While the major hotel chains were quick to sign on as partners to the airlines' mileage programs after their introduction in 1981, it wasn't until January 1983 that Holiday Inn launched the first hotel-operated program, Priority Club.

In the intervening years, hotel programs have become a fixture on the travel rewards landscape, in some cases displacing airline programs as the preferred vehicle for earning rewards and recognition.

Where are the hotel programs today? Where are they headed? And how should travelers use them to their best advantage?

The top managers of the frequent-stay programs of Hilton, Marriott and Starwood share their personal views in the second of a multi-part series on travel loyalty programs on the occasion of their 25th anniversary. Our participants:

Adam Burke – Senior Vice President & Managing Director, Hilton HHonors Worldwide

Burke is responsible for the worldwide marketing and operations of the Hilton HHonors guest loyalty program, currently available at more than 2,800 Hilton Family hotels worldwide.  Previously, Burke served as vice president – marketing for Hilton HHonors Worldwide, a position he held since June 2001. 

Burke joined Hilton in 1988 after working for Deloitte & Touche as a research associate.

Ed French – Senior Vice President, Customer Relationship Management, Marriott International, Inc.

French's responsibilities include management of the company’s loyalty marketing and the strategic direction of the frequent guest program, Marriott Rewards.

French joined Marriott from American Airlines, where he led the AAdvantage program. Before joining American, he worked for Chase Manhattan Bank.

Robin Korman – Vice President of Loyalty Marketing, Starwood Hotels & Resorts Worldwide, Inc.

Korman is responsible for the overall operation of the Starwood Preferred Guest and Starwood Preferred Business loyalty programs as well as the Starwood Honeymoon program and the Starwood Preferred Guest Credit Card from American Express and the Starwood MasterCard from MBNA in Canada.

Korman previously worked for GE Capital and held a number of positions at Citibank Credit Cards, most recently as Vice President of Advertising and Public Relations.

Questionnaire

1. Looking back over the past 25 years, what do you consider the most significant two or three developments in the evolution of travel rewards programs to date?

Response by Hilton's Adam Burke

1) The evolution from “frequency” programs to “loyalty” programs. Some argue that true loyalty doesn’t exist, but I don’t agree. While, at the outset, programs were largely about influencing the next purchase decision, the better ones have evolved to create meaningful relationships with customers based on individual member preferences.

2) The development of technology that enables loyalty programs to deliver on the customer promise. For some time now, the ability to truly personalize the customer journey was limited by technology’s ability to consistently identify customers across all touch points. As the technology has evolved, the customer experience has evolved right along with it.

3) The availability of information and “self-service” enabled by the Internet and other technologies. If knowledge is power, then consumers are more powerful today than ever before. Customers are readily able to compare competitive offerings, access account information in real time, manage their own preferences, and expedite travel through Web and kiosk check-in.

Response by Marriott's Ed French

1) Marriott’s introduction of the Honored Guest Awards, the longest continuous-running hotel frequency program, and allowing members to earn points based on the amount they spend at our hotels rather than simply the number of nights they stay.

2) The evolution of Honored Guest Awards into Marriott Rewards in 1997, the first hotel program to allow members to earn benefits and redeem at a portfolio of hotel brands.

3) The introduction of Elite levels, which carry across all nine participating brands—our Customer Relationship efforts are focused on our most frequent and valuable guests and it is critical that we can recognize and reward their loyalty.

Response by Starwood's Robin Korman

1) Sales of Miles/Points to third parties—e.g. credit cards, dining programs, etc. This has created a great way for the less frequent traveler to earn points/miles and enjoy redemption benefits as well as providing a significant source of revenue for the point/mile issuers (in some cases, keeping the companies afloat!).

2) Creation of elite categories for more frequent members with added member benefits and recognition. Since we all give points, this is what truly differentiates one program from another.

3) “No Blackout Dates” Policy—SPG (Starwood Preferred Guest) turned the hotel industry on its side when the program launched with a “No Blackout Date” policy. Other hotel programs replicate the message but when you examine the fine print, you find they have availability restrictions—they limit the number of rooms available during high occupancy times. SPG is the only major hotel or airline program that truly delivers the “no blackout date” benefit.

2. Today, 23 years after their introduction, what role do frequent-stay programs play in your company's overall marketing efforts?

Response by Hilton's Adam Burke

Fundamentally, Hilton HHonors represents an audience of the Hilton Family’s best customers. As such, this customer base is central to our enterprise’s overall marketing strategy, since we’re able to interact with these guests, learn about their individual preferences, and match up the appropriate products and services with each guest. It’s central to Hilton’s goal of being a truly customer-centric organization, which I believe is the key to building lasting, differentiated service.

