REV: NOVEMBER 8, 2005
Hilton HHonors Worldwide: Loyalty Wars
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 read, “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 program. 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 had 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 abated and vendors came to the conclusion that any advantage they might once have held had been competed away by emulators.
Loyalty marketing in its 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.
1 The Wall Street Journal, February 2, 1999, p. B1.
________________________________________________________________________________________________________________ Professor John Deighton of Harvard Business School and Professor Stowe Shoemaker of the William F. Harrah College of Hotel Administration, University of Nevada, Las Vegas, prepared this case. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. The case reflects the status of Hilton Hotels Corporation and Hilton HHonors Worldwide as of January 1999. Hilton has made numerous changes since that time, including Hilton Hotels Corporation's acquisition of Promus Hotel Corporation. Copyright © 2000 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to http://www.hbsp.harvard.edu. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of Harvard Business School.
Hilton HHonors Worldwide: Loyalty Wars
The American Airlines program had no need of stamps, because it took advantage of the datawarehousing 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 accounted for most of 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...
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