NB: This is a viewpoint from Andrew Boshoff, a director at Otus & Co.
Cast your minds back to the pilot episode of the hugely successful US sitcom The Big Bang Theory, featuring geeky experimental physicist Leonard Hofstadter.
At one point he looks longingly at his attractive new blonde neighbour Penny and daydreams about a relationship with her, in which their babies "will be smart AND beautiful".
129 episodes and six years later there is still no sign of those babies, but Leonard’s words provide us with a perfect metaphor for the changes that have taken place over that period in CRM and loyalty marketing in the hotel industry.
It is no longer enough to build your brand image and customer relationships through glossy promotions or even a pretty website - CRM and marketing practitioners need to combine traditional marketing skills with the geekier talents of data analytics and predictive statistical techniques.
In other words: Penny and Leonard need to get together.
This is being recognised by many global major hotel chains as well as by those executive search firms who recruit for senior positions.
But it is far less recognised, let alone practised, by the mass of smaller hotel chains that still operate the majority of hotels around the world.
For some of these chains, unlocking the power of data-driven CRM and loyalty marketing will be most effectively achieved through an alliance structure, such as the plug and play loyalty programme provided by the Global Hotel Alliance but there are many hotel companies and tour operators that operate independently and are sitting idly on valuable CRM data that could be used to drive higher revenues and greater customer loyalty.
The data opportunity
Online distribution channels are increasingly dominant across hotel and tour operator businesses.
The data provided by reservations on these channels can be combined with the much more detailed data on online and offline customer behaviour that is generated by properly configured property management systems, customer surveys, web analytics, email open statistics and other data sources to build up accurate and timely individual customer profiles.
This data can now be stored cheaply, even when it runs to many terabytes per month.
And the computing power and specialised software necessary to crunch the data to produce actionable insights has become widely available at a reasonable cost.
The loyalty advantage
Loyalty programmes provide a way to index this data by providing a consistent user identification tool. They also create a pool of richer data on customer preferences and history that can be used to generate further loyal behaviour through tailored promotions and well-judged rewards.
The databases of the major hotel loyalty programmes are large (IHG’s Priority Club Rewards has over 70 million members) and generally "well qualified" from a marketing point of view, since they consist of opted-in customers with a known propensity for the desired behaviour: staying in the brand’s hotels.
Members of mature hotel loyalty programmes provide on average between 30% and 50% of all room occupancy in the global major chains, usually at a rate premium of approximately 10% to the non-member stays.
Loyalty programme members are also more likely to book through lower commission, direct channels than non-members.
The power of loyalty rewards and the problem of loyalty liabilities
Although there is a close similarity between many of the hotel loyalty schemes, with a typical three tier structure and a points-based account balance, all loyalty schemes are not equal.
Research suggests that schemes offering pure monetary benefits produce less psychological impact on customers than loyalty programmes offering special experiences.
Even though the "free night" is still a widely available reward, many companies are moving away from free nights to offering memorable experiences to customers, as well as improving the consistency of delivery of soft benefits such as room upgrades, late checkouts and other tier-based privileges.
In recent months, Hilton, Starwood and Marriott have all changed the terms of their loyalty programmes to make it more difficult to earn free nights.
This move has largely been motivated by accounting concerns over the size of their balance sheet liabilities for future free night redemptions. The loyalty programmes have also increased the choice of awards available to customers to include special experiences as an alternative to free nights.
Move to experience awards
An example of the power of experience awards to motivate changes in customer behaviour can be seen from our recent work with the Global Hotel Alliance, which has "Local Experiences" as the primary reward for customers of the 18 brands participating in its GHA Discovery loyalty programme.
Following some adaptations to make these Local Experience awards more appealing to business customers and frequent travellers, we looked at the before and after redemption stay data of customers who had redeemed at least one Local Experience Award over a 6 month period.
The data showed the effect of redeeming just one Local Experience award increased cross-brand stays by that customer (the main goal of the programme) to 5x the average level of non-redeeming customers.
Even after adjusting the data to take account of the generally higher travel frequency of redeeming customers, the uplift in cross-brand stays within the Alliance was more than 2x for those who had redeemed Local Experience awards.
Threats and problems
However all is not well in the world of hotel loyalty marketing and hotel CRM generally. Customers, whether loyalty programme members or not, are increasingly overwhelmed with email marketing and will punish marketers for irrelevant offers by not opening the emails or by opting out of future communications.
All of the email data and web analytics reporting we see point to an astonishingly rapid growth in the importance of mobile devices for reading emails and browsing websites.