Response by Marriott's Ed French

They play a significant role in our marketing efforts, but more importantly, they are a key part of our overall customer strategy. Program membership is a key marketing tool, but also is a critical piece to how we manage our business overall—how and why we develop products and services, our approach to customer service and sales, and the management of the overall customer experience on the Web, through Reservations, at the hotels.

Response by Starwood's Robin Korman

Our Starwood Preferred Guest member base is one of our most important assets. Our members are people who have a connection with our brands and are interested in staying in our hotels again and again. They also tend to stay more frequently and spend more per stay than those who don’t join the program.

Based on information they provide us, we can target them with offers and services we think will be of interest. We can create a dialogue with them that creates an emotional connection to enhance the relationship they have with us. They are less price-sensitive since they are choosing a brand experience versus a price point. And, if we can create the right experience, we can create a real devotion to the brand lifestyle—like wanting to purchase our bedding or bath products, eat at our restaurants, drink at our bars, or take advantage of unique experiences we bring them at the hotel and in their everyday lives.

3. What changes can members of your program expect over the next 12 months?

Response by Hilton's Adam Burke

As a continuing trend, members will find that hotel rewards are broadly available and easier to access than ever. In keeping with our personalization efforts, HHonors members should expect to see more experiential rewards, including truly unique, one-of-a-kind opportunities. Guests will also experience even greater levels of choice in the types of amenities and services they receive on-property. And our top customers can expect even higher levels of differentiated benefits, earnings and rewards.

Response by Marriott's Ed French

Greater personalization of benefit delivery, recognition and incentives for our most frequent guests.   Increasing levels of self service offering our guests the option to interact with us in the ways they find most appealing. And, a continued focus on Marriott’s “Spirit to Serve,” which focuses on ensuring we deliver enhanced service through our hotel, sales and customer care associates, as well as through the tools we develop to help our members manage their travel (like our Dream Rewards Tracker and eFolio services we’ve just launched).

Response by Starwood's Robin Korman

We are focusing our attention on the customer experience at all touch points. We are educating our associates at the call centers as well as the hotels to empathize with the customer and deliver signature service no matter what the price point.

We are also adding unique experiences to the redemption options—something we refer to as experiential benefits. Through our many relationships, we can provide our members access to events and experiences money can’t buy.

Our hotel brands are also creating unique environments for our guests that support their brand positioning. For example, Westin is all about “Personal Renewal” and we are introducing programs, services and amenities that embrace this. All Westin hotels in the United States are now smoke-free and our lobbies exude a signature white tea scent designed to calm the senses.

4. Industrywide, what frequent traveler marketing trends do you anticipate in the foreseeable future?

Response by Hilton's Adam Burke

Put simply, it’s a tremendous time to be a frequent traveler. The marketplace is extremely competitive, and customers will continue to benefit through more personalized, relevant offers that meet their individual travel needs. The most successful programs will be those that listen to what their customers are saying and adapt appropriately.

Response by Marriott's Ed French

All frequent traveler and guest programs are chasing after a relatively small group of frequent business travelers. I believe competition will remain fierce, with Marriott Rewards continuing to work to retain and grow the greatest share of these customers’ total hotel spend. Two of the key channels will continue to be the Web (through greater functionality and personalization) and e-mail marketing. There also is a greater focus on partnerships to both drive enhanced point earning options and provide value added services to hotel guests.

Response by Starwood's Robin Korman

Most programs are good at awarding points/miles, which is really a reward for frequency rather than loyalty. The area where a program can stand out and which truly engenders loyalty is the ability to deliver true personalization, outstanding customer service and superior treatment (such as recognizing a returning guest, upgrades and special, customized amenities).

Many hotel programs are moving in that direction but no program has really excelled at this point. It is the “holy grail” and where the battle for differentiation and loyalty will be won.

5. There is a rising tide of consumer sentiment to the effect that airline mileage programs have lost so much value—more fees, higher award prices, fewer available award seats, etc.—that they are in danger of losing their relevance. Do you worry that the airline programs' troubles will undermine travelers' faith in hotel programs? Why, or why not?

