How Do Loyalty Programs Affect Multichannel Bookings? An Empirical Investigation

22 Pages Posted: 19 Mar 2024

See all articles by Antoine Feylessoufi

Antoine Feylessoufi

University of Cambridge - Judge Business School; University College London; University College London - School of Management

Ersin Körpeoğlu

University College London - School of Management

Lina Song

University College London School of Management

Shuaishuai yang

UCL School of Management, University College London

Date Written: February 15, 2024

Abstract

With the increased market power of online travel agencies (OTA), the hotel industry faces a new and impor- tant trade-off when working with OTAs: Potentially increasing sales at the expense of sizeable commission fees. In response, major hotel groups turn to loyalty programs, giving discounts to loyalty members for book- ing through their direct channels. In this paper, we investigate how successful loyalty discounts are in their goal to sway customers from OTAs to direct channels. Using a unique dataset obtained from a major hotel group, we empirically investigate how loyalty discounts affect customers’ booking channel choices. We utilize a quasi-natural experiment based on an exogenous change of the loyalty discount in a subset of hotels in our dataset to construct a difference-in-difference model. We find that a larger loyalty discount raises bookings from the direct channel with loyalty membership, lowers bookings from the direct channel without loyalty membership, and has no significant effect on OTA bookings. This suggests that a substitution effect only occurs within the direct channel and, surprisingly, not cross-channels. Our results indicate that discount- based loyalty memberships do not have the intended effect of swaying customers from OTAs toward direct channels. Instead, direct-channel customers utilize the loyalty program more, which may end up lowering hotel revenues. Therefore, our study suggests that the hotel industry should carefully assess the effectiveness and the design of their loyalty programs by factoring in their multichannel setting.

Keywords: Hospitality, Multichannel, Loyalty, Innovative Online Platform, Online Travel Agency

Suggested Citation

Feylessoufi, Antoine and Körpeoğlu, Ersin and Song, Lina and yang, Shuaishuai, How Do Loyalty Programs Affect Multichannel Bookings? An Empirical Investigation (February 15, 2024). Available at SSRN: https://ssrn.com/abstract=4733905 or http://dx.doi.org/10.2139/ssrn.4733905

Antoine Feylessoufi

University of Cambridge - Judge Business School ( email )

Trumpington Street
Cambridge, CB2 1AG
United Kingdom

University College London ( email )

Gower Street
London, WC1E 6BT
United Kingdom

University College London - School of Management ( email )

Gower Street
London, WC1E 6BT
United Kingdom

Ersin Körpeoğlu

University College London - School of Management ( email )

1 Canada Square Canary Wharf
London, E14 5AA
United Kingdom

Lina Song

University College London School of Management ( email )

Level 38, One Canada Square, Canary Wharf
London, E14 5AA
United Kingdom

Shuaishuai Yang (Contact Author)

UCL School of Management, University College London ( email )

Level 38
One Canada Square
London, E14 5AB
United Kingdom

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