-term investment in the brand to achieve their status? That affection should be returned in full. Those customers will appreciate the kindness extended, and when they hit the road again, as they will, they'll seek you out.

Read Rob Rush's Biography or contact Rob at [email protected].