A small percentage of premium guests in the hospitality industry represent a majority of the profit, especially for hotel, restaurant, transportation, and credit card companies. But, how does a company give consumers a compelling reason to choose and frequently return to a brand won via a true connection with the organization? Moving beyond this repeat business and into true loyalty and brand advocacy is big business in hospitality and travel. The landscape of loyalty and customer expectations is evolving dramatically due to new customer segment needs, the complex and expensive financial structures of programs, the ubiquity of programs across industries, and the transformation and accessibility of technology and information. The question for companies is how can they win in the ever-growing loyalty war. The question for customer is whether the program is worthwhile to join. And, the overall question for the industry is whether true loyalty exists. This course looks analytically and creatively at the future of these programs, including deep insights into the business, finance, and design of loyalty programs, consumer perspectives, partnerships, and marketing efforts.

1. Loyalty Strategy & Management in
Hospitality (MPHM – 620)
May 21st, 2019
1

2. 5/21/19 Agenda
• Introductions
• Class Goals
• Lecture – Loyalty
Introduction
• Wrap Up, Next Week
Preview
2

3. Introductions
3

4. Director, Loyalty &
Retention
Starting a Program From
Scratch
• Negative brand
relationship
• No reward currency
• High demand for
knowledge and guidance
My Loyalty Experience
Senior Director, Loyalty
Strategy & Partnerships
Fixing a Failing Program
• Benefits not aligned
against member
interaction
• No clear value positioning
• Commoditized market
Senior Director, Client
Loyalty & Analytics
Hyper-focus on Travel
Growth for Programs
• Expanding program
currency value
• Managing cost per point
• Predicting the future
4

5. Class Goals
5

6. Our Three Goals This Semester - #1
6
Each of you understands the core principles around building
loyalty – not specific to a program, but how to build and establish
long-term, healthy relationships with the customers you serve.

7. Our Three Goals This Semester - #2
7
Each of you learns the core pillars of building and growing a
hospitality rewards program that is based on the needs of your
members, is well positioned, and supported across every member-
facing touchpoint.

8. Our Three Goals This Semester - #3
8
Each of you understands the position of the loyalty program within
the larger organization, the dependences on other groups and how
to successfully navigate these entities to champion your program
for success.

9. Tying the Goals Together
9
Goal #1: Principles of Loyalty
Goal #2: Program Design
Goal #3:
Org Support
Combining these three learning principles
together will give you the ability to:
KNOW your customers
Tailor the benefits to meet needs
Navigate the org to protect and grow
the program

10. The Pitfalls of Lacking All Three Goals
10
Great programs are built by thoughtful leaders who consider all
three goals in program ideation and maintenance. What could go
wrong?
Principles of Loyalty Program Design Organization Support Outcome
Benefits don’t meet
member needs
Members do not see
value in relationship
Organization
cannot/will not endorse
program goals/ budget/
position

11. Many Roles w/ Loyalty Focus and Passion
11
Loyalty Program Manager
Operations Manager
Partnerships
Advertising
Digital Strategy
Brand Strategy
Legal & Compliance
Finance
General Manager
Events Manager
Revenue Management
Corporate Property

12. Lecture: Loyalty
Introduction
12

13. The First Recognized Loyalty Program
13
• S&H Green Stamps, by Sperry & Hutchinson
https://en.wikipedia.org/wiki/S%26H_Green_Stamps
• Program popular from 1930s to 1980s
• Premise was simple: shop at S&H range of stores, earn stamps
depending on total value of spend
• Stamps would fill a book; when completed, the book could be
‘redeemed’ for products (mostly housewares) at S&H stores
• What behaviors did S&H encourage by offering this
program?
• By 1960s, S&H was issuing more stamps annually than the
United States Postal Service (USPS)!

14. The Advent of Travel Loyalty in 1980s
14
• Sounds like a can’t lose value proposition! However, what
issues can arise as a program like this grows and grows?
• American Airlines introduces the AAdvantage program in 1981
• Launched as a reaction against de-regulation in the industry
• Offering program was a winning combination of psychology and finance:
• Psychology: highly aspirational lure of travel
• Finance: ROI of the awards (w/ air travel, unsold seats cost to airlines are minimal, and program has
compelling business model in selling miles to partners (credit card, etc)
• Paid seats at least 80% of typical inventory – what happens when
reward seats take away option from paying traveler?
• Outstanding miles/points on books are a massive liability for
company which must keep regulated cash reserves to
accommodate utilization at any point in time

