A new measure in calculating loyatly among elites has emerged according to this article.
Rather than measuring a point in time some programs have decided to look back and look forward to determine what past spending (even during good times and bad times and program changes that follow) tells a company about future spending among its most loyal customers.
Worth a read.
Thanks for posting this SS. Great Article. I agree that the "value" of the customer should be a consideration, but at the same time in my world I am extremely price sensitive. My clients would rather me stay in a $75/night Holiday Inn and I have to jump through hoops just to stay at a Marriott, and I stay because of the loyalty program. If Marriott didnt have a rewards program, then I wouldnt be jumping through these hoops. I dont know if there is any way for these consultants to calculate the potential loss in revenue by not having a program, rather than just looking at the expense of the program. Without this program, probably 80% of my nights would be at some other chain.
Well said Princess but I think most large service providers are trying to determine the ROI on loyalty and this is one way to do that.
If we consult for a living our clients would rather see us stay within a "reasonable" price range, and we do try. As the economy turned south last fall (2008) it was easier to negotiate the rack rate down--in fact, the hotels themselves reduced the stay rates for us in most markets. Those rates have not yet fully recovered in my experience.
Like the industry standard, REVPAR, CLV is another metric that can be used. It may not be perfect but it does assess the continuing loyalty costs to the consumer.
Excellent article and worth reading. The interview with Michael McCall from Cornell's Center for Hospitality provides good insights. This statement sums it up well:
"An effective loyalty program will lead guests to increase purchase frequency, decrease their price sensitivity, turn them into advocates for the brand or property, increase their spending and develop a sense of community among program members."
Factoring the economy, companies are scrutinizing the cost of doing business. Slashing T&E rules. Recalling that 88% extend business for leisure, 'price sensitivity' morphs into 'affordability'.
A loyalty program like Marriott Rewards in that context has a very positive impact. Redeeming points offsets a budget shortfall enabling extended leisure travel w/o compromising the experience of the property.
It's not clear from the article whether or not CLV can measure that impact.
From the article, some interesting data (emphasis added by me):
Not all loyalty program members are created equal, McCall noted.
In a study of members of lodging loyalty programs, he looked at eight years of data from 100,000 loyalty program members -- that's 1.2 million transactions -- and measured spending on the room, F&B and other services; room upgrades and downgrades, other actions to the account and demographics.
The results showed that three-quarters of guests did not increase their spending simply because they enrolled in a loyalty program, while some guests appeared to increase spending slightly.
But McCall identified a third group of guests who accounted for the majority of spending. These are the most valuable guests, he said, but often they were grouped in the top tier with other guests who spent less money.
"These results suggest a need for an ultra-premium category that is reserved for a very small minority who are likely to be your best customers," he said. "This is probably a group we want to pay close attention to."
The bottom line: spending and loyalty are not necessary linear, except for a small ultra-loyal group (the Plutonium level as one Insider called it)
Princess I concur. I am extremely loyal based upon the quality of the program at Marriott and I am price sensitive. I am a consultant and budgetted to be in the field 40 weeks a year. I travel Sunday through Thursday and we bill our clients for travel expenses. Most clients, our's are primarily small to medium businesses, can't relate to $100 + per night when there is a $69/ night hotel on the corner.
I think it is beneficial to provide feedback to our providers regarding the current market climate and pricing sensitivity of our customers. Bottom line is, very few of my customers woud allow me to bill them $175 a night for a hotel. It would be the last time so our company has strict per diem guidelines on what we can expense/ bill.
I enjoy the amenties and value of the services offered and I feel 200+ nights of loyalty is worthy of recognition from a supplier. I think the one aspect of long term loyalty is a level of recognition beyond 75 nights. I can maintain 3 programs with the travel I do and hit 75 nights on each with bonus qulifying nights and roll over programs. But doing actual 175+ nights in one chain is pretty significant loyalty.
I appreciate that the Rewards program was first introduced to identify and reward frequent stayers at Marriott hotels. However when Marriott entered the timeshare business back in 1984 they chose to make a (non contract link) between timeshare and Rewards. They used Rewards heavily to sell timeshare. It was because of this very attractive trade that I purchased my first two weeks, and continued over time to buy several more weeks as 'point farms'. I know that Marriott said that they could close or alter Rewards at any time, but I trusted them always to be reasonable (I know Green Shield Stamps went to the wall - but the loyalty club of my local supermarket went from strenth to strength - I can now even get a stay at a Marriott hotel courtesy of my supermarket - So looking at Marriott as a respectful company I completed my original and following timeshare purchases with them. Initially I enjoyed many wonderful vacations with MVCI and Reward awards. However Marriott has never inflation-proofed the Rewards they give in exchange for timeshare, so after 22 odd years the timeshare exchange for Reward points offers absolutely no value whatsoever. Whilst the expression ' DEVELOP A SENSE OF COMMUNITY AMONGST PROGRAM MEMBERS' applies in this thread to loyal hotel guests, it was equally used for MVCI members. This sense of community has now been lost because MVCI cannot offer a decent vacation to members. I and probably many other members no longer introduce prospects to the club. Marriott originally had 'MY CUSTOMER LIFETIME VALUE." but because of what they have done to points for MVCI members (The majority who are complaining and being ignored by Marriott) I now tend not to use MVCI properties, and for extententions to vacations, and filling gaps etc., I now try to stay away from Marriott hotel properties. So Marriott today FOR LIFETIME VALUE and A SENSE OF COMMUNITY gets NIL POINTS