This approach has led to the predictable result of programs that appear to provide little value to customers or returns on the firms’ investments. Instead, loyalty program managers must conduct careful analysis when developing and optimizing their program structure. This report (1) examines in detail how a firm might properly segment its loyalty program members into groups that maximize their value to the firm, and (2) offers a recommendations on how programs might take advantage of segmentation opportunities to realize the full value of the customer within each segment. To demonstrate a data-driven customer segmentation strategy for a loyalty program, this study collected customer data from a major international hotel chain to track spending in three categories: rooms, food and beverage, and such supplemental services as the spa or health club. The resulting customer segments, which were based on common demographic criteria and spending patterns on these three spending categories, showed a weak match with the current three tier system offered in the chain’s rewards program. In fact, some tiers included vastly different market segments that had different spending and stay frequency. Although too many additional tiers would probably invite complications, it’s possible to create or augment loyalty program tiers that more closely match customers’ travel habits. One goal would be to encourage certain high-spending guests to visit more frequently. Creative, flexible rewards should reflect guests’ desires, but should not involve price concessions. Download the full study at