Hilton Hotels regards frequent guest programs as the lodging industry’s most important marketing tool, serving to direct promotional and customer service efforts at the heavy user. How should management of Hilton’s international guest’s rewards program respond when Starwood, a competing hotel group operating several brands, ups the ante in the loyalty stakes?
Jeff Diskin, head of Hilton HHonors (Hilton’s guest reward program), opened the wall street Journal on February 2, 1999, and read the headline:”Hotels raise the ante in business travel game”. The story reads, “Starwood hotels and resorts worldwide Inc. is expected to unveil tomorrow an aggressive frequent guest program that it hopes will help lure more business travelers to its Sheraton, Westin and other hotels. Accompanied by a $50 million ad campaign, the program ratchets up the stakes in the loyalty- program game that big corporate hotel companies, including Starwood and its rivals at Marriott, Hilton and Hyatt are playing”
Diskin did not hide his concern:” these guys are raising their costs, and they‘re probably raising mine too. They are reducing the cost- effectiveness of the industry’s most important marketing tool by deficit spending against their programs. Loyalty programs have been at the core of how we attract and retain our best customers for over a decade. But they are only as cost-effective as our competitors let them be”.
Loyalty marketing programs
The idea of rewarding loyalty has its origins in coupons and trading stamps. First in the 1900s and again in the 1950s, America experienced episodes of trading-stamp frenzy that became so intense that congressional investigations were mounted. Retailers would give customers small adhesive stamps in proportion to the amount of their purchases, to be pasted into books and eventually redeemed for merchandise. The best-known operator had been the S&H Green Stamp company. Both episodes had lasted about 20 years, declining as the consumer passion for collecting adapted and vendors came to the conclusion that any advantage they might once have held had been competed away by emulators.
Loyalty marketing in the modern form was born in 1981 when American Airlines introduced the AAdvantage frequent flyer program, giving “miles” in proportion to the miles traveled, redeemable for free travel. It did so in response to the competitive pressure that followed airline deregulation. The American Airlines program had no need of stamps because it took advantage of the data warehousing capabilities of computers. Soon program administrators realized that they had a tool that did not merely reward loyalty but identified by name and address the people who account for most aviation’s revenues and made a one-to-one relationship possible.
Competing airlines launched their own programs, but, unlike stamp programs, frequent –flyer programs seemed to survive emulation. By 1990, almost all airlines offered them. In the late 1990s, delta Air Lines and United Air lines linked their programs together , as did American and US Airways and Lufthansa combined with 11 other airlines to form Star alliance, and American, British Airways, and four others formed an alliance called Oneworld. In these alliances, qualifying flights on any of the member airlines could be credited to the frequent-flyer club of the flyer’s choice.
As the decade ended, computer-based frequency programs were common in many different service industries, including car rentals, department stores, video and book retailing, credit cards, movie theaters, and the hotel industry.
The hotel industry
Chain brands were a major factor in the global hotel market of 113.66 million rooms. The chains supplied reservation services, field sales operations, loyalty program administration, and the management of hotel properties under well recognized names such as Hilton and Marriot.
While the brands stood for quality,...