The Shrinking Value of Hotel Loyalty ProgramsBy Vikram Singh - Global Hospitality & Travel Strategist
My work revolves around travel. Every night away from home is spent at a hotel or Airbnb property. I was recently asked about my hotel brand preferences and which loyalty program I use. The answer is that I belong to all of them but never achieve a high status due to the fact that my hotel nights are spread across many independent and brand hotels. If I were to pool all of my annual room nights into one brand, I could easily qualify for top tier status.
Why have I not done that? The reason is simple: I am a location-based business and leisure traveler. That means that I choose to stay at the most convenient location irrespective of brand. I know I am not alone in this thinking, as many people prioritize location over brand. Let me elaborate.
Location, Location, Location
Cliché title aside, location is everything for some folks (like me). I am laser focused on location on business trips, as I like to optimize my time and control my FOBL (fear of being late).
When I am speaking at an event, I do not want to be far away from the conference location. A simple traffic snarl can ruin your reputation. (Digital marketing and revenue management speakers are not accorded the same indulgence as rock stars when they show up fashionably late.) Most of my business meetings are also at hotels, as they are often my clients. I try my best to stay at the meeting hotel for two reasons: a) To experience the asset; and b) To ensure that I am not relying on any transportation other than an elevator to get to my meeting. It's a peace of mind thing that allows me to remain focused.
Likewise, when it comes to leisure travel, I don't want to spend extra time commuting to the places I want to see. If Hotel X is located near the activities or attractions I want to see, or is in a neighborhood that I particularly like (eg, Saint-Germain-des-Prés in Paris, Gothic Quarter in Barcelona)… then I am staying at that hotel.
I also have an affinity for independent hotels. I especially like staying at independents when I am traveling internationally. I think it gives me better insight into the local mindset and how people run their hospitality businesses in other parts of the world.
The Incentive Games: May the odds be ever in your favor.
I have been monitoring the loyalty programs of the major hotel brands and have noticed a clear trend over the last several years: the rewards for loyalty are shrinking. Basically, the bar is getting set at a higher level while the benefits are being slashed. These devaluations are due to consolidation in the marketplace, and attempts by brands to increase their profitability.
In my opinion, loyalists have three major reasons to stick with a hotel brand:
- Points. Earn free nights that can be spent either at a fancy aspirational hotel or a basic property. In other words: spend on business, vacation for free.
- Upgrades. Get a better category of room at check-in because of status.
- Amenities. Enjoy a welcome gift, free breakfast, better WiFi, lounge access, dedicated reservation support, late checkout, etc.
While people have been chasing points and status, every major loyalty program has devalued their program by doing one or more of the following:
- Increasing the number of nights you need to attain status
- Increasing the number of points you need to book a free room by upgrading the hotel categories
- Creating a new category of rooms and/or elite status level (which devalues the whole program)
You know who else has done this recently? If you guessed airlines, you are right. It's "working" for the airlines, right? Passengers may not be happy, but they need to keep flying on the major airlines to get around. It's not that easy to open up an "independent" alternative airline to meet their needs. But can hotel brands continue to reduce program benefits for their most loyal and point-obsessed guests, and still hope to keep them?
Following is a brief overview of the recent changes I've seen in five of the biggest hotel loyalty programs.
In 2015, Ideaworks (a consulting firm) published a study naming Marriott Rewards the most generous hotel loyalty program in terms of earning future room stays, with a return of 9.4%. Translation: For every $100 that you spend at a Marriott, you can expect to earn $9.40 worth of points you can apply towards a future stay at a Marriott branded hotel.
They also calculated the return on three other major brand programs:
These results were based on 1,440 queries conducted globally. The number of points required for a "free" hotel stay was compared to the room rate in dollars. The value of points was translated into dollars based on how much spending was required to accrue them.
That same year (2015), Fortune Magazine also named Marriott as having the best rewards program in the hotel business. So, how has the world's best loyalty program changed since then?
The latest change happened on March 7, 2017, when 23% of their hotels and resorts were moved to a higher or lower category. Of those that are changing, 60% will move up; US-based hotels are disproportionately affected. This is not a new trend – it's been happening every year for the last five years. 2013 was the big jumping off point. It was also the year Marriott added the new, super expensive Category 9.
