• What is the decision problem of Jeff Diskin? What alternatives are left with him for HHonors program with announcement of competitive rewards program by Starwood? • What should he do? Why?
Conventional FMPs V/s Modern
• Cumbersome v/s Easy • Manual v/s Technology based • Tangible benefits v/s Service, Relationship • Short term v/s Ongoing • Local v/s Global • Limited scope v/s Large scope
Types of Promotions
Immediate Rewards Price Rs. Off/ Price Packs Premiums/ Contests Delayed Rewards Coupon for next purchase ‘Free’ Mail-ins /Rewards Programs
• Customer Retention • How to respond to Starwood program
• Do not react and continue with existing • Match Starwood program • Withdraw from loyalty game • Modify existing program but do not match point-by-point
• Is current program beneficial? • Does it give loyalty?
Is loyalty program profitable?
• • • • 17.5% increase in utilization in one year (pg. 9) 20% increased yield (pg. 7) How much is added by HHW Total nights of stay by Members (Table B) 7,015,000 paid
180,000 reward nights 1,708,800 nights through airline miles (712,000 *2.4) 8,903,800 Total
• Total nights occupied at Hilton/ HI network(pg. 6)
8,903,80000/22.5 = 39. 6 mn. nights
Is loyalty program profitable?
• Total nights at Hilton/ HIC
(91,100 + 62,900)*365 = 56.2 mn. Nights
39.6/56.2 = 70.4%
• 1 in 5 members @ hilton because of membership only (pg 9) • I.e. 20% of 22.5% = 4.5% nights directly due to program • Fixed cost 68%. 80% of all revenues above goes to profits. • Cost – nothing to hotel groups
Does it make sense to Franchisee
• Does it pay to join the program? • Total nights by members = 7.015 mn • 1 out of 5 due to member directly means that 1.4 mn nights are additional with the program • 80% margin. $158 per night – average tariff (Ex 4) • Total additional income to hotels = $177mn. • Cost = 4.5 cents per dollar of member folio (pg. 5) • Total Costs = 7.015*158*0.045 = $49.9 mn. • The program is profitable traffic builder
• However, some like airport hotels are issuers and some like resorts are redeemers
What about guests and employers
• Guests get rewards, better experience like upgrades etc. based on their patronage and hence would value the program • Employers apparently seem to be losing as why they should sponsor their employee’s free vacation by compromising cost benefit to the company. • However, the hotel chain would give better discount if more guests visit the chain. That can happen if chain rewards the end users/guests.
Does it bring loyalty?
• What’s the discount value? Is it worth sticking around? – $1 spent = 10 points, 5000 points for $68 discount. i.e 12.8 % discount or 25000 points for $239 i.e. 9%
• Average member belonged to average 3.5 programs (pg. 6) • Half of member stays went to competing chains annually (pg. 9) • Share of wallet = $1.1/$4.6 = 24% (pg. 6) • ‘… don’t have true loyalty to any one brand. …they don’t see the value in loyalty schemes…’ (pg. 8)
How should Diskin react?
• Key objective of FMP as CRM strategy
• Identify customers & Offer them customer experience
• Quality of guest information for better guest experience • Make the program bigger - in terms of scope not in terms of discount. (primary reason for low share of wallet is attributed to limited network size & distribution)
Co op possiblities
• With an airline • With a credit card • With a fuel card • With a magazine subscription
• Identify and Communicate with best customers • Help track customers across outlets • Provide customers with an assurance of satisfactory experience • Strengthen and Reinforce the corporate brand • Allow One-to-One marketing • Cover part of Branding Investment • Create Incentives for Increased spending • Capture ownership for Corporate brand • Provide reasons for...