15. Loyalty Program Evolution in the Modern Era
15
https://en.wikipedia.org/wiki/S%26H_Green_Stamps

16. Loyalty Program Evolution in the Modern Era
16

17. Why Loyalty? The Positives…
17
• Consumers belong to an average of 13.4 loyalty programs, but are
active in only 6.7 programs
https://advisory.kpmg.us/content/dam/advisory/en/pdfs/is-it-time-to-rethink-your-loyalty-program.pdf
https://www.claruscommerce.com/blog/17-staggering-customer-loyalty-stats-that-will-change-your-perspective/
• U.S. consumers hold 3.8 billion memberships in customer loyalty
programs
• 71% of consumers decide to join a loyalty program because of money
off of every purchase and 63% for free products; these are the top two
most attractive rewards to consumers
however…

18. Why Loyalty? The Negatives…
18
• 54% of loyalty memberships are inactive
https://advisory.kpmg.us/content/dam/advisory/en/pdfs/is-it-time-to-rethink-your-loyalty-program.pdf
https://www.claruscommerce.com/blog/17-staggering-customer-loyalty-stats-that-will-change-your-perspective/
• 78% of consumers report they are retracting loyalty at a faster pace
than three years ago.
• 80% of executives feel their brand understands the needs and desires
of their consumers, only 15% of consumers agree.
Obviously it’s not just points and
Elite Tiers – it’s giving members
what they ask for.

19. Hotels Were Fast Followers to Airlines
19
• Holiday Inn first mover (Feb ’83); quickly followed by
Marriott (Nov ’83)
• Rationale followed airline strategy:
• Currency earned in hotel rewards program could be used toward free flights
• Soon, in-category reward benefits became core
redemption purpose
• By late 1990s, every major chain realized it had to play in the
loyalty space to stay competitive, especially with a commoditized
product
• Why would hotel reward programs start with earning free
flights vs. their own product? And why did they quickly shift
their core redemption focus?
Year of Introduction
1983
1998
1987
1999
1988

20. Hotel Reward Programs Have Thrived
20
• Several programs have eclipsed 100M, creating massive
databases of reachable members
120
110
80
20
75
30
40
Bonvoy: Combines prior
Marriott Rewards and SPG
programs
Wyndham: Combines prior
Wyndham and La Quinta
programs
As of 1st Qtr 2019, via host sites and Skift

21. • Light to Moderate Traveler (<10 nights a year)
In Hospitality, Where Loyalty Makes a Difference?
21
$75
$74
$78
$76
$75
• Budget-conscious
• Loyalty ‘up for grabs’

22. • The Business Traveler (> 10 nights, often >50 or even >100
nights/year)
In Hospitality, Where Does Loyalty Work?
22
1983
Member-only benefits:
• Water
• Check-in Amenity
• Breakfast / Meal
• Wi-Fi
• Floor Access
• Pays full rate (company often pays for it)
• Makes every stay work for them,
with points adding up to create
opportunities for ‘free’ travel, gifts
• Once entrenched in program,
switching costs are very high and
difficult move them out

23. Loyalty Programs Shift Lens of Evaluation
23
• Without Loyalty Program
• Price
• Convenience
• Reputation
• Referral
• Prior Experience
• With Loyalty Program
• Point Accrual
• Promotion Requirement
• Expiration/Forfeiture

24. Loyalty Programs Shift Lens of Evaluation
24
• Example
• Ryan, Marriott Bonvoy Gold Elite (25-49 nights/yr) w/ 40 current nights
already logged and an expected 75 nights/yr total
• Kayla, not a rewards member w/ 8 nights/yr total
• It’s September and…
• Both plan a trip to St. Louis for 3 nights, and find an excellent rated
Hilton property a block from their meeting at a reasonable price
• Closest Marriott property is eight miles away, 30 minutes in traffic,
reasonably same price, but would require UBER to get back and
forth each day
• What do you expect each traveler will do?

25. Hospitality Reward Program Cycle
25
• How do programs sustain themselves?
Member
earns
Xpts/$1 on
every
revenue
night
Franchisee
pays
Corporate
Y% of ADR
Member
redeems
points (free
nights, gift
cards)
CP pays
franchisee/
vendor for
redemption
activity
1
3
2
4
Member books a point-
earning night and earns X
points per dollar spent
Franchisee agrees to pay
Corporate a Fee of Y% based
on the Average Daily Rate
(ADR)
1
2
3 With enough points
accumulated, Member
redeems for reward night
stays or other program
offerings
4
Corporate pays for award
to Franchisee or Vendor

26. Hospitality Reward Program Cycle
26
• Example
Member
earns
10pts/$1 on
every
revenue
night
Franchisee
pays
Corporate
5% of ADR
Member
redeems
points (free
nights, gift
cards)
CP pays
franchisee/
vendor for
redemption
activity
1
3
2
4
$85 ADR = 850pts Earned
$85 ADR * 5% = $4.25 in Fee
1
2
3
20 Total Point-Earning Nights
17,000 Points Earned
$85.00 to Corporate
15,000 Points Redeemed
$50 Gift Card or
$100 Reward Night
4 Gift Card:
Net $48 to Vendor (+$37 Left)
Net $60 to Franchisee (+$25)
Still Need to Cover?
Marketing, Advertising, Support

