Some loyalty programs strive to get as many members as possible enrolled. The Leading Hotels of the World Ltd. is taking a different tactic. The New York-based luxury marketing organization — which represents 400 properties around the world, such as The Plaza in New York, the Ritz Paris, Hotel Okura in Tokyo and the Pestana Palace in Lisbon, Portugal — has made its Leaders Club “by invitation only.” The move, says vice president of marketing Marshall Calder, gives the program an air of something special for its 90,000 members, who pay anywhere from $350 to $600 for a night's stay at a Leading Hotels location. “We did a lot of customer research as we designed the program, and the thing that appealed to members most was the exclusivity — they saw that as a form of personal recognition,” he says. “They are the best guests in the hotels and they like being treated as such.” The club — built on a CRM platform by Quaero — targets individuals in terms of best customers and not necessarily those who are the most frequent visitors, an approach that Calder admits is a “bit fuzzier” distinction. The company has invested more than $1.5 million in a relaunch of the club, slated to debut in the first quarter of 2005. Direct recently talked with Calder and director of loyalty marketing Allison Cripps about how the company is positioning the Leaders Club to high-end travelers, a demographic that has been “recession-proof — even over the last three years when there's been major disruptions in normal business,” Calder notes. “They continue to travel on holiday. Essentially there's been no change in their pattern for the last several years.”
DIRECT: Do you have a profile of who your best customers are?
CALDER: From research conducted about a year ago, we know 50% are C-level executives, like CEOs, CIOs, CFOs or COOs. The average household income is $240,000-plus. Average net worth is $1.7 million. Eighty-four percent are college grads and 60-odd percent have done postgraduate study. The critical age group was 45 to 50 years old. They take 24 trips a year — 15 business, nine leisure — and spend 63 nights a year in luxury hotels. Seventy-two percent are men, but we want to see a more equal ratio of men to women.
DIRECT: What is the history of the Leaders Club?
CALDER: It was developed about seven years ago, primarily as a guest recognition/benefits program. The charter members were [chosen] by our member hotels; each nominated anywhere from 20 to 50 of their best customers. In the next phase of development, we did our own data mining to find the customer whose frequency may not come up on any individual member hotel's radar screen, but who had visited [several properties] and had some demonstrable loyalty to the brand, and we invited them into membership. And then, finally, customers would come to us and ask to join the Leaders Club. We would put them in, provided they could show they in fact had a certain number of visits to Leading Hotels over a prescribed period of time.
DIRECT: When the program relaunches, it will have multiple levels. Could you describe them?
CRIPPS: It's not so much tiers as gold, silver, platinum. It's not that kind of structure. It's more which level of services work best for you.
CALDER: Based on past performance and past history and so forth, members will be steered to certain levels. The tiers will always be by invitation, and a lot of them will be designed around customer need. The program is not being built as a frequency, points-based program per se. It's still a program intended to recognize the status of our customers and afford them a degree of exclusivity, privilege, prestige and access. And the tiers are something that will allow us to extend different types of services or specific services that really go to members' needs.
CRIPPS: We just didn't want to get into managing free-night inventory, because that's not appropriate for our brand and it would be hard to deliver, given the size of some of the hotels and availability. Some of our hotels are booked out a year in advance and [those locations] are probably where people would want to go. But more importantly, there wasn't a big appetite in our guest community to tap into any more point schemes.
CALDER: In fact, a lot of our customers were really sort of put off by the notion of points for leading hotels. They thought it was a very off-brand thing for a luxury hotel company to do.
DIRECT: What are some types of services that you might offer to members?
CALDER: Concierge services, things above and beyond making a hotel reservation, like access to private clubs, to top billed restaurants, cultural events, last-minute World Series tickets, all the things that are implied in a high-level concierge service. Some of the benefits that will be provided with the various levels of membership are things members value very highly, like room upgrades. Within Leading Hotels of the World, we can't have 250,000 members all subject to a room upgrade. We've only got 85,000, 90,000 rooms systemwide. We're carving out the best of the best luxury travelers, and Leading Hotels as a whole only appeals to the top 5% of travelers. This is a subgroup within that population. It's a very exclusive group of people.
DIRECT: Will there be fees at certain levels of membership?
CALDER: The bottom tier will not have a fee, but there will be fees for the other levels. The fees are primarily because of the services associated with their needs. We haven't finalized [the structure] yet, but we're thinking about something along the lines of $300 as the annual fee for the midlevel and $1,000 for the top.
CRIPPS: There aren't any fees associated with the [basic] club. If you want to participate in different elements, there will be a fee. But there's no fee for the loyalty component. It's more like add-ons to the membership if you want them. And people will be able to earn their way into the middle and upper tiers and not pay a fee as well. But to get people into the tiers early on, there will be fees. It's basically a membership you buy on top of your invitation. It's very value-driven access to things that normally would be unattainable, or unattainable without a significant expense. So if people are interested, they will take that option or they won't. Our targets are not that aggressive for membership because we want to keep the program small. We feel we can do a lot more in terms of relationships and CRM with a small audience.
DIRECT: What will you do to differentiate yourselves from other loyalty programs and convince them you're worth the fee?
CALDER: I don't look at it as just a loyalty program. There's a loyalty component for sure. But it's also delivering a lifestyle need to some customers. We've done all sorts of research and we've tested specific benefits. We didn't go out to them and say, ‘Do you think this is worth X number of dollars?’ We said, ‘Here's a bundle of things. What do you think it's worth?’ They answered the question for us. They're the ones who told us essentially what the price level should be set at. Clearly, we have a marketing issue ahead of us, but our customers have told us they have a high degree of tolerance about paying a fee.