After the Starwood Hotel merger last September, Marriott became the largest hotel chain in the world. Since the merger, Starwood and Marriott accounts can now be linked, points can be moved around, and statuses can be transferred. This is a massive increase in the sheer number of people who belong to the joint program (rumored to be over 100 million!). The fact that status can be transferred = so many elites! It's a classic supply-and-demand scenario. If you've been a Marriott loyalist, now you have lots of elites from Starwood Hotels getting the same benefits as you. When has that ever been a good thing for an elite program?
My best Marriott experience was at the JW Marriott in Bogota, Colombia. Amazing hotel and staff, and the cutest guard dogs at the front doors.
Starwood Preferred Guest
Starwood's SPG program has always had some serious fan boys and girls. There is a very good reason for that. For a long time, Starwood Preferred Guest has been one of the plushest preferred hotel programs out there. A mere 25 nights a year gives you a guaranteed 4pm checkout at most of their hotels! In comparison, Marriott (aka, the new owner) makes no such guarantee. In Marriott's case, please insert everyone's favorite customer service phrase, "subject to availability."
Likewise, I have heard nothing but amazing things about the Ambassador program from my Starwood-addicted friends. Anyone staying 100 nights a year is assigned a private ambassador who makes reservations, hounds hotels for upgrades, etc. etc. Like I said, pretty plushy!
Industry friends always mention that it's easy to maintain this level of customer loyalty focus when you have 1300 hotels. (Marriott now has over 4200.) Besides, to quote one of my favorite airline blog writers Gary Leff:
"It's not hard to just fall out of an airplane into a Marriott. You have to make a choice to be loyal to Starwood."
I agree with him 100%. You can find a Marriott almost anywhere and at almost every price point.
Marriott Rewards has well over 54 million members, more than double the 21 million members of the Starwood Preferred Guest program (estimated numbers at the time of the merger). Today, as an SPG member, you are competing with a pool of close to 100 million people for everything: late checkout, upgrades, free rooms, lounge access, ambassadors, etc. No wonder so many fan boys and girls were livid about the merger. Some of the comments were a case study in entitlement, and really made me laugh. A classic case of first world problems. But still relevant to our discussion.
The simple fact is that there are many more Marriott members than Starwood members. Marriott folks now have access to some really fancy hotel assets where they can splurge with their points to get free stays. This fact sums up the lack of enthusiasm from SPG loyalists. But, you know what? Time heals everything.
Credit card experts have crowned the Starwood Branded Amex as the best credit card for frequent fliers and hotel guests (if they often stay at Starwood properties). It offers up to five points per $1 spent at participating Starwood Hotels, and two points per $1 spent at Marriott properties. For cardmembers redeeming points for hotel stays, this card gives the most points per dollar. Points can also be transferred to more than 24 airline programs.
Starwood's last category adjustment was in 2013, when 200 hotels went up in price and fewer than 50 hotels went down in price.
My best Starwood experience was at the St. Regis Princeville, Kauai. Stunning ocean views right from the lobby, and also from everywhere else on the property.
IHG Rewards Club
IHG has long maintained the bragging rights for having the most loyalty members in the world. (Marriott is close on their heels with their Marriott + Ritz + Starwood numbers). IHG's approach to redemption has been different from the other brands I talk about here. They don't have a category-based points chart. Every individual hotel has its own points requirements for a free night. The lower end brands (Holiday Inn/ Express) go for 5K to 10K points, and the high-end hotels (like Intercontinental) go for 60K+.
In 2016, IHG made some big changes their redemption policy:
- 650 hotels changed their redemption point requirements.
- For 75% of the 650 hotels, the points requirement went up.
As with the other brands, their changes mainly applied to assets located in the United States. Here is the current guide to points required to redeem "free" nights at IHG hotels.
In 2015, IHG had its Marriott/Starwood–style moment (though definitely not at the same scale) when they acquired the iconic Kimpton Hotels brand. It inspired me back then to write about transformation of the boutique hotel business. The fan favorite rewards program Kimpton Karma continues to operate separately and has not been rolled into the IHG Rewards Club (as of today.)
My best IHG experience was at The Intercontinental Hong Kong. Fantastic food and beverage, with iconic views of the Hong Kong harbor.
Hilton Honors (The Program Previously Known as Hhonors)
This year Hilton dropped the extra "h" In their Hhonors program and renamed it Honors. Now that we have that out of the way, Hilton has been in the running as one of the top hotel loyalty programs for a while. Their massive hotel footprint of 4,000+ hotels in 91 countries ensures that you do not have to struggle to find one of their branded hotels on any trip. All the way up to 2014, Hilton Honors was offering zero blackout dates to their reward program members. They also allow you to earn hotel and airline points during the same stay.
