Revenue Strategy Report: How Blockchain Could Disrupt Hotel Distribution And Loyalty

By Mark Brandau - Director Of Content at Duetto

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4 May 2018
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Hype surrounding blockchain technology continues to climb, despite the volatility in related cryptocurrencies like Bitcoin seen earlier this year. While it's still too early to know how these distributed-ledger technologies might change the hospitality industry, experts are starting to share details of what could be effective use cases in distribution and hotel loyalty.

The interest in blockchain that seemed to burst on to the scene last year has continued in 2018. LockChain launched in January as perhaps the first blockchain-based marketplace for hotels and private accommodations. Singapore Airlines, TUI Group, citizenM Hotels and JetBlue are all experimenting with blockchain-based platforms.

So far, some high-level benefits of such platforms have emerged as near- to medium-term goals in hospitality, including more efficient handling of payments, traveler verification and greater interoperability of loyalty programs. For example, blockchain could be used to authenticate "known travelers" for travel screening and security, as Canada and the Netherlands are currently testing.

Hype aside, are #hotels closer to finding significant uses for #blockchain technology in distribution and #loyalty?CLICK TO TWEET

Is Blockchain Really Worth the Hype as an OTA Killer?

While hardly anybody can say for sure what concrete benefits the travel industry can expect from blockchain technology, Skift recently made a convincing argument that its spinoff effects could nonetheless produce positive unintended consequences.

Many people are looking to distributed-ledger technology as a possible alternative to online travel agencies. If an immutable, decentralized record of hotel availability, rates and inventory could replace the OTAs — with their high commissions — as gatekeepers, hotels could finally exert some downward pressure on acquisition costs, the thinking goes.

Perhaps other annoyances of hotel distribution could be mitigated, as some speculate. Hotels and casinos would like to cut down on huge integration fees and not have to deal with the minimum volumes required to distribute on the big OTAs. If unalterable blocks in the blockchain become the norm in distribution, could that prevent wholesalers from slashing prices and causing rate parity headaches for hotels?

Let's be careful not to get ahead of ourselves. Douglas Quinby of Phocuswright threw cold water on blockchain's hype, arguing that the technology won't completely kill OTAs' hold on hotel distribution.

Hotels are looking for an alternative to OTAs' vexing commissions, but consumers don't really care about that, he wrote. What the OTAs do well is solve the customer's (not the hotel's) main challenge in travel: finding the best price for a room efficiently, from among hundreds or thousands of choices with an easy-to-use interface.

Commissions could be lower, but Quinby wrote correctly that these costs to hotels "are not the result of inefficient architecture." OTAs, he continued, "spend billions to acquire customers (marketing and advertising) and make sure they convert (that means investing in the technology to build easy-to-use websites with plenty of relevant options and pricing)."

That's the big caveat to consider for hotels learning about and experimenting with blockchain. Hotel distribution is still about advertising. Like it or not, the intermediaries are good at allocating your hotel marketing budget to fill need periods and reach new customers.

As always, the imperative to hotels and casinos is to entice guests who book on an OTA to come back via direct channels next time.

Another hurdle to wide or rapid adoption of blockchain among travelers could be that many consumers aren't ready to adopt cryptocurrencies like Bitcoin en masse. How many of your customers were glad they didn't jump in to Bitcoin late in 2017 when the cryptocurrency crashed to start this year?

Also, it wouldn't surprise me if a backlash against big tech companies cools consumers' enthusiasm for blockchain or crypto for the time being.

How Blockchain Could Improve Hotel Loyalty

An in-depth look from Phocuswire at blockchain's potential to improve hotel loyalty programs revealed several interesting use cases:

  • Data sharing on the blockchain system could give hotels a much more complete profile of their guests. Hotels could use all travel data gleaned from customers' transactions made with their entire cryptocurrency "wallets," which might house several different loyalty programs and many flight or rental car purchases.

Being able to value guests based on all their purchasing behaviors and their future propensity to spend is priceless data for formulating customized rates and providing a personalized booking experience.

  • Users could feasibly accrue their rewards immediately, rather than wait a certain period of time after their stays for their points to show up in their balance.
  • That immediacy could also allow for better cross-promotions with other vendor partners. As soon as a hotel stay occurs or a flight is taken, credit for that action from each loyalty program would go to the same decentralized ledger. This is a "smart contract" feature typical of blockchain transactions.

Normally, somebody from both the hotel and the airline would have to manually reconcile the activities in a back-office database — which often takes days or weeks to be reflected on both accounts.

  • With a click-through agreement verified on the blockchain, more affiliate partners could be on-boarded into a hotel or casino loyalty program much faster.

Thom Kozik, former VP of loyalty for Marriott International and now the chief commercial officer for Loyyal, a blockchain-based loyalty platform, made a salient point about this in the Phocuswire article. He noted that Emirates Airlines used Loyyal to add a small startup ride-sharing service, Careem, to the airline's loyalty network.

"That ride-sharing service may be of incredible importance to several hundred thousand members of mine in the Middle East," Kozik told Phocuswire. "But for me, with 100 million members globally, [in the old system] it's not worth the effort for my IT department to do the integration and distract them from the other work."

A blockchain-enabled integration is the "much faster route to put on more lifestyle-relevant redemption and earned partnerships into the program that are more relevant to even small microsegments of my customer base," he said. "My members then are becoming more loyal to my brand and my offering, because it feels to them like I'm paying more attention to them and their needs."

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Mark Brandau

Mark joined Duetto in January 2016 from market research firm Technomic, where he began his content marketing career after nearly a decade as a business-to-business journalist covering the restaurant industry. As assistant director of content, he helps steer the creation and promotion of all Duetto's content across its blog, video and social-media platforms, as well as sales collateral and internal communications.