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The State of Hotel Loyalty Programs

• Jeff Borman and Matt Brown

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CBRE's Rachel Rothman and Christine Bang understand hotel brand performance and equity analysis like very few others in this business. We talk about the overall health grade they'd give to hotel loyalty programs, what we mean when we talk about luxury, hospitality partnerships aiming to reach new audiences, how loyalty programs can grow, and way, way more.

https://www.cbre.com/insights/reports/hotel-brand-performance-2024
https://www.cbre.com/insights/articles/hotel-loyalty-programs-betting-on-the-law-of-large-numbers
https://www.cbre.com/insights/viewpoints/maturation-of-the-hotel-industry-drives-convergence-with-other-sectors-to-facilitate-growth

Matt Brown:

Hi everybody, welcome to no Show. I'm Matt Brown, joined as always by Jeff Borman. Jeff, today we are in the company of clairvoyance. As CBRE's head of hotels research and data analysis, rachel Rothman identifies trends to help hotel owners, brands and management companies maximize profits while minimizing risks. Like Keanu Reeves from the Matrix, she's constantly processing a wave of data to see the hotel industry as it really is. Aiding Rachel in this prognostication is her colleague, christine Bang, patron of the arts, advocate for golden retrievers, queen of the hot take and research manager for CBRE. They understand hotel performance and equity analysis like very, very few others in this business. Rachel and Christine, welcome to no Show.

Rachel Rothman:

Good morning. Thank you for having us. Or maybe it's afternoon where the listeners are.

Matt Brown:

Time's a flat circle here, or maybe it's afternoon where the listeners are. Time's a flat circle here. Every other week the New York Times and its ilk run a piece on loyalty programs and just a few days ago the Times ran a long one titled Frequent Flyers are Rethinking Loyalty Programs and Setting Themselves Free. Now airlines and their relentless credit cards are a different kettle of fish from hotels. But overall consumer questioning of loyalty programs I think is high right now.

Matt Brown:

Business reporting and sites like the Points Guy have made it so that people can kind of look behind the curtain to see just how beneficial these programs are to travel and hospitality brands. These programs are to travel and hospitality brands and often that subsequent coverage skews to critiques that people are sort of losing value. I'm turned away at the lounge, there are no upgrades at the end, my history of loyalty is meaningless. It's the credit card that they care about and it kind of begs the question who do these loyalty programs work for and are they working well? So I said at the top that you two are clairvoyants, but you're really doctors, experts in diagnosing the hotel business. So I've got a split question to kind of kick things off here. What health grade would you give loyalty programs right now from the hotel business side? And then part two what grade would you give them personally as consumers? And Rachel, let's start with you.

Rachel Rothman:

The first, just to differentiate between and I didn't see the article but to differentiate between the airline and the hotel industry. I can understand how some might view an airline seat as an airline seat as an airline seat right. That is a very commoditized product. I'm sure there are differences. I'm not an airline expert but in a hotel there are of course many different room types, right, many different tiers, different views, different sizes, different geographies, and so I think that the hotel loyalty programs have a way to differentiate themselves that maybe the airlines don't right.

Rachel Rothman:

Row 22, seat by the window on the right, is going to be fairly similar regardless of where you are as a consumer. I happen to be somebody that traveled so much throughout my career that I have the good fortune of having the highest level status in many of the brands, and I would say from my experience it's pretty good. Still, I think you're not wrong that there is certainly feedback in the sort of social media or internet universe that suggests that for that customer that travels less frequently, that it's harder to see the value, certainly in terms of upgrades and status. So many people, with the advent of the credit cards, are sort of in that middle tier right Just by spending on the card, that it makes it really hard to differentiate at the center of the bell curve. That would be my perspective as a consumer, from the brand or the owner perspective. We continue to see brands and loyalty programs grow in their overall occupancies no-transcript.

Christine Bang:

We've seen growth from an owner and brand perspective. We did a little digging from the data that comes out from public market companies and you're seeing percentage of room nights booked by members growing about 5.2% in the last year. So roughly 51% of room nights booked by members growing about 5.2% in the last year. So like roughly 51% of room nights are booked by members. So it still has a pretty big impact for the brands. Personally, you know I've not had trouble booking or getting what I need from my loyalty points. So as a consumer I find that it does keep me loyal to certain brands when I travel and it also gives the brands an opportunity to let me know about opportunities that exist within the portfolio that I might not be necessarily aware of. So I would say they are still meaningful. And certainly to Rachel's point during COVID, you know you saw a big spike during the COVID years in terms of redemptions and burning those points.

