The hotel industry today is vibrant yet tumultuous, driven by the digital revolution that has engulfed us, reshaping the marketplace. Online travel agencies have inserted themselves between hotels and their guests, while disruptors like Airbnb pose a significant threat.
In this tech-savvy age, consumers are constantly seeking new options. With all these distractions, you might wonder if preaching guest loyalty is worth it. But in reality, it is the path to hospitality salvation.
Loyalty programs offer a framework to nurture guest relationships, providing recognition, perks, and redemption options for rewards. Most importantly, they create guest profiles and transaction histories, yielding insights needed for personalized guest interactions, which are crucial in today’s hospitality landscape.
What is Customer Loyalty?
In the hotel industry, guest loyalty represents a guest’s commitment to one property over other accommodation choices, encompassing both emotional attachment and purchase behavior.
While the average customer loyalty rate for most companies hovers around 20%, this small percentage of loyal customers contributes up to 65% of the total sales revenue. It’s clear that focusing on existing customers is essential for business success. In fact, studies have revealed that 9 out of 10 customers are likely to make repeat purchases with brands that provide outstanding customer service.
Between 2020 and 2021, the rate of leisure travelers who were loyalty members of the hotel they stayed in during their most recent trip increased from 43% to 47%. For business travelers, loyalty percentage remained steady at 64%. Hotel brands have an opportunity to capitalize on this shift by rethinking tier structures and redemption opportunities to engage leisure travelers more effectively.
The Importance of Customer Loyalty
Loyalty programs hold tremendous value for hotels, generating significant revenue. According to Skift Research, members contribute between 30% and 60% of room revenue and tend to pay higher average daily room rates (ADR) than non-members.
Imagine a hotel as a big house that warmly welcomes guests. While all guests are important, repeat customers stand out as extra special. These loyal guests contribute significantly to a hotel’s success for several reasons:
- Increased Spending: Repeat guests tend to spend more money during their stay, availing themselves of various services and amenities. In fact, repeat customers represent just 8% of the total customer base but contribute around 40% of a store’s revenue.
- Word-of-mouth Marketing: Loyal guests become brand advocates, spreading positive word-of-mouth recommendations to their friends and family. According to Nielson, 92% of consumers trust word-of-mouth recommendations more than any form of advertising.
- Enhanced Guest Satisfaction: Knowing guests’ preferences allows hotels to offer personalized experiences, leading to higher guest satisfaction. Forbes reports that a 5% increase in customer retention can boost a company’s profitability by 25% to 95%.
What are the Three Rs of Customer Loyalty?
Fred Reichheld, a New York Times best-selling author, business strategist, and motivational speaker, coined the phrase “Three Rs of Customer Loyalty.” These are Rewards, Relevance, and Recognition, three key elements that can help companies build strong relationships with guests.
All methods and strategies to increase customer engagement score revolve around these elements. Here’s what business leaders need to know about the Three Rs:
- Relationship: The Key to True Customer Loyalty
Most customer loyalty programs today focus solely on transactions, often relying on discounts as incentives. However, this approach doesn’t differentiate a brand and leads to price-based competition. To drive true loyalty, brands need to build meaningful relationships with their customers, going beyond mere transactions.
- Relevance: Evidence of Understanding Your Customers
Relevance is crucial in fostering better relationships with customers. Tailoring marketing communications to individual interests and needs sets a brand apart from the marketing noise that inundates consumers daily. Studies show that consumers decide within seconds if a message is worth their attention or not.
- Reward: Demonstrating Genuine Appreciation
Few companies take the initiative to show appreciation to their customers through gifts or special recognition for their loyalty. Yet, rewarding loyal customers strengthens their bond with the brand. Creating thoughtful and personalized loyalty programs can go a long way in driving customer loyalty.
Why Should You Measure Customer Loyalty?
Loyal guests are essential for every hotel as they are more likely to return, purchase additional products and services, and recommend the hotel to others. Beyond tangible perks, guest loyalty represents an emotional connection between the guest and the brand.
The result is repeat business, increased direct bookings, positive word-of-mouth referrals, high ratings on travel review websites, and meaningful two-way communication with guests that fosters lasting relationships.
What Customer Loyalty Metrics Should You Track?
Measuring customer loyalty requires considering various statistics to gain a comprehensive understanding of the relationship with repeat customers. Some important metrics to track include:
Repeat Visit Rate
The percentage of customers making multiple purchases, while not a definitive loyalty indicator, lays the foundation for cultivating customer devotion. Remarkably, returning visitors are 67% more likely to convert than newcomers, making them worthy subjects of your loyalty endeavors.
