Hotels face tough loyalty decisions on the internet

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By: Wise Marketer Staff |

Posted on April 28, 2006

Internet intermediaries such as Expedia and Travelocity may find it advantageous to award their customers points in hotel chains' frequent guest programmes but the major hotel groups have resisted that step so far, according to a report by the Cornell University Center for Hospitality Research.

The report by Cornell professors Bill Carroll and Judy Siguaw examined the complex situation that hotel chains face in dealing with web sites that sell discounted rooms using a merchant model.

The authors suggest that, eventually, one hotel chain may break the current reluctance to offer loyalty points for internet merchant sales. The report, entitled An Examination of Internet Intermediaries and Hotel Loyalty Programmes: How Will Guests Get their Points? (based on earlier research by Phocuswright) looks at the relationship between hotel chains and internet merchants with regard to loyalty programmes.

Internet's importance
The negotiations between the hotel chains and internet intermediaries have become critical because business travellers have begun to use the internet more heavily to book their trips and accommodation.

Because of the desire to gain direct internet bookings, hotel companies would prefer not to award points to business travellers for those discounted rooms. The intermediaries, on the other hand, would like to strengthen their position by offering hotel loyalty-programme points.

Short-term advantage
According to the report, the decision whether or not to allow intermediaries to award hotel loyalty points hinges in part on whether those merchants can, in fact, shift market share to a hotel chain that is featured on their website. A game-theory analysis of the situation suggests that a first-mover chain would gain some advantage over its competitors by offering points for the intermediaries' sales. However, that advantage would soon be lost when competitors match the offer.

As a practical matter, individual properties often grant their frequent guests loyalty points even if they haven't technically earned them. While the hotel executives interviewed for the report asserted that their loyalty programmes encourage customer loyalty, those executives also admitted that most of their loyalty programme members also participate in other chains' programmes.

The point of loyalty
Carroll and Siguaw point out that the customer information gleaned from loyalty programme members is a considerable benefit of operating a loyalty programme. In fact, The Wise Marketer would take that argument one step further: the data collected should be one of the key reasons for a loyalty programme's very existence.

Given the cost of operating a frequent guest loyalty programme, Carroll and Siguaw suggest that if a chain did agree to award points for merchant-intermediary sales, that chain might create a different class of points or offer a reduced number of points for business customers who book on the internet.

Despite the intermediaries' wish to offer loyalty points, the report's authors do not expect them to develop their own hotel-like frequent guest loyalty programmes, due largely to the expense of setting up and running them.

Carroll is a senior lecturer at the Cornell School of Hotel Administration, and Siguaw is dean of Cornell-Nanyang Institute of Hospitality Management and J. Thomas Clark Professor of Entrepreneurship and Personal Enterprise at the Hotel School. The full report has been made available as a free download - click here.

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