Does loyalty exist? Part 3: It is time to rethink loyalty!
One of the earliest loyalty programs on record dates back to 1793. That's 223 years ago. We've been doing this song and dance for a long, long time. The burning question is: is it still relevant? In this fast-paced, technologically-driven world where the best deals are a click away, does customer loyalty still exist or has the paradigm shifted? For this three-part series, hetras had a chat to three industry leaders to get some answers.
Agnes Stockburger
Part 3: What about Expedia?
Last year Expedia made a suite of drastic announcements: it partnered with Marriott Hotels to offer travel packages, entered the hotel revenue space and struck a loyalty program deal with the Red Lion Hotel Group.
A keen observer might note that the moves herald a new approach for the OTA. What that approach may mean for hotels, particularly boutique hotels, is still under discussion. That competition between The Priceline group and Expedia is fierce is a known fact, that Expedia is attempting to gain ground over its greatest competitor is obvious, but what isn't so clear is where hotels stand. Are they being used as pawns or have they become unlikely allies with the OTA?
Opinion seems to be divided.
Since this series is looking at the relevance and evolution of loyalty programs, the focus of this article will be on the Expedia/Red Lion deal. The main question being: does it forecast a further dissolution of the direct channel or does it herald a new direction for the way loyalty is viewed and offered?
The CMO of the Red Lion Hotel Group, Bill Linehan, certainly thinks the latter is true, boasting that since making the deal, the hotel's loyalty sign-ups have quadrupled. Our panel of experts see things differently. Let's take a closer look at the arguments for and against an OTA-hotel loyalty partnership:
The Red Lion Group Deal
In the simplest of terms, the Red Lion Group has given Expedia access to its loyalty rates in exchange for a few perks. The OTA can list the exclusive member rates on its site, but in order for guests to take advantage, they must sign up to the hotel's loyalty program. Additionally, the Red Lion Group gets rewarded with the contact details of anyone who signs up (which traditionally Expedia did not share with hotels), enjoys a higher ranking on Expedia – while hotels who actively push loyalty programs through their direct channel get penalized – and has hinted that, at least for now, it pays a reduced commission rate.
As far as the deal is concerned, both parties seem to be pleased with the arrangement and find it mutually beneficial…for now.
Consumer loyalty has changed
Shortly before announcing the partnership, Expedia released a white paper that included its insights on the future of loyalty. Hotels would be best served, it argued, ditching strategies that push loyalty programs through their direct channel and paying other channels more attention, because consumer behavior has changed.
"By not offering those most competitive rates on Expedia when their competitors are, [hotels] likely will lose relative share on Expedia's marketplace, hence drying out a key new customer acquisition channel, reducing traffic to their direct website from the billboard effect, and over time increasing their marketing and customer acquisition costs," the white paper stated.
Upon announcing the deal, Linehan mirrored the sentiment saying, "I don't think it's stepping on the direct booking message…. The direct booking message is stepping on consumer preference…. Because consumers are clicking around….When you look at the research, consumers shop multiple channels, even when they have a preference for a past brand they've used."
One of the main advantages of the deal, as Linehan sees it, is the additional exposure the hotel group is receiving by having its loyalty program touted by Expedia. He says the hotel is now reaching and signing up consumers who it otherwise would not have attracted. A critic may ask how many of those new consumers are likely to return – after all signing them onto the program is only the first part of establishing loyalty. The move, however, undoubtedly adds a weapon to the hotel's marketing arsenal.
A better OTA relationship
Expedia can be a powerful foe or ally and most hotels would prefer for it to be the latter. It is a powerhouse that controls a significant part of the market and can set its algorithm to highlight and feature hotels, drawing the attention of would-be visitors, or banish hotels to dark, lonely corners of its site. Forming partnerships is one way to secure a spot in the OTA's good graces and Expedia has stated that its algorithm takes these things into consideration.
" A hotel's visibility on the Expedia Marketplace is calculated by offer strength, quality score, and compensation. Therefore, when a hotel is, for example, not offering its most competitive rate to consumers shopping and booking via Expedia, those consumers are more likely to book a room at a hotel that is offering its most competitive rates. Expedia's algorithm recognizes this natural shift in consumer preference and adjusts the visibility of these hotels in the marketplace accordingly," Expedia's white paper stated.
The Red Lion Hotel Group found its sacrifice to be worth the trade-off. Whether this is likely to change if more hotels strike a similar deal or the OTA changes direction remains to be seen.
Hotels have little power in their relationship with OTAs. They cannot attract the same level of traffic, nor reach as broad an audience. Rate parity also poses challenges around drawing customers to book directly. One thing they do have, however, is the right to set exclusive rates or offer bonuses to loyal members. The OTAs can't touch that and it is a way to circumvent third-party channels and claw back some of the market. By giving up this last scrap of autonomy to Expedia, Angelika Viebahn, director of revenue and distribution at Ameron Hotels, argues, hotels are undermining their power.
"Hotels have already become so dependent on the OTAs and this move puts even more "eggs in one basket"," she says.
Corporate director of revenue management and distribution at Pacific Hospitality Group, Christian Boerger, agrees, "It essentially dilutes the "book direct" campaign messaging as well as increasing the cost of sale/acquisition."
"There might be a thought to attract brand agnostic travellers that traditionally book on OTA sites and convert them to direct bookers but why should they? Expedia has its own, hotel company sponsored reward program," he says, "Not to mention that Expedia is also offering their own, private member rates to consumers. With the OTA's promise to "improve visibility" to participating hotel operators, it also creates a cycle where the volume increases, as do costs, [and] the anticipated increase of hotel brand loyalty remains questionable."
This brings us to the next point – the cost. Loyalty rates and bonuses come at a cost to the hotel. Listing on OTAs also comes at a cost to the hotel. Filling rooms at the lowest possible rate comes at a cost to the hotel. You can see where our panel of experts is going here; making the lowest possible rates available on OTAs can be a pricey move.
"My big issue with the OTAs is that the real competition is all in the hands of the hotel. The hotel has to guarantee parity even though OTA commissions vary substantially from one to the other," says Antonio Hoyos, revenue manager and head of the reservations department at Infinito Hotel and Pampa Hostels.
"We are very dependent on OTAs for exposure, visibility, communication, sells. OTAs are a very important tool. However it is very rare to hear of an OTA that has a benefit plan for hotels. The plans are always focused on potential guests, but in every plan or program offered, the hotel has to take a step behind: lower the rates, give a free night, a free upgrade, a welcome gift. The hotel is always taking the hit."
"Booking a lower member rate on Expedia [gets] the customer an overall better deal and adds to the distribution costs of the hotel operator," Boerger adds.
The partnership is also potentially worrying for smaller and boutique hotels, which do not have the luxury of undercutting their rates with the same abandon as larger establishments.
"For big hotels and chains it's easier to sacrifice rate in favor of volume. For smaller hotels that trade is not that simple since the rates cannot be drastically moved and recovering the rate is even harder. So the small hotel will find itself lowering the rate and at the same time paying the same commission rate to the OTA," says Hoyos. A true reward
For Viebahn there's also the question of the ideals that exist at the core of loyalty. After all the programs were designed to reward the guests who are – well – loyal.
"We recognize that guests want to book via OTAs and keep rate parity on this channel but, likewise, a guest that makes the effort to go to our page should be honored by a more attractive rate," she says, "A loyalty program should stay with the owner of it and should not get circulated to other vendors."