DIRECT: As long as they get something out of it, they feel it's worthwhile?
CALDER: Well, yes — but I also think there's probably a right-brain/left-brain analysis going on. If you look at the tangible benefits we deliver, one reservation and you've probably recovered your fee. But I don't think that's the basis on which they're necessarily making their decision. Personalized recognition in a hotel goes a long way. And we find over and over and over again that luxury travelers value it the most.
DIRECT: How are you communicating to club members?
CALDER: There are regular print newsletters, there are e-newsletters. We have some events where we engage them on a much more personal level. Moving forward, we hope to increase the level of communication and make it more of a dialogue than a monologue. One of the primary tools for that will be a Web site we're building just for Leaders Club members. Their membership level will determine their access level. That platform will allow us to respond to their needs individually, and it will allow member hotels to share information and access about customers.
DIRECT: How will you judge the return on investment?
CRIPPS: Direct return on investment is going to be related to increasing bookings. Another measure is knowing that people are utilizing more of our properties than they were before. We want to measure the number of people who are using multiple hotels in our system.
DIRECT: What do you see as the next step?
CALDER: Enhancing the depth of the relationship. We'll get to critical mass and then the next measurable goal is the strength of the bond we create with the customer.
CRIPPS: Acquisition is our primary goal, but as soon as we hit our goals we'll shift into retention. In the past I [worked] in the hotel loyalty space for a very large company, and there was constant energy put into enrolling members, because the attrition rate was so high. You never really got beyond the basics. We never really actualized CRM, we never really did touchpoint data collection — things that are the higher-order things of relationship marketing. We'd like to get to the top of the loyalty pyramid.
PRINTING AND PRODUCTION
Personalization Soars
Delta's SkyMiles program takes flight with revamped member statements
By combining its monthly SkyMiles statements and newsletters into one document, Delta Air Lines saved between 40% to 50% annually and increased the number of opportunities to personalize communications with members and deliver more targeted offers.
Delta's frequent flyer program began in 1981 and was relaunched and rebranded as SkyMiles in 1995. Traditionally, the company had produced a monthly statement and newsletter mailing that was two pieces in the same envelope. Member data was shipped from Delta to an outside vendor that would process the transaction information about customers' activity and incorporate it into the statement. At the same time, Delta worked with its agency Digitas to create a newsletter that was printed well in advance of the mailing date, leaving little room for timely offers.
“The only personalization we had was program transaction information on the statement, [noting] what the customer did in the previous month,” says Kevin Pinto, general manager for SkyMiles communications and promotions. “We had a small window in the statement message area where we could put a small personalized message based on geography or other information.”
The statement and newsletter — along with partner offers on inserts and buckslips — were then sent to a vendor to be mailed.
Many recipients, however, skimmed past the partner offers and newsletter and went straight to the statement to see how close they were to a reward.
“People didn't look at the newsletter as much as the statement because there was no activity married to it,” says Pinto. The inserts do pull, but we were losing the opportunity to communicate Delta and partner offers in the newsletter because people were focused on their own activity.”
And that activity wasn't exactly up to the minute. Because of preprinting issues, there was a two- to three-month lag in getting the data in house, on top of two to three weeks to get the statements in the mail.
In January 2003, with the help of Chanhassen, MN-based direct mail firm IWCO Direct, Delta revised the statement program to combine the statement and newsletter into one piece that can be personalized based on geography, member activity and how close a flyer is to a reward. IWCO worked with Digitas on all components of the relaunch.
“If we have one newsletter going out and 25 different offers to different markets, we have the agency working on the specific offer. Then they have to segment that out and communicate it to IWCO to make sure they get the mail file from Delta's technology group,” says Pinto. “They have to marry them together to know that Kim in Dallas needs to get this offer, Susan in Baltimore needs to get this offer, etc. There's a lot of coordination.”
Members loved the idea that the statement and newsletter was merged into one piece, says Pinto, noting that they thought the previous package had too many pieces.
While doing things last-minute isn't the preferred route, sometimes because of competitive issues or certain revenue opportunities it's essential. The current system allows Delta to squeeze in offers two to three days before printing, and six to seven days before the mail date.
Pinto wouldn't reveal the cost per piece, but did say the ROI on the statement initiative is judged by the response to Delta and partner promotions, as well as online customer feedback.
SkyMiles has 35 million members. Delta mails 3 million paper statements to active members in North America monthly; 400,000 are sent internationally on a quarterly basis; and 1.6 million members worldwide have opted in for online-only statements they receive every month.
Pinto says sending statements online saves money and creates a chance to communicate to members who may have not have been active that month. But before pushing too many members to the online-only model, Delta needs to study how people react to paper offers vs. those online. A test began earlier this year, where the airline offered members 500 miles if they migrated online. The company will track if they stay online over the next six to 12 months.
Pinto says over the next year or two he'd like to see the statements move to full variable text. If that happens it'll depend on the overall financial state of the airline industry and Delta itself.
Tom Wicka, IWCO's executive vice president for marketing and sales, says that the cost to migrate to that level would be high — it likely would double or triple the production costs. And, says Pinto, it also would create additional costs at the agency level because of a greater need for segmentation.
“We need to see if this will drive revenue and satisfaction,” says Wicka.
— Beth Negus Viveiros
