Cornell's
School of Hotel Administration has released a compelling
study measuring the direct impact of the Stash Rewards loyalty program on hotels, one of the first detailed studies showing how a loyalty program affects actual loyalty.
The main limitation is the focus on the third-party
Stash Rewards program, as it does not offer conclusions related to the performance of existing hotel chains' loyalty programs. Nonetheless, the study details just how independent chains can benefit from a third-party program - and Stash Rewards is, according to the company, the largest program for independent hotels in the United States.
The study considered two separate hotel groups: one of is a regional group with over a dozen properties with an ADR of $73 and the other is a more upscale, with an ADR of $261 across more than dozen properties. By using a statistical procedure known as "coarsened exact matching," the study authors ensured that each data point is matched with a similar one for comparison purposes.
This means that each member was matched with a non-member, with the matched pairs occurring between guests that had the most comparable spending patterns in the 365 day period before enrolling in the loyalty program. One of the matches then enrolled in the program, while the other remained a non-member, allowing the behavior to be compared to see how spending was affected in the 365 day period post-enrollment.
The study authors concluded the following in their executive summary:
While ADR for the loyalty program guests increased modestly (1 percent for one hotel group and 5 percent for the other), the number of annual room-nights for each guest increased by nearly 50 percent for both hotel groups, increasing total revenue per year per enrolled guest by a similar amount. The analysis compared customer behavior of matched pairs of hotel guests, where one member of the pair had enrolled in the hotels’ loyalty program and the other had not.
By identifying matched pairs of the guests before enrollment, the analysis could record the differential behavior of guests after one member of the pair joined the loyalty program. In addition to documenting measurable financial effects from the hotels’ reward program, the report demonstrates a logical way to evaluate program effectiveness with the paired customers approach.
In fact, the total lift in spending was very real, showing a healthy positive correlation between revenue and enrollment.
Here are the same results in a graphic format:
For independent hotels, these sorts of numbers are eye-opening - and can provide a solid backup for any revenue managers seeking to convince upper management of the ultimate profitability of the program.
The study highlighted the role of fear in preventing revenue managers from actually undertaking a comprehensive analysis of the merits of their particular program. In order to assess a specific loyalty program, the study authors suggest the following steps prior to statistical analysis:
- Measure consumers' reactions to your program by looking at initial sign-up rates and concept testing.
- Measure consumers' change in attitudes to the brand via program and customer evaluation surveys.
- Measure consumers' behavioral change via program enrollment changes, revenue generated via the program, and loyalty redemptions.
- Measure specifics related to the incremental revenue attributed to the program.
- Determine the actual cost of administering the program, alongside paid-out benefits to guests, and determine the return-on-investment to compare initial ROI estimates.
- Take this information and identify areas for growth and improvement via the program, such as specific consumer demographics and promotional opportunities.
After undertaking an evaluation, the hotel can then see how the loyalty program is actually performing - rather than blindly implementing an unmeasurable marketing effort.
A request for comment from the study authors is pending, and the article will be updated as needed.
The full study can be downloaded
here from Cornell.
NB: Hotel guest image courtesy Shutterstock.