Do loyalty programs really matter for hotel operational and financial performance?

Purpose: This study aims to use a sample of 2,120 individual hotel properties between 2011 and 2013 to evaluate the impact of loyalty programs on hotel operational and financial performance. Design/methodology/approach: This study provides empirical support for the impact of loyalty program based on both cross-sectional and panel data analyses and uses the instrumental variable technique to avoid potential heteroscedasticity, autocorrelation and simultaneity issues. Findings: Findings of this study show that loyalty program expenses have a significant and positive impact on all three operational performance indicators of RevPAR, ADR and Occupancy and the financial performance indicator of gross operating profit. Research limitations/implications: This study suggests that the benefits of loyalty programs should be understood against the backdrop of a reasonable set of controlled variables such as e-commerce, franchise, advertising, other marketing expenses, hotel size and hotel chain scales. Originality/value: Given the conflicting viewpoints about the positive and negative impacts of loyalty programs, and that the literature is scant on empirical validation of the impact of loyalty programs on the overall operational and financial performance of hotel properties, this study is an early attempt to empirically test the impact of loyalty programs on a number of hotel operational and financial performance indicators by using an extensive list of individual hotel properties between 2011 and 2013.