The Center for Hospitality Research at the Cornell School of Hotel Administration recently published a report examining how guest data can be used to ensure that a particular rewards program contains the right number of tiers and that requirements for tier promotion are set at appropriate spending intervals.  It is imperative that rewards programs be reviewed from time to time because

Without proper design, mass-marketed loyalty programs may simply entitle undeserving customers and create an additional couponing motivation for value seekers.

The report describes a three-step process for how analytics-based customer segmentation can be used to optimize rewards programs.

Step #1 - Segmenting

Most rewards programs segment solely on customers' volume or stay frequency, but there are other key criteria that should be considered such as:

  • Demographics - allows for easy identification of segments and description and comparison across groups;
  • Psychographics - represents consumers' activities, interests, and opinions;
  • Profitability - analyzes whether the rewards program is serving as a coupon and eroding margins in transactions where rewards are redeemed;
  • Referral Activity - the extent to which a consumer refers others; and
  • Brand Engagement - the extent to which a consumer is loyal to a particular brand.

Step #2 - Targeting

One step that often is missed in the design of rewards programs is identifying the subsets of customers to target.  For example, in a case study of a large multinational hotel chain, the report found that it would be beneficial for a new rewards tier to be created that focused on those guests whose average spending per stay was "exceptionally high," but whose travel patterns were "intermittent."  The report concluded that by targeting this particular segment of consumers and offering them improved incentives for repeat visits, the hotel could enjoy "substantial top-line growth." 

Step #3 - Positioning

The final step in the process is to determine how the rewards program should be positioned in the marketplace.  However, without first properly segmenting the market and then identifying the target markets, a rewards program is destined to be nothing more than a "copycat" program that provides little differentiation from the competition.