Loyalty Programs — The Approach of Fighting Symptoms
Loyalty programs are very popular across all industries, be it an additional discount for your local grocery store, or a bonus meal at a restaurant. However, they are specifically dominant in the hotel industry.
Have you ever wondered why?
If you are following us closely, you likely know what Rate Parity Agreements (RPA’s) are, and why they are such a big problem. For those of you who are new to the topic, we recommend the prior reading of This explanatory article.
Let’s consider an example to illustrate what really happens when you take advantage of a loyalty program.
We are considering a hotel that has the total costs of $100 per room/night. It therefore sets the price of the room at $130, for a profit of $30 per night. Like other hotels, it then agrees with the leading booking site for a listing, which is essential for customer acquisition and thus the survival of the hotel.
The booking site knows that the hotel is dependent on the listing, and therefore asks for an RPA. The hotel is forced to agree.
The listing becomes active and the booking site puts a commission of 20% on top of the $130 requested by the hotel. The price shown to customers on the booking site now stands at $156. As a result of the RPA, the hotel is no longer allowed to offer the room for $130 (not even on its own website) and has to artificially raise the price to $156 as well.
However, the total costs for the hotel have not changed. Remember that they stand at $100 per night and the hotel was aiming for a $30 profit. Now it is forced to take a profit of $56, which reduces its competitiveness.
Fighting Symptoms of Rate Parity Agreements
To fight this discrepancy, the industry has come up with various types of loyalty programs. Through them, they can give back additional revenue that they never asked for and thus restore their initial state of competitiveness.
In our example, the hotel could for instance credit the customer $15 worth of points, which can then be used towards their next booking. As a result, the effective price for the customer becomes $141 without violating any RPA’s.
Curing the Disease
While the solution above might seem like an elegant one, it has a range of problematic side effects — as is the case with every “symptom-fighting medicine”.
- Getting credits applicable for future bookings is not as attractive as getting the same discount on your current booking. Also, single time travelers are left out of this solution.
- Loyalty programs are favoring big hotel chains. It makes sense to offer such a program if you have hotels in all major cities. Travelers can easily accumulate credits even when traveling throughout the world. A small family hotel cannot do the same, because it is unlikely that someone will travel to the same hotel over and over again.
- Loyalty programs can never offer the same degree of transparency. Publicly displayed prices can be verified by everyone. Loyalty programs on the other hand can develop into complex nets of advantages and bonuses, leaving them exposed to unfair practices.
- Travelers need to register with multiple types of hotel chains and keep track of each of their points and credits. Since the solution does not work for small family-hotels, their choice of hotels is also very limited.
- Users of booking sites always pay the extra cost.
Fighting symptoms is not sustainable, which is why LockTrip was founded in the first place. We want to bring a permanent cure to the travel market and unlock savings worth billions of dollars to everyone.
On our marketplace, you get the base prices at 0% commission and without the need to apply for any loyalty programs. In the example above, LockTrip will display the naked price of $130, as it was intended by the hotel in the first place.
Booking with LockTrip is like having a master key to all loyalty programs at your fingertips — And then more.
We believe that through our approach, most of the loyalty programs will become obsolete and price transparency will again become the primary driver of service quality and innovation.
LockTrip is the first marketplace with 0% commission where you can save on average 20% on your hotel and rental bookings compared to anywhere else. Read how to buy LOC tokens here!