Who do you reward: new customers or loyal customers?

Many of our clients ask about which customer to reward for their patronage, new ones of
loyal ones. Today, many hotels and resorts reward new customers as way to generate trial
to their product, with some rewarding only those loyal customers who stay often at their
properties. When considering adding a loyalty program for your hotel or resort, the
question is which one of these strategies to pursue, either rewarding new customers or
loyal customers.
The answer, just like most things, is it depends. es, not a real answer here since e!ery
hotel has a different scenario. "owe!er, we can pro!ide you with a little guidance with
some simple obser!ations about loyalty.
The Camps of Thought about Customer Loyalty.
#t $alorem %roup we ha!e two camps of thought about loyalty, the &usiness 'amp that
suggests that those customers who repeat often are in lo!e with the outstanding ser!ices
and amenities the hotel pro!ides, and that s(he would be willing to pay more for it,
making discounting a decision that will negati!ely impact the bottom line. They belie!e
that only new customers should be rewarded to generate trial offering the old customers
little in the form of reward other than low cost rewards.
The other camp is the )oyalist 'amp that belie!es that the only way to maintain a client
is by offering them perks that keep them returning. They claim that discounting leads to
a loyal customer with steady lifetime !alue, that new customer should not be rewarded
without loyal habits and that doing so only decreases the !alue to loyal customers.
2 Scenarios to help you decide whom to reward.
We think that both camps ha!e !alid points, but that the !alidity of the points depend on
the hotel and resort*s circumstances. )ets co!er two simple scenarios that hotels and
resorts are !ery familiar with+ ,- "yper competition. We hear about it all the time, more
hotels, more in!entories, more options for the consumer and more tools to keep their
focus on price. .- # small concentration of customers that repeat often and produce most
of the hotel and resorts re!enue. es, it is the famous /0(.0 rule, where .01 of your
customers produce /01 of your re!enue.
Discounts for ighly Competiti!e "ar#ets.
2f you ha!e a highly competiti!e en!ironment in your area, you discount to new
customers. 2f you ha!e low competiti!e en!ironment then you dont discount. That
makes sense to e!eryone, and many of us who are onsite in a property that was one of the
first in an area that was not too popular but then became congested. 2magine the first
hotels in 'ancun and compare it to today*s hyper competiti!e arena. "otels and resorts
are clamoring for new business 3heads in beds4.
2f along with a large competiti!e set you also ha!e an equal5spend5customer, meaning
that e!ery guest spends the same amount of money at your resort or hotel, then we see the
path as rewarding new customers since offering loyalty and rewards to frequent stay
guests will not ensure a repeat !isitor with many low priced options from competitors. 2n
these two scenarios, discounting to 67W '89T:M7;9 is the absolute way to go.
igh Competition$ Low Concentration of igh %aying Customers.
2f on the other hand you ha!e a high amount of spend among a small percentage of guests
3the /0(.0 rule e<ists4, then you only discount to your most loyal and profitable guests.
es, this means you measure the amount the dollar spend of those guests to make sure
they are your best customers. 2t also means you gauge the amount of ser!ices that they
consume on and off site and debit it to their total spend to make sure your margins are not
already at an all time low.
When &our Loyal Customer is a Drain on your 'udget.
"a!e you e!er had that loyal customer that absorbs most of your front desk personnel*s
time and that of the hotel wait staff , who returns more =>& then s(he consumers, and
cancels their reser!ations more often? #ll of this is cost and should be tallied to ensure
that you are not spending all of your staff time and dollars on one !ery loyal
@unfortunately- customer. Many ask us if they should fire their best clients, and we
always say 6: W#. ou should reassess their real costs and charge them more. es,
charge more and pro!ide little if any loyalty rewards for a return !isit. Alease don*t tell
them, just do it.
(re loyal customers really loyal?
:ne thing to watch out for too is the loyalty rate of your most faithful customers. 9o
before you whip out the Aerma Aerks program for Mr. 9mith, make sure that Mr. 9mith*s
company isn*t ne<t door to your hotel and he will stay there e!ery time he is in town
!ersus commuting BC minutes to get to work in the morning. Make sure you are not on
the way to the airport and that Mr. 9mith doesn*t come in for a meeting and ne<t morning
mo!e on to the ne<t country. Make sure Mr. 9mith isn*t an in!estment banker and that
your hotel doesn*t already offer him(her a great image in the community. 7!erything
must be looked at and the right program designed.
&reak down your guests not by the amount of times they spend and !isit you, but by the
different types of customer personas. %o ahead and reward differently for each group.
=orget %old, 9il!er and Alatinum, do by groupings, kind of like teams, and fill their
personal needs. Maybe the in!estment banker needs a special table in the lobby that is
reser!ed for him during his stay. That wont cost more, but is a huge ad!antage to him
during his business trip.
:ne more note. 6ow that you are segmenting and rewarding, please segment internally.
What 2 mean is, please don*t ha!e any reser!ations agent respond to your most profitable
clients, ha!e a special empowered employee to handle those calls, nothing can be worse
than being your top customer and then ha!ing to wait a day so that someone in
reser!ations can speak with the %eneral Manager about a simple request. 2nternal
segmentation is critical.
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