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January 19th, 2010

Four keys to building loyalty in the hospitality industry

hospitality

With customers focusing on location and cost in their hotel choice stays, and since a hotel property’s location is fixed, building guest loyalty is crucial - but how can it be achieved?

During difficult economic times hotels are reminded of a fundamental lesson: building guest loyalty is the only way to compete without sacrificing revenue. Simply put, the less a hotel or brand is viewed as a commodity, the more traffic and revenue it can generate.

At the property itself, loyalty means that guests will tolerate a less attractive location, a higher price, or a range of other obstacles, while still wanting to stay at the hotel. People will pay more for their ‘favourites’. Of course, a hotel cannot be all things to all customers. The target is a certain segment or group of guests that will, under the right circumstances, be thoroughly loyal. And once that segment (or group of segments) has been identified, and the hotel brand has been positioned accordingly as their favourite, it is vital that feedback is constantly gathered to make sure consumers’ loyalty remains where it is.

Brand ‘flags’
At the brand level, flags are picked for hotels based on a guess about the brand appealing to a highly profitable segment available in the local market. That is, hotel owners have to ask themselves which flag will be the favourite for the largest number of potential guests in my market? But two questions are often left unanswered: was that the best flag to pick? And does the flag actively help my property become the favourite?

For both properties and flags, there are four key questions that need to be answered if a hotel brand is going to become and stay a favourite:

  1. What combination of product or service characteristics and target segment(s) will make the brand into a favourite with the target consumer groups?
  2. What action is needed to become such a favourite?
  3. How do you measure and check that you have successfully taken the right actions to build guest loyalty?
  4. If that measurement and monitoring process finds something that didn’t work as planned, what action is needed to correct the problem?

Answering each of these four key questions requires a different methodology, as shown here:

Question: What combination of product or service characteristics and target segment(s) will make the brand into a favourite with the target consumer groups?

This is a traditional market segmentation and marketing research question. This has two elements: identifying the type of customer you will make the most money from, and identifying the type of customer most likely to buy again. The idea is that if customers buy repeatedly you are successfully offering what they need.

Segment identification may be easy or very difficult to do. Many businesses start with a clear idea of their preferred guest characteristics, and build from the beginning for their target segments. Others build or buy but then realise that there’s profit in repositioning, necessitating a re-evaluation of the target guest segments.

Segmentation may be performed using:

  • Competitive analyses, where identifying who your competitors attract, coupled with your brand differentiation, results in a definition of your customer niche.
  • Evaluation of individual data collected at point of sale and from loyalty programmes, which can then be analysed to build up ‘desired customer’ profiles.
  • Surveys or focus groups - to find out from potential customers who would interested in your portfolio.
  • Expert opinion - to define attractive customers for your business.

The UniFocus approach involves market research next. The market research team compares you to your closest competitors, then talks to consumers from your segment to identify what drives them to make their purchase choices. The approach is analogous for a brand but brand analyses take place at the national (not the local) market level. In both cases, UniFocus matches the products or services and company image against segment revenue potential, and then perform focus groups or survey research to identify key drivers.

Question: What action is needed to become such a favourite?

Well, there is simply no single answer to this question. For one brand that UniFocus worked with, it came down to improving customer contact. After implementing a continuous e-mail feedback system, the resulting solicitation of comments - and company actions in response - made customers feel like they were really cared-for and important. For another brand, it came down to creating an explicit price/value model for the guests, and designating the factors for dissatisfaction that were turning customers away. For a third, it was simply emphasising the unique characteristics that added value and made the product unique.

Another way to look at this is that there are different kinds of loyalty. One customer may be loyal to products and the places that provide them. Another may be loyal to the service that goes along with the product. Another may be loyal to the cachet of a place. However, some consumers are only loyal to price or location. To lure them away from the place with the best price or location, you need to identify another driver of their behaviour. The key is to perform step one - finding out which characteristics of your product or service will influence them and make you their favourite. Once this question is answered, the necessary actions usually become obvious. When the actions are obvious, it all come down to implementation.

Question: How do you measure and check that you have successfully taken the right actions to build guest loyalty?

This is where guest comment surveys become critical (whether by e-mail, front desk cards, in-person comments to mangers, focus groups, room tents, or telephone surveys). Only your customers can tell you if you have implemented the things that will make them loyal. But there is a lot involved in writing and administering a survey that produces valid data. Key issues are question wording, question order, who the survey is sent to, how it is administered, and who responds. Unless you’re well versed in the art, the best advice is usually to hire an expert to plan and conduct the survey for you.

Without implementing a valid feedback system there will be no way to know if the resources you are investing are successfully driving loyalty and making your brand the favourite in its segment.

Question: If that measurement and monitoring process finds something that didn’t work as planned, what action is needed to correct the problem?

If the validation process is done correctly, the feedback will guide you toward effective actions. Analyses of survey or focus group results will often narrow down the areas that need most attention. For example, drilling down on poor food quality scores may reveal that those who feel food quality is poor also feel their dining experience was of low value. In that case, the conclusion would be that the food quality may be alright (especially if it is being prepared to standards) but that guests feel it is not up to the expectations set by its price.

One key here is the use of open-ended comments; preset questions cannot cover every contingency but guests will address every possible point in their comments. One of the best tools to have is a comment search engine that will return every occurrence of a specified word or phrase (e.g. “bad” or “meal”), provide a count of the number of occurrences, and put each word - highlighted - in the context of each comment made.

After the analyses, an action plan must be built and executed. The manager, or the senior manager, can probably figure out what to fix but many find that a good plan-building tool can help decrease the time between the identification of a way to increase loyalty and its actual implementation.

Finally, if the validation is way out, and sales are dropping or just holding constant, it is probably time to go back and ask the first question again.

Conclusion
So there you have the whole cycle: identify positioning and target segments, identify drivers of loyalty, validate them, and act on the results. Repeat as necessary.

Too often, companies think loyalty is just a points programme or a slick advertising campaign. While that may attract a few consumers in the short term, it may not produce long-term, high-value loyal customers. Someone else can come up with a better loyalty programme and win a guest away from you unless you make them loyal first.

Long term profitability depends on each guest’s lifetime value (i.e. how much they will spend, how much they will encourage others to spend, and the lifetime of that spend). And the longer the spend lifetime the greater the revenue. One moderate-value customer who returns continuously for 20 years is worth more to you than one high value customer who only stays once.

Article has been republished with permission from www.thewisemarketer.com.


About the Author

Joe Sullivan

Joe Sullivan directs all technology innovation at UniFocus. He has over fourteen years experience in developing information systems for hotels, restaurants, and management companies. Sullivan co-founded Telman's software division, Telman Decision Information, in April 1996. Telman Software's premier product was Focused Scorecard, which was a complete back-office payroll, budgeting, accounting, and revenue system that was designed for integrating property information to their respective management companies.

Prior to Telman, Sullivan was the MIS Director for Vista Host Hotels for eight years. During that time, Vista Host became regarded as one of the most technologically advanced companies in the hospitality industry. Sullivan also was a founding member of Sheldt & Sullivan, a consulting and computer sales company that served Northwest Florida and Alabama.

 






 
 

 
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