Name: Grace Le
ID: 100145691
TOUR404 - Travel Distribution Management
Case Study 1
Benefits and Drawbacks of Loyalty Programs
Introduction
Loyalty and reward programs are a common part of marketing strategies across
industries, including hospitality and tourism. These programs aim to build customer
loyalty by providing incentives and benefits for continued buying. However, the actual
revenue and profitability impacts of different loyalty program structures can be unclear.
This report will analyze three research studies on the effectiveness of loyalty programs
and their implications for hospitality and tourism businesses.
Voorhees et al. (2014)
Voorhees et al. (2014) argue that while loyalty programs are presumed to deliver
strong revenue growth, businesses often lack tangible evidence and metrics to
demonstrate these benefits. The authors present a methodology for assessing program
profitability using customer-level data. Voorhees et al. find loyalty programs can drive
substantial revenue growth through increased visit frequency and customer lifetime
value. Their analysis of two independent hotel groups showed a ~50% lift in annual
revenue among rewarded members versus comparable non-members. Key drivers
were more annual visits and longer stays, not higher prices. This demonstrates the
power of loyalty programs to incentivize valuable customer behaviours. However, the
study did not account for program costs in assessing net financial impact.
a) Loyalty programs can increase revenue by incentivizing customers to make
more frequent purchases. Benefits like points, status levels, and rewards keep
customers engaged and make them more likely to choose the brand over competitors.
These builds share of wallet and overall customer lifetime value.
b) The six tiers range from assessing consumer perceptions to measuring
behavioral changes, to fully quantifying the financial impact and optimization
possibilities. Each level provides deeper insights into the program's effects.
Tier 1 - Consumer Reactions: Measure consumer attitudes towards the program
through surveys, interviews, concept tests etc. This provides a baseline for
assessing changes later.
Tier 2 - Consumer Attitude Change: Survey consumers before and after the
program launch to measure how attitudes like satisfaction and purchase intent
have changed due to the program.
Tier 3 - Consumer Behavior Change: Analyze actual consumer behaviour data to
see how program enrollment affects metrics like visit frequency, nights booked,
and revenue spending.
Tier 4 - Controlled Incrementality Assessment: Use statistical techniques like
matched pair analysis to isolate the incremental impact of the program by
controlling for differences between members and non-members.
Tier 5 - Return on Investment: Do a comprehensive cost-benefit analysis to
calculate the overall ROI of the loyalty program investment based on incremental
gains attributable to the program.
Tier 6 - Optimization: Identify opportunities to optimize program performance for
specific segments, promotions, competitive contexts etc. to further improve ROI.
Liu & Ansari (2020)
Liu and Ansari (2020) find consumers employ various decision heuristics to
evaluate loyalty programs amidst many choices. These include choosing familiar
programs first, maximizing instant rewards, and considering future redemption value.
c) The research reveals several key decision rules and heuristics consumers use
when navigating multiple loyalty programs. These include choosing familiar programs
first, maximizing immediate promotional rewards, weighing potential future redemptions,
and balancing short and long-term trade-offs. The findings show consumers rely heavily
on simple rules of thumb rather than complex optimization.
d) The research creates opportunities for hospitality businesses to respond
effectively. They can make joining and earning initial rewards extremely seamless to
leverage the familiarity bias. Messaging should emphasize future redemption
opportunities to drive engagement. Integrating programs across booking channels also
promotes ease of use. Most importantly, firms need to design differentiated program
features and value propositions to stand out. The right balance of program benefits,
pricing, and promotions can be tailored using customer segmentation to target specific
heuristics. In summary, hospitality firms that understand actual consumer decision
processes can respond with smarter program design, clear messaging, and
omnichannel coordination to attract and engage members.
McCall et al. (2021)
McCall et al. (2021) analyze survey data showing loyalty program members have
much deeper engagement with brands across activities like website visits, app
downloads, and social media.
e) The research shows that loyalty program members have much higher
engagement across all metrics versus non-members. For example, members are more
likely to visit the retailer's website and stores, download their app, follow them on social
media, and recommend them to others. This demonstrates that membership in a loyalty
program successfully builds stronger bonds and loyalty between customers and brands.
f) Firms should leverage loyalty programs across online, mobile, in-store, and social
channels to maximize accessibility for consumers. Some keyways to do this include:
Offering seamless enrollment and earning rewards across all touchpoints.
Allowing redemption of rewards across channels - online, in-app, and in-store.
Promoting the program and its benefits on website, app, email, and social media.
Personalizing communication and offers based on purchase history and rewards
status.
Providing exclusive rewards or early access to sales for members.
Using member-only events to drive social media engagement.
Analyzing customer data to optimize program design and messaging.
The omni-channel coordination reinforces the value of loyalty membership at every
touchpoint. Meeting customers where they prefer to engage is key to maximizing
program participation and customer lifetime value.
Conclusion
Through the three research, the benefits and drawbacks of loyalty programs are
examined. It is demonstrated that they can have a significant financial impact by
increasing customer engagement and lifetime value. However, it can be challenging to
assess this impact accurately. With numerous loyalty programs available, it is beneficial
for companies to offer convenient enrollment, earning, and redemption options, as well
as seamless omnichannel experiences to maintain a competitive advantage. In
conclusion, the reward programs enhance a tourism/hospitality business, and it has an
undeniable effect on its operations.
Reference:
Why Customer Loyalty Programs Can Backfire. (2021). Harvard Business Review,
99(3), 21–25. Liu, J., & Ansari, A. (2020).
Understanding Consumer Dynamic Decision Making Under Competing Loyalty
Programs. Journal of Marketing Research (JMR), 57(3), 422–444.
https://doi.org/10.1177/0022243720911894
Voorhees, C., McCall, M., & Carroll, B. (2014). Assessing the benefits of reward
programs: A recommended approach and case study from the lodging industry
[Electronic article]. Cornell Hospitality Report, 14(1), 6‐12. Source:
https://ecommons.cornell.edu/handle/1813/71157