Matt Brown:

How seriously do hotel brands take credit card loyalty points? You know, like the chases and the Amex's of the world? Do they see them as a threat, that's kind of encroaching on the loyalty space, or is that still relatively kind of a small section? They don't really have to worry about that as much.

Rachel Rothman:

The brand family is thrilled to have you know. Expand what they might consider their network of loyal customers. Get access to that customer spend data. Have you know? Expand what they might consider their network of loyal customers. Get access to that customer spend data. Have you know, 150, 200 million people to market to at any given time? I think it's a huge win for the brands. Now, for the owners or for the operators, it might complicate things, but for the brands I think it's, without a doubt, a win.

Jeff Borman:

Rachel, I agree with that that the purpose of the brand is different than the purpose of the owner and it ultimately comes down to who do the loyalty programs serve, which, when you publish an article in July this year on betting on the law of large numbers and showing that there was an increase, but on a per member basis there's actually a lower level of liability these days. And my question is is that just because they've gone from tens of millions to hundreds of millions of members it's just the denominator has grown? Has the actual liability in these programs increased in that timeframe?

Rachel Rothman:

No, the liability declined. But I think a lot of that is what Christine spoke about earlier this sort of boon in redemption points over COVID, right. So you're burning down the liability and then, as rates increase, each point becomes worth more. But it takes more points to get the room night that you wanted previously. I think the big question that maybe you're alluding to is it used to be that the average loyalty member spent close to two nights a year in the hotel and now it's just above one. And that doesn't mean the program is worth less. The aggregate program is actually worth more.

Rachel Rothman:

But the question becomes how do you market to somebody? How do you service them? How do you provide a guest experience to somebody that's only likely to stay with you a very few nights in any given year? That can be tricky for the owner and operator of the actual asset. What does that guest want? You know, 20 years ago it was. There's the corporate traveler I'm on the road 100 days a year, which was me. There's a leisure guest who's with their family and there's a group guest, and it was very clear segmentation.

Rachel Rothman:

Now, with the proliferation of the loyalty programs, you're not really sure who's going to move the needle and who's going to be in-house on any given night. It does contribute tremendously to occupancy. It's just what do those guests want? How do you create loyalty in this new dynamic and how has that shifted? Who your channel mix is? And I think that's why we're seeing the proliferation in so many brands, because they're trying to niche the consumer down based on the brand right, like psychographically, who's staying in a boutique, limited service, experiential, branded hotel, right? There's just been tremendous proliferation. And what can you tell about who stays in what hotel based on how that brand is positioned?

Jeff Borman:

So to the brand proliferation. You recently did a study that brand companies have expanded from 13 to 26 brands on average in their umbrellas, and you also say that selecting a brand that outperforms the average has become increasingly difficult. What do you mean by that?

Rachel Rothman:

Well, part of it is just math. If there's so many brands, not everything can beat the average and a lot of the brands are new and so you don't necessarily have a strong track record. Christine manages a database of publicly reported hotel KPIs. Manages a database of publicly reported hotel KPIs. It goes back 20, 25 years and so some of the brands have a long history, very transparent sort of it's not same store but it's close to same store, because unit growth isn't that strong.

Rachel Rothman:

When you have a new brand that comes on the scene, that's opening a hundred new units a year and it's a relatively young brand, you don't know necessarily how that's going to perform. And that's where I think you would contract with a professional developer, somebody to help you with operator selection, somebody, like yourself, right, that can help you price appropriately, asset management. These are all going to become critical. It used to be that geography was the main determinant. I mean, when I went to hotel school, em Statler right, location, location, location. And now it isn't just about location, it's also about what brand, what price point. If anything, christine and I just did some work. She can talk a little bit about how location is becoming relatively less important due to distributed technologies.