Hilton's biggest devaluation (that I remember) was in 2013. They really shook things up by:
- Adding Categories. They went from 7 up to 10 categories! Even with 4K+ hotels in 90+ countries, this was a blow to redemption enthusiasts.
- Introducing Seasonal Reward Pricing. Redemption points required for free rooms began to fluctuate with seasonality and demand.
They have not implemented any major updates since 2013. Instead, they do a quarterly shakeup of their hotel categories.
My best Hilton experience was at the Hilton Caribe in Puerto Rico. Massive infinity pool, old school hospitality, and a cool talking parrot in the lobby.
World of Hyatt (Previously Gold Passport)
Hyatt just went through a massive overhaul of their entire loyalty program. Hyatt Gold Passport is now called "World of Hyatt." For a hotel brand with a relatively small footprint, they have some serious followers. Why? Their Diamond members get:
- Upgrades to the best room available upon arrival (excluding suites)
- Access to lounges featuring complimentary breakfast and evening hors d'oeuvres
- Complimentary full breakfast in hotels without a club lounge (including Park Hyatts!)
- Four suite upgrades every year
- A special welcome F&B amenity during each stay
- A dedicated reservations line
Wow! I think answered that question. So it's no surprise that most of their top elites are not thrilled with the most recent changes. Here are two major updates:
- New Status Tier. Hyatt Passport used to have two elite tiers, Diamond and Platinum. Now there are three: Discoverist, Explorist, and Globalist (none are typos). The loyalists getting demoted used the #WorldOfH2O hashtag on Twitter to make their feelings known. The "Stay Thirsty Elites" meme really made me laugh. I'd like to explain adding a whole new elite tier by using the airline example. First Class and Economy Class have now become First Class, Business Class, Premium Economy Class, and Economy Class (and even Basic Economy) – all in the exact same airplane! Mostly, they just moved the rows of seats around, and made minor changes in amenities. A new tier is never a positive upgrade for existing elites to any program.
- Pay to Play. The old program allowed you to qualify for status based on # of nights or # of stays (stay = one check-in and check-out). You can no longer qualify for elite status based on number of stays. It's gone. Instead you have to stay X number of nights or spend a minimum $ amount per stay. Wow, a revenue-based model…hmmm, I wonder where I have seen this lately? Oh yes! Here: Delta Airlines. Then here: United Airlines. And now here: American Airlines. I see what you did there, Hyatt.
Hyatt's top-tier guests who used to get Diamond status just by staying 25 times (one-night stays) at any Hyatt now have to spend 60 nights at Hyatts to reach the same status. This completely changes the elite status earning game. Earning 60 nights with a relatively tiny footprint is not going to happen for a lot of their existing Diamond level members.
Since we are looking back to 2013 for most of the other brands here, in 2013 Hyatt did introduce a new super category for redemption. It's not as drastic as what the others have done, but then Hyatt has a very limited number of properties (as of now).
Favorite Stay (Someday):
I am a huge fan of Bill Murray. While in Tokyo, I just had to visit the legendary Park Hyatt Tokyo. It's an iconic property that I aspire to actually stay in one day.
Moving forward, earning elite status with a single hotel brand is going to be more difficult for a lot of people. I know many are still reeling from the Marriott-Starwood merger. However, please note that the M&A activity has not yet peaked in the hotel industry. Hold on tight, because I agree with the experts that there is much more to come. After reviewing five of the major brand loyalty programs above, I realize more than ever that I cannot be the only one with a razor sharp focus on location over brand. If the industry continues to see more devaluations and major changes, maybe the points and loyalty game will finally lose its appeal.
Vikram is a global thought leader in the hospitality and travel business. Vikram heads up the Revenue Optimization Services division at Rainmaker. During his 20-year career in hospitality and tech, Vikram has delivered portfolio- wide audits, asset turnaround strategies, and other high-level consulting services to real estate investment funds and property management groups across the globe. His strategies have helped power some of the biggest and most successful hotel equity turnaround deals in the last decade. As one of the leading experts in the hospitality and travel realm, Vikram is a frequently requested speaker at industry conferences worldwide. Former hosts include the US Department of Commerce, Travel Distribution World Asia, Arabian Travel Market, and Airbnb. He has been featured in the American Express/American Hotel & Lodging Association Educational Series for several years. He is a perennial favorite of audience members everywhere because he emphasizes action-oriented strategies – and he is never boring. Vikram writes the popular hospitality and travel marketing strategy blog: www.wordsofvikram.com
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