Marketing Management - Hotel Industry
By Sharon White The hotel industry used to depend on the hotel brand mostly. Of course, the service quality plays a great role in the hotel brand leading or loosing position. However, hotel industry is highly competitive and more was needed than just a quality and the brand name. Hilton designed a custom loyalty program that helped it to save the leading position in the market. Hilton HHonors was created to build up the customer loyalty to the hotel brand worldwide. By HHonors program, the hotel executives could use a thorough databaseto customize guests’ hotel experiences and the feedback receivedenabled them to provide effective customized services for each guest.This program was under good operation from the day it was born.Between 1997 and 1998, Hilton experienced a nearly 18% increase fromthe utilization of HHonors. But the competition is really severe in the hotel industry. Hilton’sbig competitors have similar loyalty programs. Starwood announced its”Starwood Preferred Guest Program” which includes Westin HotelsResorts, Sheraton Hotels Resorts, Four Points, Caesar’s and W hotels,all together including over 500 properties world wide. Having fewlimitations and spending money on an advertising campaign, Starwoodwas obviously trying to place itself on top of the market. According to Hilton HHonors Worldwide’s income statement 1998, thecompany earned revenues of $69,837 as well as spent expenditures of$69,438, only getting an net income of a mere $399. This was not verybright to Hilton HHonors. Although Starwood announced that it wouldincrease expenditure on a huge ad campaign to promote its PreferredGuest Program, Hilton would make a mistake to involve itself into thisad campaign. Hotel profitability is very sensitive to revenue. Thepurpose of the loyalty program is to reward loyal customers withpreferential treatments and ensure their continual loyalty andlong-term revenue. The ultimate goal is to make profits. If theprogram will not yield sufficient profits, it must be a failure.Furthermore, involving into the advertising game in the same time withits competitor is not a proper choice. Too many information will addmuch water down the desired impression. There was also a “hardware & software” problem in Hilton. Thehardware problem was Hilton’s relatively limited network size anddistribution. Despite the HHonors brought increase in stays, more thanhalf of HHonors member stays went to competing chains annually.However, the covering of Starwood was very wide and most of themjoined Preferred Guest Program. The software was the loyalty programof Starwood was much friendly to use and get rewards. From the abovementioned, it could be conclude that Hilton should not compete pointfor point with Starwood program, also the other direct competitors. From the historic operation status of Hilton HHonors, it had beensuccessful. First, its revenues had been in the region of $158 pernight per guest, and occupancy had exceeded break-even. Second, it hadestablished close relationships with franchisees. The franchiseesidentified with building long-term customer loyalty, understood thevalue of HHonors program, and were eager to become membership. Third,Hilton was the only hotel chain to offer Double Dipping. And DoubleDipping brought win-win result for Hilton and its collaboratingAirline partners. Hilton would get more customers’ information orcontact directly with the customers from airline frequent flyerprograms. The hotel industry survey showed that the estimated market size forfrequent guests program was worth $11.1 billion and the average memberbelonged to 3.5 programs. Within that market, Hilton HHonors membersspent about $4.6 billion on accommodation per year, not all of whichwas with Hilton. The Hilton HHonors’ members were a huge potentialpool, from which Hilton should get more loyalty. Facing the action ofits competitor, Hilton should not engage itself into the price war andadvertising campaign. Hilton should take a different position and holdon to its members and keep differentiating HHonors from Starwood andother competitors. According to HHW conjoint analysis, the mostimportant features of a hotel program were room upgrades and airlinemiles, followed by free hotel stays, and other on-property benefitsand services. It must be an optimal way to focus in these areas andkeep making more special features to attract more customers toexperience. Meanwhile, using database of Hilton HHonors andcooperating airline partners would keep long-track record ofcustomers’ preferences as well as dislikes. That would successfullycustomize each guest’s experience and offer the most efficient servicefor its guests. Consumer satisfaction and words of mouth would be amore effective and influential ads rather than huge-investment onadvertising campaign. 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