Jeff Borman:

Over the last five years, the top performing brands outperformed their lagging chain scale counterparts by 79%. Right In an environment where we're talking about brand proliferation and the massive expansion of loyalty programs and trying to put those two things together right, I think the very blunt force object would be to say I owner, don't know anything about the business, need a brand, right, give me one. I got a piece of property, don't know what to do with it, slap a brand on there. And the bigger the program probably the better. Let's go. The other hand, I'm reading the research and thinking there might be something inside of what you're writing that's saying no, it's not that simple. The brands are not just plain outperforming. But I'm looking to you help, help guide me here. What am I interpreting right and what am I getting wrong?

Rachel Rothman:

I mean and I'll let Christine talk to this but one of the things that we make the point in that article that it's not just the brand, it's the brand family. They both matter, right, because it used to be that you were buying into a specific brand. Now you're buying into an entire loyalty point system and the quality and the halo of the other hotels in that brand family, the halo of the other hotels in that brand family. So if the other hotels in that brand family are not kept modern, are not viewed positively by guests, don't have strong guest satisfaction, doesn't have a strong loyalty program, even if it's not your specific brand, it will impact or could impact your overall hotel performance. You brought up the stat, jeff the difference between the best and the worst is dramatic, even within the same chain scale.

Jeff Borman:

Do you see? I don't know if this is fair. If not, we can hook this. But do you see, within the brand family, then, is there a marked difference between the soft brands that are so popular today and barely existed a decade ago, and the more traditional? I won't name which ones they are, but the first brands that come off your mind, top of your mind. Are you seeing those two separate from one another, where one is getting more value from the family?

Rachel Rothman:

I don't think most of the soft brand KPIs are reported.

Christine Bang:

Christine, yeah, it's a little bit difficult to tell because, you know, depending on how large the brand is within the brand family sort of dictates how much data is publicly available. So while there is, you know sort of you can point to the proliferation, like of collections right that are the sort of softer brands that larger brand families are affiliating themselves with, it's a little bit more difficult to sort of drill down to see what the performance looks like, because there is not that same level of data as you might have on a sort of traditional brand where that you know you have sort of metrics that are reported year in and year out and on public, you know, on public conference calls and things like that. So it's it's a little difficult to say you can look anecdotally at you know sort of the interest in that space, but it's harder to sort of really dig down into the numbers because they're just not, it's just not there yet in terms of size and depth.

Jeff Borman:

I've kind of had this theory going too and again waiting for the two of you to tell me how wrong I am that over the last 20 years you've gone from you know, you, the, we, the industry a set of kind of core, select service brands, and then you have just these few core, big monolithic fullservice brands and then a luxury brand or five right and the blurred lines between all of those.

Jeff Borman:

From 2005, to call it 2020, it seemed, at least to my observation, that there was a dilution of the premium held at the top right. So luxury 20 years ago I don't know the number, but let's say it held a 20% premium in price in ADR From 05 to maybe 2020, that premium dropped precipitously as full service caught up or luxury dropped. Whichever one it was, they came together. Along comes COVID and luxury kind of reestablishes its dominance or it's, you know, extends itself in pricing from the marketplace First of all. Do you see something like that and do you see luxury maintaining kind of its rightful place for another decade, or is it going to begin that quality dilution again?

Rachel Rothman:

I think we have to be careful when we talk about luxury, what we mean by luxury. If I recall correctly, I think Smith Travel Research in 2005, for the first time ever broke out the luxury chain scale. I could be a tiny bit off, my memory's not always perfect, but I think that was the first time that they split upper upscale and luxury. I think now there's luxury which is, you know, $750 a night, a thousand $2,000 a night, which is what I might consider true luxury, and then there's just a big commercial brand, just a big commercial brand, which might be sort of the middle point of an STR chain scale. If you're talking about the midpoint of the STR chain scale as luxury, that's probably a big group house in a premium location I don't know, monarch Beach, naples, florida and it might not be what you're thinking about when you think about a boutique high-end resort in I don't know Napa Valley or Deer Valley.

Rachel Rothman:

So I think luxury itself. It's interesting because it used to be fairly narrow when it was first introduced and now that category itself has a huge range of what is considered luxury. So it's hard to say. If we were just talking about the very high end, I would say global wealth creation is a huge driver of hotels over $750 or $1,000 a night, and those are, of course, outperforming because they're less dependent on the return of the corporate traveler or big group business. So I don't know if that answers your question, just because I'm not sure exactly what we're referring to. But if you're talking about the boutique luxury customer with multiple homes, staying in a large branded residence, maybe going in a fractional jet, I think that those are truly going to remain distinguished. For some of the other brands it's a little bit harder to differentiate between upper upscale, a new upper upscale property and what might be considered a luxury group house.