Response by Hilton's Adam Burke

I view the question a bit differently. I think frequent travelers are increasingly recognizing the inherent value of hotel loyalty programs on their own merits. First of all, the value offered through hotel rewards is significant given the relative cost of air travel versus an extended hotel stay. For example, if you compare the cost of a round-trip airline ticket to Hawaii versus a week’s stay at Hilton Hawaiian Village or Grand Wailea, the opportunity to pay for the hotel stay with points is a tremendous value. In addition, the best programs today are about far more than just points and miles—they’re about enhancing the overall customer experience. As such, savvy travelers appreciate the stand-alone value of hotel programs—value that continues to be enhanced through the ability to earn airline miles with the carriers that customers prefer.

Response by Marriott's Ed French

No. Customers’ perceptions are led by the actions we take and we have not implemented any of these restrictions in Marriott Rewards. We understand that the frequent guest is the lifeblood of our business and we utilize the program to recognize and reward the right customers in the right ways. It’s a key tool in our overall strategy for success. We’re seeing the relevance of our program growing in our members’ minds—as evidenced by our leading finish in this year’s Freddie awards with eight 1st place and 23 top three finishes in the 25 categories.

Response by Starwood's Robin Korman

The hotel industry is not in the same challenged financial environment (rising fuel costs, labor issues, low-cost carriers) as the airlines and there is not the same fear that a hotel currency will lose value. Most travelers understand why the airline programs are where they are but it doesn’t make the situation better.

Like most of our competitors, SPG does not charge for things the airlines do like points transfer, point re-deposits, etc., as we don’t feel it is a good customer experience.

The value of a flight redemption is further undermined by the cost of airline tickets—why give up 25,000 miles if you can fly coast-to-coast for $250? The same number of points would get you two to three nights in an upscale hotel, which has a value much greater than $250.

Given the value equation, ease of redemption and fewer fees, the savvy traveler sees that hotel programs deliver a good value proposition and hopefully will become more relevant as they are better understood.

6. Most frequent travelers view their participation in hotel programs as secondary to their participation in airline programs. Is that still an appropriate approach? What's the right balance between participating in hotel and airline programs?

Response by Hilton's Adam Burke

This ties directly back to question five. The best airline programs are those that aren’t just about earning free flights—they’re the ones that truly enhance the customer experience throughout the travel journey.  As such, it remains extremely beneficial for frequent travelers to consolidate their business with the airline and hotel companies that best meet their needs over the long term. The best programs both stand on their own merits and complement each other through effective partnerships.

Response by Marriott's Ed French

I think it’s a missed opportunity for travelers if they see things that way. Marriott Rewards enables members to redeem points for their whole vacation package, including airline transportation (miles), hotel stay, entertainment (Disney, theater tickets, etc.), car rental, as well as cruises, merchandise, etc.  Marriott Rewards points can provide a member with an entire travel experience and the value for members earning Marriott Rewards points is great. Our members earn free, week-long vacations faster than with any competing program. While redemption options may be shrinking in some programs, we continue to add tens of thousands of new hotel rooms to our portfolio, new airlines and other redemption partners each year. And that isn’t going to change.

Response by Starwood's Robin Korman

One reason for this is that hotel programs are not well understood. Earning varies by program as do the number of points needed for a redemption, which creates a very confusing environment for travelers.

Travelers also don’t always understand the flexibility of hotel currencies. Many hotel programs give you the best of both worlds—you can earn hotel currency, which is more stable and use it for hotel rooms at a wide range of price points or transfer the points to miles. Given the price pressure on airfares and the escalating prices of hotel rooms, using points for hotel rooms is often a better value proposition, but if you want to use them for flights, you can transfer them to a wide range of carriers that meet your schedule and airline preference.

Some customers put down an airline card to earn miles on a stay rather than join a hotel program. This is not a good strategy, especially if you are staying at a Starwood property. For example:

1. At Starwood, an airline card would usually earn you 500 miles/stay whereas SPG Starpoints are earned on spend, with the average points earned/stay equaling 760. At an exchange ratio of one Starpoint to one mile on most major airlines, you are ahead by 260 miles already.

2. In addition, SPG has a points-to-miles transfer bonus that no other airline or hotel program offers, which makes it even more attractive to earn Starpoints—when you transfer 20,000 Starpoints to miles on any of our 30+ participating airlines, SPG will add another 5,000 miles which is essentially a 20 percent bonus on earning.

Bottom line, earn miles for flying and points for staying!

7. What strategies should program members use to maximize the value of their frequent-stay points, both on the earning and redemption sides of the programs?

