Internet intermediaries such as Expedia and Travelocity may find it advantageous to award their customers points in hotel chains’ frequent guest programs, but the major hotel groups have resisted that step so far, according to a report by the Cornell University Center for Hospitality Research.
The report by Cornell professors Bill Carroll and Judy Siguaw examined the complex situation that hotel chains face in dealing with Web sites that sell discounted rooms using a merchant model.
The authors suggest that, eventually, one hotel chain may break the current reluctance to offer loyalty points for Internet merchant sales. The report, entitled An Examination of Internet Intermediaries and Hotel Loyalty Programs: How Will Guests Get their Points? (based on earlier research by Phocuswright) looks at the relationship between hotel chains and internet merchants with regard to loyalty programs.
The negotiations between the hotel chains and Internet intermediaries have become critical because business travelers have begun to use the Internet more heavily to book their trips and accommodations.
Because of the desire to gain direct Internet bookings, hotel companies would prefer not to award points to business travelers for those discounted rooms. The intermediaries, on the other hand, would like to strengthen their position by offering hotel loyalty-program points.
According to the report, the decision whether or not to allow intermediaries to award hotel loyalty points hinges in part on whether those merchants can, in fact, shift market share to a hotel chain that is featured on their Web site. A game-theory analysis of the situation suggests that a first-mover chain would gain some advantage over its competitors by offering points for the intermediaries’ sales. However, that advantage would soon be lost when competitors match the offer.
As a practical matter, individual properties often grant their frequent guests loyalty points even if they haven’t technically earned them. While the hotel executives interviewed for the report asserted that their loyalty programs encourage customer loyalty, those executives also admitted that most of their loyalty program members also participate in other chains’ programs.
Carroll and Siguaw point out that the customer information gleaned from loyalty program members is a considerable benefit of operating a loyalty program.
Given the cost of operating a frequent guest loyalty program, Carroll and Siguaw suggest that if a chain did agree to award points for merchant-intermediary sales, that chain might create a different class of points or offer a reduced number of points for business customers who book on the Internet.
Despite the intermediaries’ wish to offer loyalty points, the report’s authors do not expect them to develop their own hotel-like frequent guest loyalty programs, due largely to the expense of setting up and running them.
Carroll is a senior lecturer at the Cornell School of Hotel Administration, and Siguaw is dean of Cornell-Nanyang Institute of Hospitality Management and J. Thomas Clark Professor of Entrepreneurship and Personal Enterprise at the Hotel School.