Before we get started, is not suggesting you should give up entirely on the idea of guest satisfaction, but the evidence does show that many happy customers who thought your hotel was just great will choose to stay somewhere else next time. And other customers, who really aren’t happy with your hotel at all, will grudgingly return time after time. The underlying reason is switching costs, which work to the advantage of some properties, and to the detriment of others.

Instilled in hoteliers is the belief that retaining loyal customers costs less than attracting new ones, and in hotels it is commonly understood that loyal customers will always return and generate positive word-of-mouth. However, many of those loyal customers may actually return only because they cannot bear the cost of switching to a competing hotel, whether these costs are financial, practical, or psychological.

When guests begin to consider changing hotels, a number of factors enter their minds: Will I lose money by switching? Will it take lots of time and effort to find a suitable alternative? Will it be inconvenient to switch? Will a different hotel be better than this one? Will I lose loyalty benefits if I switch? Will I lose my relationship with staff if I switch? How can I leave a brand I’ve always supported?

These considerations together form the switching cost, and if this switching cost is perceived by the guest to be high, they are more likely to keep coming back, even if they aren’t especially happy.

The problem in the hotel industry is that switching today is easier than ever. Online information is so readily available that customers can very quickly compare hotels, access promotions, and accurately weigh up the alternatives. It is also the case that the hotel product tends to be quite homogenous, with hotels aiming to differentiate themselves on the quality of the experience they can provide – and that’s an area where consistency can be hard to come by.

At the cheaper end of the market, switching costs do seem to be lower. The emotional connections to the hotel tend to be weaker, so even satisfied guests might be willing to try alternative hotels. In luxury properties, the switching costs tend to be higher, in part because customers value their current choice of hotel more highly if only to justify to themselves the higher price they have paid for it. It is, after all, much harder to admit to an expensive mistake.

It is therefore to the benefit of the hotelier if they can address two important issues. The first is to raise the switching costs to their existing customers, effectively establishing exit barriers which are created from the accumulated customer experiences. The second is to lower the switching cost faced by potential customers who might be lured away from rivals.

One common way to make switching costlier is the use of loyalty programs, or similar promotions which present benefits to loyal customers, while imposing a perceived loss upon those who choose not to return. Another key factor is the emotional connection between the guest and the hotel; it has been shown that relatively trivial interactions can go a long way to building the kind of trusting relationship that guests will not want to break. The role of a GM in talking to guests and placing a value upon their contribution can be highly significant. Remember it’s much easier to break a relationship with an anonymous business than with a real person.

In summary, be aware that the guests who keep coming back are not necessarily doing so because you’re doing a great job – complacency will not be your friend here. And understand that sometimes you will lose customers who loved everything you did. Switching costs can act as a buffer against the idea of short term price elasticity, and can save your skin when you temporarily screw up and offer a sub-standard experience. When it comes to customer retention, switching costs work in your favor – so take them into account and think hard about keeping them high.

Recommended reading:

Yin, C. K., & Shen, H. (2016). Assessing the effects of switching costs on perceived values and brand loyalty: the impact of customers’ perceived authenticity in hotel sector. International Journal of Business and Management12(1), 84.