Make Frequent Guest Programs Work for You, Says Cornell's Latest Hospitality Industry Performance Report

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Hospitality research highlights ten principles that can improve loyalty program performance

but so far there's not much evidence that these programs actually create customer loyalty. So, we looked at the basic concepts of customer psychology to focus on ways that these programs can actually build loyalty. One key point is to be careful with price-oriented rewards, which can turn the potentially loyal frequent guest into a discount-focused customer.

The hospitality and gaming industries can develop stronger frequent guest programs by paying attention to customer psychology and desires. A new report from the Cornell Center for Hospitality Research (CHR) highlights ten principles that will make it more likely that loyalty programs actually develop loyal customers. The new hospitality industry performance report, "Building Customer Loyalty: Ten Guiding Principles for Designing an Effective Customer Reward Program by Michael McCall, Clay Voorhees, and Roger Calantone, is available from CHR at no charge at http://www.hotelschool.cornell.edu/research/chr/pubs/reports/2010.html .

"Virtually all hospitality and gaming firms have some form of customer loyalty program," said McCall, a professor of marketing at Ithaca College and a CHR research fellow, "but so far there's not much evidence that these programs actually create customer loyalty. So, we looked at the basic concepts of customer psychology to focus on ways that these programs can actually build loyalty. One key point is to be careful with price-oriented rewards, which can turn the potentially loyal frequent guest into a discount-focused customer."

Voorhees, an assistant professor at Michigan State University (MSU), pointed out that most loyalty programs do encourage repeat purchases, but only up to a point. "Repeated purchases don't necessarily equate to loyalty," he said. "What we observed is that once customers hit a reward tier, they consider whether they can make it to the next tier or whether it's easier to get rewards from a competitor. Loyalty program designers need to find ways to keep customers active."

Added Calantone, the Eli Broad Professor of Business at MSU: "Several of our suggestions are meant to limit customers' switching behavior. For example, hotels could adjust their tier rewards, possibly by offering continual reinforcement, such as small, undocumented rewards to guests who are moving ahead within their existing reward tier."

The hospitality research shows that the ten most successful methods of improving loyalty programs are as follows: foster customer engagement, establish a two-way value proposition, capitalize on customer data, properly segment across and within tiers, develop strategic partnerships, develop dynamic tiers, cater to customers' desires for choice and fairness, avoid commoditization by differentiating, avoid the price sensitivity trap, and embrace new technologies.

Thanks to the support of the CHR partners listed below, all publications posted on the center's website are available free of charge, at http://www.chr.cornell.edu .

About The Center for Hospitality Research
A unit of the Cornell School of Hotel Administration, The Center for Hospitality Research (CHR) sponsors research designed to improve practices in the hospitality industry. Under the lead of the center's 81 corporate affiliates, experienced scholars work closely with business executives to discover new insights into strategic, managerial and operating practices. The center also publishes the award-winning hospitality journal, the Cornell Hospitality Quarterly. To learn more about the center and its projects, visit http://www.chr.cornell.edu .

Center Senior Partners: Hilton Worldwide, McDonald's USA, Philips Hospitality, Southern Wine and Spirits of America, Inc., STR, Taj Hotels Resorts and Palaces, and TIG Global.

Center Partners: Davis & Gilbert LLP, Deloitte & Touche USA LLP, Denihan Hospitality Group, eCornell & Executive Education, Expedia, Inc., Forbes Travel Guide, Four Seasons Hotels and Resorts, Fox Rothschild LLP, French Quarter Holdings, Inc., FX Real Estate and Entertainment, Inc., HVS, Hyatt, InterContinental Hotels Group, Jumeirah Group, LRP Publications, Maritz, Marriott International, Inc., Marsh's Hospitality Practice, PricewaterhouseCoopers, Proskauer, Sabre Hospitality Solutions, SAS, Schneider Electric, Thayer Lodging Group, Thompson Hotels, Travelport, and WATG

Center Friends: 4Hoteliers.com • American Tescor, LLC • Argyle Executive Forum • Berkshire Healthcare • Cody Kramer Imports • Cruise Industry News • DK Shifflet & Associates • ehotelier.com • EyeforTravel • Gerencia de Hoteles & Restaurantes • Global Hospitality Resources • Hospitality Financial and Technology Professionals (HFTP) • hospitalityInside.com • hospitalitynet.org • Hospitality Technology Magazine • Hotel Asia Pacific • Hotel China • HotelExecutive.com • Hotel Interactive • Hotel Resource • HotelWorld Network • International CHRIE • International Hotel Conference • International Society of Hospitality Consultants (ISHC) • iPerceptions • JDA Software Group, Inc. • Lodging Hospitality • Lodging Magazine • LRA Worldwide, Inc. • Milestone Internet Marketing • MindFolio • Mindshare Technologies • Parasol • PhoCusWright • PKF Hospitality Research • The Resort Trades • RealShare Hotel Investment & Finance Summit • Resort and Recreation Magazine • RestaurantEdge.com • Shibata Publishing Co. • Synovate • The Lodging Conference • The Wall Street Journal • TravelCLICK • UniFocus • USA Today • WageWatch, Inc. • WIWIH.COM

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