Hilton HHonors Worldwide: Loyalty Wars

Posted: September 9th, 2013

Hilton HHonors Worldwide: Loyalty Wars

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Hilton HHonors Worldwide: Loyalty Wars

Introduction

The following case concerns Hilton’s reward program for its guests, the Hilton HHonors, and the possible implications after the introduction of a different reward program introduced by Starwood Hotels and Resorts Worldwide Inc. Many companies in different industries use the loyalty reward program as a form of marketing tool to reward their loyal customers. By doing this, they are able to retain their customers and attract other potential customers. The more attractive the loyalty programs are, the more customers the companies get and retain. Customers are attracted based on how they earn points, and the benefits they get when they redeem the points. Many of the industries offering the loyalty programs have a standardized way of doing so because they are more independent and they have definite control. This is unlike the hotel industry, which has no defined control because of franchises and different management. There may be different people controlling the hotel chain despite the chain using the same brand. This makes it hard for the hotels to standardize their loyalty program. The Hilton reward program was effective in retaining and attracting customers, but the hotel chain faced different challenges, which increased its threat of losing its customers.

Challenges facing the Hilton Brand

The Hilton brand faced some challenges. This came from its competitors, and the small market it served. Although many Americans traveled, and about 74% of them traveled overnight, only 41% of them stayed in hotels. This meant that Hilton would only get a small proportion of the overnight travelers. The other challenge concerned the small market size, which was the focus of the Hilton brand. Hilton competed in a smaller market, which was defined by the purpose of the trip, and the price point. The major divisions within this market included the convention, leisure and business segments. The other challenge that the brand faced had to do with the competitors. There were three major hotel brands competing with the Hilton brand, and they included Marriott, Starwood Hotels and Resorts, and Hyatt.

Marriott had the biggest capacity in terms of hotel rooms. It operated and franchised hotels under different brands, and they included Ritz-Carlton, Renaissance, Residence Inn, Courtyard, TownePlace Suites, Fairfield Inn, SpringHill Suites and Ramada International. Starwood Hotels and Resorts ranked second in terms of room capacity. Starwood owned different hotel brands including Sheraton Hotels and Resorts, Westin Hotels and Resorts, St. Regis, Four Points, and Caesar’s Palace. Hyatt and Hilton hotels competed on an almost similar capacity in terms of the room capacity. Hyatt was the only privately owned hotel chain. It included Hyatt Hotels, which operated hotels and resorts in the US, Canada and the Caribbean, and Hyatt International, which operated hotels in other international destinations. In addition, Hyatt owned the Southern Pacific Hotel Group. Hilton international has the least number of rooms among the identified brands

The Hilton Reward Program

Both Hilton International and Hilton Hotels Corporation used the reward program to reward its loyal customers. The program was run by Hilton HHonors Worldwide, and it included all the hotels and facilities under the Hilton brand. Any member who used the Hilton brand could apply for the reward program. They could redeem their points in different ways. For instance, the members could purchase products from different companies, which had collaborated with the Hilton brand, stay at HHonors hotels, or convert the redeemable points to miles using the frequent flyer program. Hilton worked together with different companies and firms including airlines, car rental firms, and FTD florists among other companies. The companies were diverse in terms of the product and service offering, and this made it easier for the Hilton brand to have several options when rewarding their loyal customers.

The company identified the companies it would work with based on their location, access to consumers, and relevance. It observed the benefits it would gain from working together with different companies before deciding to work in partnership with them. To determine what the members would want from the reward program, the company conducted interviews with different customers. It realized that it could roughly divide the customers into three segments based on their reward preferences. Some customers preferred better services and recognition; others preferred room upgrades and other product offerings, whereas others were interested in a combination of both. Customer interaction enabled the company know what the customers wanted. Analysis indicated that most of the members preferred the following reward programs in order, room upgrades, airline miles, free hotel stays, and on property benefits and services. This led to the creation of innovative products, as the company was able to have a deeper understanding of the market.

The company’s reward program was based on its collaboration with different partners, the company’s revenue and yield management, the franchises within the brand, and its relationships with the guests. In addition, Hilton collaborated with corporate clients, which contributed to most of the company’s customers. The reward program was instrumental in encouraging other hotels to join the hotel chain as franchises. The company identified different ways of communicating and interacting with its customers. It would call the members on the honors program, invite the members for dinner, encourage calls from the members, and do outbound after visit calls. The company made sure it had a system of identifying the preferences of frequent guests, and this enabled it to meet the customers needs more efficiently.

The Announcement by Starwood

Starwood was ready to change the way hotels rewarded their loyal customers. It was ready to spend a lot of money in advertising its intentions, and this would ensure that most of the hotel customers were aware of it. The hotel chain announced that customers would use their points to earn hotel stays even during peak seasons. Customers had a choice in the hotel rooms they wanted using their reward points. The hotels could not determine the rooms that the customers could use just because they were redeeming their points. Since customers could now use the points they had to stay in hotels, there would be many people looking for such an option. This compelled the hotel chain to raise the rates at which it charged the hotels participating in the program. Customers had more to benefit following the announcement by Starwood, and this meant that other competing companies could lose their customers, if they did not change their reward system.

Following the announcement, the Hilton hotel chain had to decide on the measures to take, which would ensure that it retained its customers. Hilton was more successful than Starwood in attracting the business traveler, and it could take advantage of this. Starwood’s action of introducing the proposed reward program meant that Hilton risked losing some of its customers. Hilton could take comfort in the fact that it had loyal customers because of its effectiveness, and the customers would not move to the Starwood hotel chain because it was less effective. Hilton realized that it was in a competitive industry. It faced the dilemma of developing other products to compete with Starwood, or retaining its current program and depending on its customers’ loyalty. The response by other competing hotel chains would enable the company decide on its next step.

Conclusion

Hilton had realized the importance of using the reward program as a way of attracting and retaining its customers. It had involved the customers in its decision making process, when determining the most appropriate products and services to use when the customers were redeeming their points. Its interactions with the customers ensured customer satisfaction and enhanced customer loyalty. However, the company faced challenges from increased competition from the different hotels serving the same clientele. The competing hotels had a bigger market share, and some had better reward schemes. The announcement by Starwood increased this competition. The company had to depend on its loyal customers, and on the reaction of other companies within the industry.