Loyalty schemes have been front and centre in advertising campaigns from the large hotel chains this year, as they look to increase their proportion of direct bookings.
One notable aspect of this is how a behind-the-scenes contractual obligation between suppliers (that cheaper rates can only be offered through CUGs) has shaped the primary marketing message shown to consumers.
NB: This is an analysis by Elliott Pritchard, founder at Ecommerce Nut.
Let's go back to basics for a moment.
A Closed User Group (CUG) is a group of people whose membership of the group is not automatic; they have to have:
- Actively opted in
- Accessed the group by means of a password-protected login
- A member profile
- Made at least one prior booking as a member of the CUG
CUGs are commonly used in agreements between online travel agents (OTAs) and hotels as exceptions to rate parity clauses, which otherwise state that the hotel cannot undercut rates given to the OTA directly on their websites.
The most commonly mentioned mechanism for this is the hotel loyalty programme, such as Marriott Rewards or Hilton HHonors - however, OTAs also offer schemes, such as Booking.com’s Genius.
Better for consumers?
Cheaper rates do benefit consumers, but placing them behind member logins doesn’t provide the best user experience for guests who want access to the cheapest rates upfront, and this is likely why some hotels are displaying member rates directly in the search results of their websites.
These look to be straining the limits of those CUG agreements and are in contrast to OTA efforts, where Hotels.com’s Secret Rates, for instance, are exactly that.
The user research and booking journey is still not ideal though.
The hotel member rates might not be visible on metasearch sites and even if the user does make it to the hotel website, they now have to pass a sign-up/sign-in stage before completing a booking, when studies have found that interjecting a checkout process with a sign-up form can create a barrier and increase abandonment.
Hotel benefits
These campaigns do more than promote cheaper rates however, they encourage loyalty.
When acquisition costs (whether direct or through intermediaries) are high, retention is key.
Furthermore, raising the visibility of loyalty schemes benefits the chains in a way that independents and Airbnb would struggle to replicate.
The member rates also address one key issue with loyalty schemes - that many consumers prefer instant gratification to something that will pay off years down the line.
As the benefit is accessed by signing up directly on the hotel website it is also a play for customer data.
Getting visitors to sign in means you have an idea of how profitable they are likely to be, which could lead to more personalised pricing in future.
It can also help to identify them cross-device and increase app downloads and bookings, given that an app you have to download and sign into can also represent a CUG, which would be eligible for reduced rates.
There is still more that hotels can do to raise the visibility of specific member rate offers, with both Google’s Remarketing Lists for Search Ads and Facebook’s Custom Audiences being potential routes to advertise specific member rates publicly beyond the website, to those identified as being part of a CUG.
Lifetime value
The economics of CUG discounting has been called into question by some, with the suggestion that hotel chains are trading short term pain for long term benefit.
Given that a recent SiteMinder report suggested that direct bookings have a higher average order value than those through third party channels, the downward pressure on direct yields could actually be two-fold:
- Reduced RevPAR due to discounting
- Direct initiatives may be attracting budget-conscious short-stay or low-spending guests who traditionally booked through OTAs.
So, more direct bookings, but at a lower value.
There is also the question of how incremental member rates are, with a proportion of bookings being made by guests who would have booked direct anyway.
Nevertheless, the hotels understand that this is a key strategic play to better control their distribution in future, and will be calculating a return based on the lifetime value of the new direct customers that they acquire.
A new twist
Red Lion’s initiative to offer member rates through Expedia may on the surface look to be counterintuitive - using the CUG mechanism not for direct-only exclusivity - but it does ensure that they are passed customer details by the OTA and highlights that ultimately CUGs are just another point of negotiation for hotels.
It seems unlikely that the larger chains will follow suit given that so many advertising dollars have been spent to promote direct.
It is interesting to consider what place CUGs will have in the distribution mix in coming years though, especially if negotiation or changes in rate parity regulation give hotels free reign to control pricing by channel.
Given that closed user groups are looking more and more open, we can at least hope for a more transparent market for consumers in future.
NB: This is an analysis by Elliott Pritchard, founder at Ecommerce Nut.
NB2:Hotels image via Pixabay