27. Spheres of Program Influence
27
• Three core Spheres of member interaction fuel program strategy
Sphere 1
Core Product
Interaction
• Point Earn
• Point Redeem
• Check-in
• Amenities
Sphere 2
Travel Interaction
• Air/Car Benefits
• Earn/Redeem
• Non-Property
Benefits
• Dining
• Experiences
Sphere 3
Non-Travel Interaction
• Ancillary Earn
/Redeem
• Gift Cards
• Merchandise
• Non-travel
experiences
(dining, etc)

28. Member Focused Model? Simple.
28
Join
Redeem
Earn
• Profile Issuance
Name, Address, Phone,
Email
Member ID, Base Status
• Multi-channel
Property, .com, agent
• Point Earning Stays
• X points / $1
• Credit Card
Spend/Sign-on
• Partner Earn
• Airlines, Rental
Car, Rideshare,
Products &
Services
• Requires Minimum
Balance to Participate
• Reward Night
• Calculated based
on Average Daily
Rate (ADR) OR
Seasonal Table
• ~80% of
redemptions
• Partner Redeem
• Travel
• Gift Cards
• Merchandise
• Gift Cards
Earn &
Redeem
• Repeat

29. But It Never Is That Easy – What Goes Wrong?
29
Join
Redeem
Earn
• Weak value
proposition
• Poor channel
placement
• Weak earn model
• Lack of ancillary
point earn options
• Credit Card
• Partners
• Poor program
communication on
path to redemption
• No recognition
• Competitive
pressure
• Unattainable
inventory
• Out of reach for most
members
• Priced too high
• Not available/blackout
• Disjointed redemption
partners
• Poor communication
for qualified
redemptive audience
Earn &
Redeem
• Attrition:
• Price
• Convenience
• No ‘love’!

30. Program Structures are also Very Similar
30
• Programs typically create ‘carrot-stick’ frameworks to push
members to give more business in return for better rewards
Base
Member
Elite ‘Gold’
Elite
‘Platinum’
Elite
‘Diamond’
0 – 10 Nights
11- 20 Nights
21- 50 Nights
> 50 Nights
# of Members: 80%
% of Revenue: 50%
# of Members: 5%
% of Revenue: 13%
# of Members: 3%
% of Revenue: 16%
# of Members: 1%
% of Revenue: 20%
No point multiplier
Little/no amenities
Point balances largely
ineligible to redeem
Second tier point multiplier
Better local amenities
Point balances redeem for
medium /high level nights
Best point multiplier
Best local amenities
Very large point balances
Intro level point multiplier
Intro local gift/recognition
Point balances redeem for
lower level night or gift card

31. Program Structures – What Goes Wrong?
31
Base
Member
Elite ‘Gold’
Elite
‘Platinum’
Elite
‘Diamond’
0 – 10 Nights
11- 20 Nights
21- 50 Nights
> 50 Nights
# of Members: 80%
% of Revenue: 50%
# of Members: 5%
% of Revenue: 13%
# of Members: 3%
% of Revenue: 16%
# of Members: 1%
% of Revenue: 20%
No point multiplier
Little/no amenities
Point balances largely
ineligible to redeem
Intro level point multiplier
Intro local gift/recognition
Point balances redeem for
lower level night or gift card
Second tier point multiplier
Better local amenities
Point balances redeem for
medium /high level nights
Best point multiplier
Best local amenities
Very large point balances
Unloved
No positive
engagement with
program
Not enough effort to
move these groups
up in benefits
received
Topped out…now what?
Still more nights?

32. Summary and
Next Week
32

33. Summary
33
• Our journey this summer will take us down a three-prong path of objectives:
• Principles of Loyalty: why is this important and what is the core philosophy to succeed?
• Pillars of Hospitality Loyalty Program: how Acquire, Active and Engage guide great programs
• Building and Executing Program: Navigating the org to successfully manage program
• Loyalty programs are nothing new but work because they ‘lock up’ engagement via
points, discounts and other member-only benefits
• However, be careful not to confuse ‘repeat business’ with ‘loyalty’ – there is a big difference in
member advocacy which separates the two
• Ultimately, our journey centers around the focus of a program as the conduit to a ‘life-
time relationship’ with every member
• Grounded in what members want (measured via attitudinal and behavioral models)
• Validated in the benefits delivered to the program and organization
• Revenue
• Occupancy
• Incrementality