Jeff Borman:

In my opinion, it felt like there was an aspirational traveler. And we go back into loyalty, where someone would stay in a select service hotel a thousand nights a year and go burn their points at the luxury property. I don't observe that same thing happening quite as much today, but I do see the luxury pulling away. So whether it's cash or points, I think, is largely irrelevant. Probably has a lot to do with credit card spend. It's changed dramatically over two decades and how those programs reinforce the vacation cash in. But I'm hopeful that luxury pricing stays significantly elevated and that the quality and the service and the unique experience that was diluted over about a 15-year period. I'm hoping that that also stays very different as a result of pandemic and 2020 and the way it just turned markets upside down for a while.

Jeff Borman:

I say this as just someone. Yes, I work with luxury travel, but I work with all kinds. I say this more as I think luxury has returned to potentially its rightful spot as something truly unique and special and not so much of a commoditization. I hope that continues.

Rachel Rothman:

I think if you just looked at some of the standalone luxury brands I mean just using what exists as an example I think many of those don't necessarily have loyalty programs. Yeah Right, I mean, I think that in of itself sort of proves what you're saying. Yeah Right, I mean, I think that in of itself sort of proves what you're saying in terms of points not just for the room night, but for food and beverage, for entertainment, for a chaise lounge. You know, that's truly an opportunity that didn't exist prior to maybe 10 years ago.

Matt Brown:

Right, right real estate companies to create trusted and amenitized living options like student housing, co-living senior communities and vacation homes. What did you mean by that, and how is this going to kind of play out?

Rachel Rothman:

Well, kudos to Christine and the team when they wrote that, because we just saw a big deal from a major brand family and Blackstone and a major student housing company be announced so it happened within less than a year of them calling that trend. I think that you know and she might have a different perspective, but in some ways this isn't that different than where the brand families came from. Right, if we roll back the tape to the late 90s, when Christine and I were equity analysts, right, many of these companies offered corporate housing, senior living, food and beverage at airports. They were completely vertically integrated and they could take the guests through the entire life cycle. They had timeshare, etc.

Rachel Rothman:

Now they all went asset light and they are reforming those partnerships, not in terms of hard asset businesses but in terms of strategic partnerships, which gets at gathering a larger percentage of the customer's wallet and not just within their primary travel years, which is like 30 to 50. You know, imagine what you could do if you could capture somebody at 18 when they, when they entered college, and stay with them all the way through senior housing. I mean that would be. The value of that customer would be tremendous.

Jeff Borman:

You mentioned something in that article too about the key factor is increasing your total addressable market your TAM potential guests who buy products and services Is the essential point here. Just grow the loyalty program. Is that what you mean by the TAM potential guests who buy products and services? Is the essential point here just grow the loyalty program. Is that what you mean by the TAM?

Rachel Rothman:

So no, it isn't, it's growing the total addressable market. It's figuring out who the uncaptured guest is. So it's not just a loyalty guest, it's, again, if somebody is 18, they're not traveling with you 5, 10, 20, 30 nights a year, right, that's a customer that you never had before. The same as somebody, maybe. My parents live in a retirement community right, they are no longer traveling the way they used to. It's another opportunity for you to capture that guest and capture a share of their wallet. So you want to identify unmet customers and this might be why you start to see some of these brand families partner with glamping companies. This has multiple touch points. It's not just about age, it's also about use case and, again, as we talked about with the brand proliferation, psychographically like who is this customer? Are they a hipster, are they a traditionalist? Trying to make sure that you are engaging with every potential customer out there, in every geography, in every price point, for every needs date.

Jeff Borman:

To grow the TAM of potential guests or customers. Hotel companies must track guests outside traditional businesses, right? How do you do that when the top call it five programs are half a billion members. Who's left?

Rachel Rothman:

The other seven and a half billion people.

Christine Bang:

There's a lot left.

Rachel Rothman:

My son I mean my son's about to go off to college. Christine has a couple of college age kids, right.

Jeff Borman:

The largest loyalty program is now the size of the population of Brazil, right Like there aren't that many traveling people out there?

