Marketing Management - Hotel Industry

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 database to customize guests' hotel experiences and the feedback received enabled 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 from the utilization of HHonors.

But the competition is really severe in the hotel industry. Hilton's big competitors have similar loyalty programs. Starwood announced its "Starwood Preferred Guest Program" which includes Westin Hotels Resorts, Sheraton Hotels Resorts, Four Points, Caesar's and W hotels, all together including over 500 properties world wide. Having few limitations and spending money on an advertising campaign, Starwood was obviously trying to place itself on top of the market.

According to Hilton HHonors Worldwide's income statement 1998, the company 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 very bright to Hilton HHonors. Although Starwood announced that it would increase expenditure on a huge ad campaign to promote its Preferred Guest Program, Hilton would make a mistake to involve itself into this ad campaign. Hotel profitability is very sensitive to revenue. The purpose of the loyalty program is to reward loyal customers with preferential treatments and ensure their continual loyalty and long-term revenue. The ultimate goal is to make profits. If the program will not yield sufficient profits, it must be a failure. Furthermore, involving into the advertising game in the same time with its competitor is not a proper choice. Too many information will add much water down the desired impression.

There was also a "hardware & software" problem in Hilton. The hardware problem was Hilton's relatively limited network size and distribution. Despite the HHonors brought increase in stays, more than half of HHonors member stays went to competing chains annually. However, the covering of Starwood was very wide and most of them joined Preferred Guest Program. The software was the loyalty program of Starwood was much friendly to use and get rewards. From the above mentioned, it could be conclude that Hilton should not compete point for point with Starwood program, also the other direct competitors.

From the historic operation status of Hilton HHonors, it had been successful. First, its revenues had been in the region of $158 per night per guest, and occupancy had exceeded break-even. Second, it had established close relationships with franchisees. The franchisees identified with building long-term customer loyalty, understood the value of HHonors program, and were eager to become membership. Third, Hilton was the only hotel chain to offer Double Dipping. And Double Dipping brought win-win result for Hilton and its collaborating Airline partners. Hilton would get more customers' information or contact directly with the customers from airline frequent flyer programs.

The hotel industry survey showed that the estimated market size for frequent guests program was worth $11.1 billion and the average member belonged to 3.5 programs. Within that market, Hilton HHonors members spent about $4.6 billion on accommodation per year, not all of which was with Hilton. The Hilton HHonors' members were a huge potential pool, from which Hilton should get more loyalty. Facing the action of its competitor, Hilton should not engage itself into the price war and advertising campaign. Hilton should take a different position and hold on to its members and keep differentiating HHonors from Starwood and other competitors. According to HHW conjoint analysis, the most important features of a hotel program were room upgrades and airline miles, followed by free hotel stays, and other on-property benefits and services. It must be an optimal way to focus in these areas and keep making more special features to attract more customers to experience. Meanwhile, using database of Hilton HHonors and cooperating airline partners would keep long-track record of customers' preferences as well as dislikes. That would successfully customize each guest's experience and offer the most efficient service for its guests. Consumer satisfaction and words of mouth would be a more effective and influential ads rather than huge-investment on advertising campaign.

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