IHG, owner of Intercontinental hotels and Priority Club, made a seemingly simple change to its loyalty programs this month: it changed from a fix points per stay system to a points per $ system.  With this simple realignment, IHG has righted what we have seen as an inexplicable wrong in the many hotel rewards programs.

There can be several explanation for the points per stay approach that has dominated hotel rewards programs in recent years:

• an attempt to keep admin costs down
• a lack of internal commitment to rewards leading to establishing a reward limit per stay
• focusing on secondary revenues driven by number of stays vs rather than core $ spent

The fundamental flaw in this approach was evident:  the rewards program is misaligned for consumers and misaligned for the hotel chain. It’s misaligned for consumers because they don't understand the logic of the rewards and see less benefit is staying longer but rather in staying more frequently.  It’s misaligned for the hotel since ultimately revenues are key and to treat a 1 day highly discounted stay the same as a 5 day full rate stay is completely out of sync with the business model.  

From the consumer side, further evidence of the misalignment is the tendency of  customers to “game” the system: by booking in multiple names on consecutive days (making 1 family stay of 4 days into 4 single stays) just to change the points gained.  What this speaks to is the fundamental misalignment of the rewards earning framework with the thinking of customers.

Ultimately this points to two things that companies should avoid:

1. reluctant rewarding: the foundation of a rewards program needs to be a clear sense of how rewarding customers will create gains for the company -- otherwise there will be internal pressure to limit rewards in ways that hinder the program’s effectiveness.

2. putting internal admin goals above fundamental loyalty gains: a loyalty programs DNA needs to be customer centric with administrative efficiency being a secondary (but still important) goal that does not hinder the main purpose of the program.