Christine Bang:

And I guess maybe I'm answering the question I asked you, which is it's not about who's actually traveling yet, yeah, I would say that it's not about who's actually traveling, it's about opening up that addressable market and, to Rachel's point, like capturing people that are maybe looking for student housing, that's why you're seeing these strategic partnerships with brands or with strategic partners outside of a traditional sort of box.

Christine Bang:

Right, it's about the people that want an experience that involves being outdoors and you know, hiking and kayaking, but they want to have, you know, sort of a nice expected experience you know that lives up to their standards. So I think you have there is a lot of opportunity outside of just the sort of traditional traveling loyalty members that's out there and exists and you're seeing that sort of in terms of some of the partnerships that are being announced, like almost on a daily basis. There's another partnership that you know pops up where a major brand is partnering with something that kind of at first you kind of scratch your head and say I didn't see that one coming, but you know they're, they're looking at that. You know sort of broader, broader profile of guests who aren't necessarily their guests right now.

Jeff Borman:

So I appreciate you for working with me as you watch interviews in excellence here. What I've learned from Matt is to ask a question and then answer it before you can, so thank you for that. Appreciate that.

Rachel Rothman:

I think you hit the nail on the head right. If people only have so much vacation and you're already getting the most frequent guests, then you need to build your total addressable market. You need to find people that you can leverage and attract through other channels.

Matt Brown:

It's time for the mystery question. This is for both of you, and this one's this easy one what is the most unique hotel you've ever stayed in, christine?

Christine Bang:

let's start with you unique hotel you've ever stayed in. Christine, let's start with you. That's a tough one, I would to be honest. I would say I've stayed in Nice, and some of the products in Nice have a very unique design element. Your experience is different based on what room you stay in, and it was something I'd never seen before at the time. Now you know you can stay in a Barbie room at the Hilton, you know, but, but at the time it was very different and the service was elevated and excellent, and so you felt like you were being pampered.

Matt Brown:

Rachel.

Rachel Rothman:

That's a hard one, unfortunately. I think I'm probably a pretty middle of the road, mass market kind of girl. I will call out a special thanks to the St Regis New York who I felt took exceptional care of me when I was a patient at Sloan Kettering many years ago. I would say many of the world's great hotels have strategic partnerships with different hospitals and I think they really go out of their way to take care of the patients and so I appreciate them. Is it the most unique hotel? The service is definitely outstanding and the rooms are beautiful. I haven't stated that many special properties, but that one stands out in my mind at that many special properties, but that one stands out in my mind.

Matt Brown:

Can you two enjoy hotels, or are you so used to like just walking in like the Terminator? You're just kind of looking at the whole place, looking at the structure of it. Can you? Can you separate yourself sometimes from the experience?

Christine Bang:

of being in a hotel with what you know about the business. I mean, you know that's part of what draws people to this industry. Is that it's you know, it's it's how you're treated, it's it's it's hospitality, it's about making the person feel welcome and at home, right Because and it has the benefits of you don't have to do laundry and you don't want to, you know what I mean. It kind of takes you out of your normal day-to-day and allows you to have an experience, whether it's a you know, the highest end or even just you know sort of something that's a little bit more you know to run of the mill, typical. It's about that personal touch.

Rachel Rothman:

Christine's much a happier person than I am. I still get stuck when I see something wrong. I had the good fortune of being with Jeff at a conference last week at a place that y'all remain nameless, and I bought myself a drip coffee you know where you pull the little spout forward and one for my colleague, and it was $25 and I almost fell over. So there are times when you know, knowing what we know about the data, you really think like this is a hugely missed opportunity, like to the point where you're thinking I probably won't go back there again. Like period to that event, that that really shifted the burden of the cost, the cost of the event, to the attendee, which I just think is an unforced error. So so yeah, I love a great hotel nothing better than a good bed and a good pillow but when people, when there are things that you see that could be done better, it does still bother me. That's why Christine and I work well together.

Christine Bang:

She's much more positive than I am. I'm Sally Sunshine. She's a realist.

Matt Brown:

This has been wonderful. Thank you, rachel and Christine, for being guests of no Show. It's been amazing and very informative, and we wish you a wonderful end to 2024 and a very happy 2025.

Christine Bang:

Thank you for having us. Yeah, thanks for having us.