Hilton Hhonors Worldwide: Loyalty Wars

The recent frequent-guest initiative announced by Starwood Hotels has raised the stakes in the loyalty program arena. This will most likely result in increased costs for all industry participants as other hotel chains struggle to match or beat their program. This has placed us in a dilemma. By broadening our rewards offerings we can appeal to a larger segment of the population, but we stand to lose any product differentiation that we enjoy compared to other hotels. We have the choice of competing point for point in a rewards war, or positioning ourselves to provide an experience for our loyalty members that sets Hilton HHonors apart from Starwood and our other competitors.

Price Wars

Hilton Honors should not try to compete with Starwood or any other competitors in a point-for-point battle. Rivalry among competitors will limit the profitability of the industry. Rivalry is especially destructive to profitability if competition gravitates solely to price, or loyalty points as in our case (Porter, 2008). Any change to our program based solely on points will be easy for our competitors to match. We will be forced into a game of one-upsmanship that will do nothing to increase customer loyalty because of a readily available substitute product (other hotels) and a lack of switching costs (O'Malley, 1998). That being said, the degree to which profits are driven down depends upon the intensity and basis of the competition (Porter, 2008). Hilton Honors should avoid this point-for-point battle; instead we should seek to differentiate our rewards program and the overall value of a stay at a Hilton property from Starwood and our other competitors.

Personal Rewards

Almost two-thirds of people say they belong to at least one loyalty program, but only one-third agree it makes them more loyal to a company. These loyalty program members are also skeptical about the company's intentions. "They think companies are out to do the right thing for themselves and they do not think the relationship is particularly two-way." (Barnett, 2010) This statement seems to complicate our dilemma. However, it is actually showing us a way to make our loyalty program stand out when compared to others. We can decrease skepticism about our intentions by making the service that the program provides unique for each guest.

Personally relevant deals are the reason that 48% of people choose to spend more with a particular company (Barnett, 2010). We also know that cash value (how much the reward represents as a proportion of spending) and choice of redemption options are the leading elements that determine the value of a loyalty program (O'Malley, 1998). This means that Hilton Honors can see more people choosing to stay with us when we have a choice of redemption options that are personally relevant to each rewards program member.

Program Differentiation

When loyalty programs are viewed simply as data mining mechanisms, the purpose of the program tends to be obscured by the constant search for more detailed information (O'Malley, 1998). This places our program in yet another dilemma. We need customer information to provide the personally relevant reward that they expect, and yet that quest for information can be misconstrued. Our solution needs to ensure that the Hilton Honors program remains in the background as a part of the larger valuable experience of staying at a Hilton