Response by Hilton's Adam Burke

The best barometer is based on taking a holistic look at both the earning and redemption sides of the equation. Some hotel programs have generous earnings, but prohibitively expensive reward charts.  Others have more easily achievable rewards, but don’t provide as lucrative an earnings proposition. My recommendation is that customers evaluate the totality of each program based on 1) where their travel takes them (i.e.—what types and quality of hotels participate in the program?); 2) how rich the earnings structure is to a truly frequent guest (i.e.—don’t compare basic earnings…compare upper tier earnings); and 3) how accessible rewards are, both in terms of the points required and the availability of reward rooms.

Response by Marriott's Ed French

First and foremost, members should try to concentrate in one program that offers them a large number of hotels across various brands. With Marriott Rewards, members can earn and redeem at 2,600 hotels across nine brands in more than 65 countries. A great way to earn even more points and elite status is to get the Marriott Rewards Visa Card. They should also take advantage of promotional offers on MarriottRewards.com including PointSavers, discount rates and bonus point offers. Finally, signing up to receive Marriott Rewards e-mails gives them additional offers including Marriott’s E-Breaks, which offer significantly low rates for upcoming weekends. 

Response by Starwood's Robin Korman

1) Earning

Members consolidating stays within one program are more likely to reach elite levels where the earning is greater than at the base level. SPG offers a 50 percent earning bonus at the Gold and Platinum levels versus Preferred (base) and most other programs offer 10–30 percent bonuses.

At many hotels, incidental spending also earns points which can add up—often restaurant charges, room service, mini-bar, laundry, phone and fax qualify, so think about staying at the hotel restaurant or bar rather than leaving the hotel.

Members can accelerate earning with co-branded credit cards, which accelerate earning and can help keep points from expiring.

Opting into e-mail communications helps ensure you receive promotional offers as does regularly checking hotel Web site home pages and special offer sections. Many offers require registration, so check the details!

2) Redemption

Some programs have times of the year when they offer stays at reduced rates, which can help maximize points.

SPG and others have Cash & Points programs that help those who have smaller numbers of points to experience a redemption. SPG Cash & Points options start at 1,200 points and $25 versus 2,000 points otherwise.

Programs often have value-added redemption offers that are featured on redemption or special offer pages. SPG offers:

•  A fifth night free when redeeming for four nights
• Nights & Flights—70,000 Starpoints gives you 50,000 miles + five nights at a Category 4 hotel—a 30,000 point discount over redeeming separately 
•  “European Holiday” —seven nights with your choice of up to three hotels—a 5,000 point discount over redeeming separately 
•  5,000 mile bonus when transferring 20,000 Starpoints to miles, which is a nice 20 percent mile bonus
• Unique experiences such as SPG’s Super Bowl package was a great deal at 200,000 Starpoints (two 50-yard line seats, two nights hotel, and two tickets to the Lionel Richie tailgate party) as was the Victoria Secret’s package at 100,000 points, which included the event, the celebrity after-party, plus one night at the W Union Square with champagne on arrival and breakfast in bed.

8.  If you had unlimited points (and time), which award in your program would you choose?

Response by Hilton's Adam Burke

My answer is a bit skewed since I tend to view things through the eyes of our kids these days, so I’d have to say that I’d spend a couple weeks in Maui at Grand Wailea Resort Hotel & Spa. It recently joined the Hilton Family of hotels as part of the The Waldorf=Astoria Collection and it’s a truly amazing property, with an incredible spa, waterslides and rapids, and 40 acres of beautiful landscape.

Response by Marriott's Ed French

Our award-winning 200,000-point award, which gives members seven nights at any of our 2,600 hotels, up to 50K frequent flyer miles and 25 percent off a Hertz car rental. Specific hotels? The Paris Marriott on the Champs Elysees and the JW Marriott Phuket (Thailand) come to mind.

Response by Starwood's Robin Korman

I would use it on a unique experience (my husband would have loved the Super Bowl package!).

9. What challenges in managing and developing your program keep you awake at night?

Response by Hilton's Adam Burke

I’m the wrong person to ask this question…there’s very little that can come between me and a good night’s sleep! That said, it all comes down to execution. Every time a customer interacts with us, we have an opportunity to provide an exceptional experience. How well we meet that expectation ultimately determines our success.

Response by Marriott's Ed French

Ensuring we remain laser focused on recognizing and rewarding our best guests—not getting distracted from our core mission and keeping pace with our guests’ needs and expectations.

Response by Starwood's Robin Korman

Managing customer expectations is always a challenge. We try to provide the best hotels, the best customer service, the best benefits, and we depend on so many people to get the experience right.

The competition has intensified. The hotel industry was not known for innovation until a few years ago, and now the changes are coming weekly from all of our competitors. This keeps us energized as we want to always be one step ahead!
 

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