Hotel Frequent-Stay Programs
Published: June 2009
By David Kaufman
The hotel industry is using elaborate frequent-stay programs to woo customers. But not all are created equal. How do they compare?
In the nearly two decades since they were introduced, frequent-flier programs have taught travelers the fine art of getting something in return for their business. Not to be outdone, the hotel industry is also translating points into upgrades and free nights, as chains launch new frequent-stay programs or refine existing ones. Just don't expect them to be alike. Although all hotel programs have essentially the same goal—to keep travelers loyal to a single brand—in practice their rewards can be quite different.
Frequent-stay programs are hardly new. The nation's oldest, Marriott Rewards, has been around since 1983—almost as long as the first frequent-flier plans. What is new, however, is the aggressive tactics hotels are employing to beat the competition. Why are they working so hard?"Because hotel loyalty programs still play a much lesser role in the consumer's mind than airline programs," says Henry Harteveldt, a senior analyst with Forrester Research in Cambridge, Massachusetts. "The perceived value of a free hotel stay is much less than that of a free airplane ticket. Even so, a hotel company without a loyalty program is automatically considered inferior by consumers."
To elevate the status of hotel programs, chains are beginning to offer a host of rewards and benefits that are actually better than the airlines' when it comes to flexibility, ease of redemption, and pampering. And these efforts appear to be working: according to a study by Wirthlin Worldwide, membership by business travelers in frequent-stay plans jumped from 51 percent to 77 percent between 1995 and 1999. Almost three-quarters of program points are never redeemed, however, so the hotel industry still has a long way to go before new members become "active" members.
One company that's clearly taking this challenge seriously is Starwood, whose much-hyped Preferred Guest Program launched in 1999 with a $50 million marketing and development budget. Preferred Guest—which covers Starwood's Sheraton, Westin, Four Points, Luxury Collection, St. Regis, and W brands—rocked the hotel world by offering unprecedented privileges: no blackout dates on free stays, instant online redemption, and the ability to convert hotel points (two for every dollar spent) into airline miles on a one-to-one basis.
Starwood's Preferred Guest quickly became one of the most popular programs in the industry. In just 18 months, it has signed on 5 million people, and 50,000 new members are joining each week. What's more, Starwood reports that it now has 188 percent more members who accrue 25 or more stays a year than it did in 1999, an increase driven mostly by super-lucrative business travelers who visit midweek, when room rates are highest. "Because it's a new program, we didn't have to play by anyone's rules when we developed Preferred Guest," says Hoyt Harper, senior vice president for business development and marketing programs at Starwood.
The company's bold stance may have caught the industry by surprise, but it hasn't been met with complacency. Many of the other hotel chains have quietly matched some of Preferred Guest's features while maintaining their original benefits. Hyatt, for instance, put an end to blackout dates on free stays for its Gold Passport members in June, and Forte Hotel Group made no blackout dates a prime component of its new Moments.com guest-recognition program, launched this summer.
Still, for many frequent travelers the appeal may only go so far. "Sure, Starwood has lots of bells and whistles with its no blackout dates, but that's a costly perk, which someone has to pay for," contends Holly Mendelson, Marriott's director of communications for loyalty marketing. Marriott Rewards, the largest program of its kind, currently has 13 million members and, with 200,000 travelers signing up each month, growth that's comparable to Starwood's. "Yes, we have blackout dates, but they're minimal," says Mendelson, who adds that "it costs much less for our members to receive a free stay, and we have many more properties."
While gaining a free night is cheaper at Marriott, it's worth noting that the cost differential isn't that great. Consider two of the companies' properties in San Francisco and New York. A guest wanting to stay at the Marriott Fisherman's Wharf will need to accrue $3,000 worth of Marriott points for a free weekend night, while the same night at Starwood's Sheraton Fisherman's Wharf property will run $3,500. The figures are similar for weekend nights at the Marriott Marquis and Sheraton Manhattan in New York City, and the difference is even smaller in either city if you're a member who has qualified for elite status. "For many travelers that five-hundred dollar difference is actually only one stay," says Starwood's Harper. "So we're not talking about a huge discrepancy."
That free night might not cost much more with Preferred Guest, but with fewer Starwood hotels to choose from, it could take longer to achieve. Starwood has roughly 725 properties, certainly a respectable number that includes a large selection of vacation resorts and luxury hotels. But that pales in comparison with Marriott, which has nearly 2,000 properties, and industry leader Bass Hotels & Resorts, which has some 2,900. In fact, it's so important to have a large number of hotels that Hilton spent $4 billion to acquire the Promus chain last year, chiefly to swell its ranks from 300 hotels to more than 2,000. It was a smart move. "One of the reasons I prefer Hilton is that the hotels are so easy to find," says Marc Spero, a national sales executive with the Italian fashion house Zanella, who travels nearly two weeks each month. "But the thing I like most about Hilton is the ability to double-dip."
"Double-dipping" is a Hilton HHonors feature that allows members to earn points in both the hotel program and a frequent-flier plan of their choice. It's clearly a major selling point with the program's nearly 10 million members. "Double-dipping means that you don't have to choose between a free hotel stay and a free plane ticket, and that's why many consumers like it," says Stowe Shoemaker, assistant professor of hotel management at the University of Nevada, Las Vegas. "But it's very costly for Hilton, and not necessarily important to every consumer. Obviously, if it were, all the programs would do it."
So what is most important to travelers?For Spero, it's a large number of hotels in city-center locations. But according to Forrester's Harteveldt, most travelers will align themselves with the company that they feel offers the best service, regardless of its plan's specific details. "It comes down to asking yourself how pleasant the hotels are to stay in," he says. Indeed, some hotels are so pleasant that they don't need to offer points to keep customers loyal. Luxury chains such as Ritz-Carlton, Four Seasons, and Peninsula have never bothered with reward programs, choosing instead to focus their energy on providing premium, personalized service and amenities.
In fact, personalization—not points—is the latest buzzword in the frequent-stay wars. Wyndham's new program, Wyndham ByRequest, doesn't even offer points or free stays. Instead, it's centered on complimentary services and amenities that help alleviate the hassles of travel, such as free hotel-restaurant meals or spa treatments. Members are enrolled after their third stay at any Wyndham property; their reward preferences are then stored in a database, which can be updated to match perks to guests' needs. Wyndham also has a dedicated ByRequest manager at each of its 130 properties.
Meanwhile, other hotel programs are following suit. Starwood has just launched a special concierge service for its top-level members to help with restaurant reservations, theater tickets, and itinerary suggestions, both on the road and at home. And Bass Hotels & Resorts allows members of its Priority Club plan to convert points into "currency" that can be used to buy just about anything via a personal shopping service. "You tell us what you want, we'll figure out how many points it will cost and get it for you," says Pamela Mulder, director of global communications for relationship marketing at Bass.
Personal shopping may not be the first thing travelers have in mind when pledging allegiance to a hotel chain, but this style of customer care may well become more common as hotels work ever harder to earn guest loyalty. Many program members are already receiving personalized promotions tailored to their travel habits, and some ¸ber-travelers have recently become the target of alleged "program poaching" by rival groups. Adam's Mark hotels launched a new plan in June that gives up to 5 percent cash back to frequent guests at its 23 properties, and consortium Preferred Hotels announced in August plans to launch a frequent-stay program so its independent hotel members could compete with the big chains. Clearly, hotels want travelers to sign up. "And it's completely in your best interest to do so," UNLV's Shoemaker says. "Because the more you stay with a chain, the more you can get that chain to give you."