Kalibri: Discounting Isn’t The Best Way to Drive Loyalty

by Ed Watkins

While recent brand company campaigns to promote direct bookings through special loyalty club pricing has been mostly successful, it’s not the long-term solution for hoteliers looking to build repeat business. That’s a conclusion from research conducted by Kalibri Labs and discussed during a recent webinar.

“Discounting is not sustainable and should not be the incentive used in the future to stimulate new loyalty members or to retain loyalty members,” said Cindy Estis Green, CEO and co-founder of Kalibri Labs. “Instead, benefits (to loyalty club members) should be better digital experiences, conveniences and creature comforts. Hoteliers are more likely to get guests, and especially millennial travelers, to stick with one brand over another if you fulfill their expectations of a frictionless travel experience.”

Estis Green noted amenities such as mobile check-in, keyless entry and choose-your-own-room as ways to attain guest loyalty.

During the webinar, Estis Green and Mark Mazzocco, Kalibri’s VP of revenue strategy and account management, shared results of a landmark study to gauge the effects of loyalty pricing programs announced last year by several major brand companies, including Marriott International, Hyatt Hotels, Hilton and others.

The study, which reviewed 52 million hotel transactions at 12,000 properties between May and December 2016, reached three major conclusions about the ongoing effects of the book-direct campaigns:

A meaningful channel shift to brand.com. Unlike the recent past, brand.com bookings had a higher rate of growth than did OTA bookings. While roomnights generated by OTAs increased 11.1% during the study period, brand.com bookings increased 13.4%. Similarly, guest paid revenue minus booking costs increased 12.1% through OTA platforms and 13.2% through direct channels. More than 80% of the hotels in the sample had net positive outcomes due to the direct-booking campaigns.

The findings varied by chain scales. At upper upscale properties, for example, total room nights from loyalty members grew from 51.1% in 2015 to 55.5%.

A higher net premium ADR for loyalty bookings than those booked through OTAs. After accounting for all costs of customer acquisition including channel costs, commissions, paid search and other costs, the net loyalty member ADR was 8.6% higher than the net OTA ADR. Put another way, despite discounts that range from 2% to 10%, direct bookings by loyalty club members produce returns on investment three times the value of OTA bookings.

A growing number of loyalty club members. Loyalty members represent 40% to 60% of room nights booked, and that trend is expanding. Estis Green called it “transformative,” especially in light of the billion-dollar marketing budgets commanded by major OTA companies.

The researchers performed a stress test to determine how various distribution channels would have performed if the direct-booking campaigns didn’t exist. Using internal modeling, they found OTA demand share grew at a slower pace than it would have without increased focus on direct bookings. Likewise, brand.com share increased at a higher rate than forecast.

Another question loyalty rates raise — especially for hotel owners — is whether they encourage guests, especially those who would have booked rooms anyway at prevailing rates, to trade down to the loyalty program rates.

According to Mazzocco, despite the emphasis on direct bookings, between 14% and 17.6% of hotels in the sample produced ADRs below expectations in the Kalibri model. On the other hand, between 82% and 86% of properties performed equal to or above ADR expectations, given historical trends.

“The data suggests there was very little trade down into the loyalty rates by customers,” he said.

Mazzocco challenged owners and operators to take advantage of the traction the direct-booking campaigns have provided to them.

“Over the course of the campaign, there was a notable uptick in loyalty contribution to hotels, so now more than ever the interaction hotels have with their loyalty customers gives them the opportunity to curate programs and experiences to keep these valuable customers,” he said.

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