Oh, and let’s not forget the cost-effectiveness of retaining existing customers over acquiring new ones. To calculate the Repeat Purchase Rate (RPR), divide the number of customers with repeat purchases by the total customers in the same timeframe.
Upsell Rate
Similar to the RPR, this metric delves into customers purchasing different products or offerings over time. As loyal customers are more amenable to additional purchases, the Upsell Rate serves as a gauge of customer loyalty.
Keep in mind that the more dissimilar the additional product is from the first, the stronger the signal of loyalty. Think buying a phone from the same company as their beloved laptop—a loyalty jackpot!
Customer Lifetime Value
The profit margin anticipated throughout the entire customer relationship—this metric reveals how much more your customers are willing to invest in your business.
Customer Lifetime Value (CLV) and customer loyalty go hand in hand, like two peas in a pod. To unravel the CLV, multiply the average sale value, average number of transactions, and average customer retention period. Then, bask in the radiance of profit margin as you complete the calculation.
Customer Retention Rate
A crucial measure of the number of customers remaining loyal to your company during a specific period. The Customer Retention Rate (CRR) directly mirrors customer loyalty and impacts your business’s bottom line.
Unveiling the CRR magic requires a simple yet powerful formula: CRR = ((E-N)/S) x 100, where E represents customers at the end of the period, N denotes newly acquired customers during that period, and S symbolizes the customer count at the start.
Customer Satisfaction Score
Customer Satisfaction (CSAT), a short-term metric, entices you with insights into customer loyalty. By measuring satisfaction for individual interactions, products, or services, you unlock the treasure trove of loyal sentiments. To reveal your CSAT score percentage, sum up all scores and divide by the sum of maximum scores. Easy peasy, right?
Customer Loyalty Index
An indispensable tool for tracking customer loyalty over time, the Customer Loyalty Index (CLI) engages customers with three strategic questions. It seeks to measure NPS, repurchases, and upselling, all in one go.
Customers share their sentiments on a scale from 1 to 6, paving the way for a panoramic CLI view. While measuring intent might not be the epitome of reliability, with regular surveys over time, you can piece together a meaningful picture of customer loyalty.
How to Improve Customer Loyalty Scores
To enhance customer loyalty, a well-crafted strategy must prioritize the unique needs of the customer base. Steps to achieve this include providing excellent customer service, offering personalized discounts and promotions, and actively gathering and responding to customer feedback.
Loyalty Programs
According to the 2021 Loyalty Barometer Report, more than 80% of customers seek a relationship with a brand, and loyalty programs play a vital role in fostering this connection. Recognizing and rewarding loyal customers strengthens their bond with the business, making loyalty programs essential for cultivating loyal customers.
Better Customer Service
Did you know that the quality of your customer support matters to 90% of your guests? Well, now you definitely know. Addressing customer concerns proactively and offering effective solutions promptly enhances customer satisfaction and loyalty.
Improved Personalization
For approximately 87% of customers, personalization is at least somewhat important in their customer experience. Personalization is crucial for building loyalty, with customers valuing tailored experiences. Measuring customer loyalty offers valuable insights for businesses. By understanding the preferences of VIP customers, hotels can implement marketing strategies that drive customer growth and increase profits.
Increase Guest Loyalty Scores With HelloShift
Remember, focusing on guest loyalty scores is the key to long-term success in the competitive hotel industry. By prioritizing customer relationships, personalization, and loyalty programs, your hotel can thrive in the dynamic and ever-changing marketplace.
Of course, you can’t improve customer experience and increase loyalty over a short period of time. Long-term business goals require patience. If you want to create a loyal customer base you also need the right tools. That’s where HelloShift comes into play.
HelloShift is a platform that allows guest messaging in real time, helping guests find answers instantly to important questions before, during, and after their stay. It is helping hundreds of hotels improve their guest experience, and it can do the same for you.
Hotel guests receive automated texts powered by AI and are empowered with the convenience of self-service via digital hotel guidebook. Hotel teams work together with notes, tasks, and checklist software for hotels. Uptodate room status via Housekeeper mobile app.
Transform your hotel into a digital hotel. Enable guests to text your hotel and pre-checkin, empower staff with staff collaboration, and schedule room cleaning efficiently.
