Red Lion: smart move or short-term fix?

Should other hotels with stretched marketing budgets or failing loyalty programmes hand over theirs to Expedia or is there another way? Here are some views but we also want to hear from you, our readers

Two weeks ago we published a story that took a closer look at the Red Lion-Marriott partnership which, we argued, raised some curious questions. A ‘classic win-win’ as some like Chris Anderson, an associate professor at Cornell University’s School of Hotel Administration, has called it. Expedia seems to agree, arguing that by partnering in loyalty it can drive value for itself and for hotel partners. It seems to be benefiting Red Lion which is claiming a substantial month-on-month increase in loyalty sign ups as result of the deal. It’s an interesting and controversial move, and how it all pans out will be interesting to watch.

Charlie Osmond, who likes to be known as ‘Chief Tease’ at TripTease, a firm that helps hotels drive more direct bookings, says he applauds Expedia for trying something new. “This year of 2016 is the start of a new era in the hotel-OTA relationship so all innovations which seek to address some of the key issues (like loyalty) are welcome.”

Rate parity demands are falling away following pressure from regulators in Europe; this in turn has allowed hotels to aggressively drive guests direct to through closed user groups, which one US-based resort chain says “is the best current way to take share from the OTAs”. 

Of course, many details of this particular deal are hidden from scrutiny, on the surface at least, but Osmond argues that the implementation appears less positive for Red Lion than the initial press release suggested.

So far the US chain has claimed that it has seen a 400% uptick in sign ups to its loyalty programme. But an hotelier of a large US-based resort, who preferred to remain anonymous, says all this shows is “that Red Lion does not believe it can drive adequate traffic direct.  The fact that they are touting this hike in loyalty month-over-month increase suggests they are not capable of signing up guests on property.”

For Osmond, the user-experience for consumers is, quite clearly, biased in Expedia’s favour and this will curtail the impact that Red Lion will see at the point of booking. He concedes, however, that other benefits such promotion in search results may have provided the “necessary sweetener”.   

other benefits such promotion in search results may have provided the “necessary sweetener” 

It also shows that it doesn’t have a significant marketing budget – a challenge many of the smaller and mid-sized chains face.

Dori Stein CEO of tech firm Fornova says theoretically the idea doesn’t sound right, as it makes no sense for a hotel to hand over such data and control to an OTA. But, and this is a big but, "in practice it might be a smart move as it’s extremely hard for hotels to manage their rewards programme". 

A good rewards programne is supposed to be more than a discount; it is supposed to be about engaging with clients from the booking phase through to their stay at the hotel and even afterwards. "This needs to be done well," says Stein, "but doing it well is tough". He isn't sure that there are many options for hotel chains like Red Lion out there. "Once you add into the equation that they are getting the email addresses of clients coming through Expedia –  probably their largest online source of guests, it makes perfect sense," he says.

Stein likens the move to the decision by some companies to allow or Expedia to manage their rates, by becoming their Revenue Management System (RMS).  At first sight this also doesn't make sense, but when you understand how hard and expensive that is, it starts to look a little different. "When you add into the equation that a good RMS needs demand data – and that Booking and Expedia are the depiction of this demand - it makes perfect sense. It’s just data the other RMS’s don’t have," he says.

Having said all that, one executive argues that say Red Lion should, at least, have adopted a wait-and-see approach to understand how the recent push to drive loyalty by the bigger chains pans out. On this score, it is still early days but some of the big brands are already proving that a strategic approach to loyalty does pay off. 

Wyndham, as an example, has shown that it does. Since launching over a year ago it has signed up 5 million new Wyndham rewards members to its programme, seen a 70% increase in free night redemptions, a 900% increase in social engagement and much more.

Also worth noting is that after initial indications that the OTAs might dim the chains in search that were actively pushing their own loyalty programmes, Expedia, for one, has conducted a ‘careful review’. Probably after an article in the The Washington Post took a consumer angle on this practice. What this proves is that the consumer really does count, but also that hotels can and do wield some power. 

The big question is this: will the big chains feel obliged to follow? Osmond thinks not. “Even if this approach works well for a handful of hotels, the concessions will not be sufficient to shift the big brands from their current strategy,” he says. And that strategy is to drive direct bookings from the ground up with more flexible, intuitive and diverse offerings.

Three possible scenarios could emerge from the Red Lion-Expedia partnership

Scenario 1: Overall Red Lion could do very well overall from the arrangement. Some other hotels are likely to give it a go - especially as first-movers probably get additional benefits.

Hotels will see a short-term lift in volume that would level off once their competitors begin offering their own loyalty rates, and everyone loses because they have just created a new platform to dilute margin

Scenario 2: No one else follows this model and Red Lion enjoys increased bookings through Expedia at a reduced margin. 

Scenario 3: Other hotel companies feel compelled to follow suit, and thus create a new discounting model through Expedia. In this scenario, hotels would see a short-term lift in volume that would level off once their competitors begin offering their own loyalty rates, and everyone loses because they have just created a new platform to dilute margins.

Are you an hotelier? Are you planning to sign up to Expedia’s new programme? Let us know your thoughts in the comments box below or email Pamela Whitby

The best comments will be published at the end of October and the winner will take home a free silver pass to an EyeforTravel event of choice

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