In the case of one of our hotel loyalty programme clients, we have seen the proportion of emails opened on mobile devices increase in one year from 23% to 48%.
This move to mobile represents a challenge at many levels, ranging from email production through to website design and into related areas like web analytics – for example, the third party cookies used by some web analytics systems to track unique visitors are rejected by default by the Safari browser installed on the dominant Apple phone and tablet devices.
Another mobile challenge is the growing importance of mobile apps as a browsing and booking tool: most hotel chains have either no app or an inadequate offering when compared to the increasingly slick apps provided by Priceline and Expedia.
Competing with the OTAs
Relationships between hotel chains and the online travel agents have been strained for several years and in some areas the relationship has degenerated into boycotts and litigation, such as the actions taken against Expedia recently by the major chains in the Nordic region.
The benefits that Expedia and its peers deliver to hotels by providing incremental demand for the perishable good that is a room night have to be set against the very high commissions, rate parity issues and separation from the end customer that often come with the OTA package.
Hotel chains with their own active online marketing efforts may wonder why they are effectively paying the OTAs to compete against their own hotels in buying PPC keywords.
One answer is that the OTAs are generally very good at demand generation, while the hotel chains are generally not.
Too many hotel brand websites favour Penny over Leonard: they are filled with pretty, scrolling images but lack simple usability and speed.
The brand websites are often ineffective at delivering conversions, frustrating their users with poor desktop and mobile interfaces, unintuitive navigation, limited information, no customer reviews, high room rates and patchy room availability.
In contrast, the OTA websites are generally quick and effective, and in the case of some of the luxury offers websites such as Jetsetter they also manage to provide high quality images and supplementary information without compromising the user experience.
Online, meet offline
With great data comes great responsibility. Customers are sharing data with your business on the implicit understanding that you will then use that data responsibly and in ways that benefit the customer.
This promise goes beyond the basics of respecting privacy and ensuring data security. You have an obligation to be relevant and responsive both online and offline.
For example in your email marketing you mustn’t send your customer in Kiev a series of offers for brunch in Beijing, just because you know he once stayed at a hotel in China. And you need to be able to adjust your CRM email sending cadence on an individualised basis to take account of the fact that a person hasn’t opened an email for a couple of months.
In the offline world you must make sure that there are systems in place that will allow your front desk staff at hotels to identify the high tier members of your loyalty programme and take account of their preferences, so that they are made to feel special and recognised when they check in.
Data dilemmas
While the natural tendency of those who love data analysis is to seek precision and accuracy, the real world of effective data-driven CRM is no place for perfectionists. You will find that there are holes and errors in every data source.
Email addresses will be mis-recorded: 20% or more will be invalid in some territories, particularly where there has been a manual form-filling exercise.
There will be gaps in the geographic profiling, age data and gender recording. There will be multiple accounts that actually represent the same person.
Numerical data will appear in fields where there should be text (and vice versa). Web analytics data won’t match up with revenue recording or even with other web analytics data.
Of course you will want to analyse the errors so that you can implement human and technical systems that reduce the error rates but in the meantime the financially smart approach is to start using what you have, rather than waiting until everything is fixed.
A CRM strategy that is based on 80% correct data will yield better results than your intuitive actions. Even in the domain of machine learning algorithms, there are methodologies that can deal quite elegantly with missing data, such as classification and regression trees.
Smart and beautiful
Hotel chains and tour operators have the opportunity to be both smart and beautiful. This will come at a cost but the returns have been proven in practice many times. A six-step plan might look like this:
- Identify the customer data you hold and get it into a decent shape (cleansed and ordered)
- Pursue strategies to enrich the data from sources other than reservations, including offline sources
- Consider establishing a loyalty programme, either on your own or via a suitable alliance, as a way of offering more than the OTAs
- Implement an analytical, data-driven CRM programme that can send relevant offers and other communications to your customers
- Look critically at your online presence, using tools such as web analytics to track visitor behaviour and to help you focus on developing an effective website, not just a pretty one
- Make sure that you establish offline practices that reflect and enhance your newly-organised customer knowledge
It is rare for most businesses to have staff with the required mix of marketing and analytical skills, particularly people who are able to bridge the divide between the two by explaining the marketing and business implications of the data insights.
In the short term, the skills gap can be filled by consultants. In the longer term, you will be employing the metaphorical offspring of Leonard and Penny as they emerge from business schools and IT colleges or rise through the company ranks.
NB: This is a viewpoint from Andrew Boshoff, a director at Otus & Co.