The goal of implementing customer loyalty strategies is to drive repeat business, which is the most profitable type of sale, as returning customers contribute more to the bottom line than first-time buyers. In the hospitality industry, the key to boosting revenue through repeat business lies in thinking creatively.
Then, how can hospitality businesses innovate to transform one-time guests into loyal customers?
The answer is to focus on building long-term relationships through creative strategies that are tailored to your target audience, rather than just closing individual sales.
The power of customer loyalty
Whether operating in a business-to-business (B2B) context or targeting the consumer market, cultivating customer loyalty is crucial for attracting customers and outpacing competitors. In the hospitality and food industry, where the market is highly saturated, businesses must differentiate themselves and retain as many customers as possible. In this context, loyalty programs are essential for generating consistent repeat business and sustaining growth.
However, as the industry evolves, customer retention strategies need to be more innovative, engaging, and attractive. Next, we will explore different types of loyalty strategies and discuss how they can be effectively implemented and tracked.
When I worked at Selina Hotels, a global hospitality brand known for its unique combination of boutique hotels, hostels, and co-working spaces in over 110 destinations worldwide, I gained insights into various customer retention strategies.
The most common approach is the points-based program, where customers accumulate points for their purchases, similar to the Starbucks Rewards program. Another prevalent strategy is the tiered program, such as Booking.com’s Genius loyalty program, which assigns levels from Level 1 to Level 3 based on past spending.
Additionally, gamification programs, like Nike+ Run Club, use game-like elements such as earning achievements, participating in challenges, and tracking personal progress, which tap into the competitive nature of customers and leverage psychological triggers like competition to motivate and enhance user engagement with the brand. However, there are many innovative strategies for attracting and retaining customers.
Measuring Success
While loyalty programs offer significant benefits, they often come with costs, such as discounts or perks that can impact the company’s bottom line. Therefore, it’s crucial to conduct thorough and ongoing tracking to evaluate the program’s effectiveness. To determine if the initiative is working, sales attributed to the program should ideally be monitored on a weekly basis and key questions should be asked:
- How many new customers or sales are needed to break even?
- How much of your sales revenue comes from the loyalty program?
- Which channels are generating sales from the initiative and what is the ROI?
- What is the month-over-month (MoM) and year-to-date (YTD) growth?
This approach ensures that the initiative is strategically aligned to deliver meaningful results, promote repeat business, and contribute to the company’s growth.
The Key to Repeat Business
Finally, a well-designed loyalty program can significantly boost revenue, but there’s a crucial non-negotiable: ensuring seamless execution. Managing the value delivery system is essential to maintaining your value proposition and ensure a smooth customer experience and uphold the promised value. According to the HBR article ‘Why Customer Loyalty Programs Can Backfire’, “loyal members may react more strongly to service failures such as shipping issues, problems with returns, and stockouts, as they get more upset than those who are not members of the program.” If not executed properly, this can lead to what the author refers to as the “Boomerang Effect,” where the strategy backfires.
The key is to integrate the benefit into the overall sales strategy and its processes. For example, if a reservation came through a loyalty program, Selina needed to ensure that the process was streamlined so that every channel—whether reception on-location, call centers, email reservations, or social media—was aware of the active benefit. If any part of this process failed, it could damage the company’s reputation and result in lost opportunities. Therefore, smooth activation and execution of the benefit are crucial for maintaining customer satisfaction and achieving success with loyalty programs.
