I had a very nice conversation this afternoon with Chris Holdren, Senior Vice President for the Starwood Preferred Guest program.
He reached out to me after my post on SPG’s decision not to adjust hotel categories for 2010 — which I called a “stealth devaluation” (and which was picked up USA Today‘s excellent Barbara De Lollis).
My original argument was basically that a hotel’s category level in the Starwood program basically rises or falls with its average daily room rate (and Chris confirmed that it is indeed average daily room rate rather than revenue per available room, for all you hotel revenue geeks out there).
Now, with hotel rates lower than in 2004, Starwood Preferred Guest hotel category assignments aren’t being adjusted downward to reflect that.
In my post last week I initially made the claim that the ‘rate bands’ (the average room rate figure tiering to each hotel category) had changed over time, so a (for instance) $165 hotel night might have been category 3 in 2004 but might now be category 4. Starwood Lurker posted on Flyertalk that I was mistaken, and I quickly took down that claim from my post, within an hour or so of making it. I didn’t want to mislead anyone.
Chris checked on things and said that indeed, the rate bands for categories 1-4 had not changed since the beginning of the program. That they only assigned higher categories 6 and 7 to the upper end of what was originally category 5.
How to explain, then, hotels that had seemed to have constant room rates but went up in category? Presumably overoptimistic budget forecasts for those hotels. He explained that hotel categories are determined based on the projected average daily room rate for the year, and those projections might well have not come true for a given hotel.
He made the argument that the current categories reasonably match current room rates, with 180 hotels having dropped in category at the beginning of 2009 when they were forecasting a bad revenue year for hotels. Of course, I noted that perhaps 70 had gone up in category, so on net I guessed only 12% of Starwood hotels were at a lower level than in 2008 despite the worst revenue year in history.
In fairness, he pointed out that Starwood suspended ‘high season’ premiums for redemptions again in 2010, that this was a real benefit to members. I agree, it is.
They made the tradeoff to not bring back high season surcharges at category 5 and higher properties, but also not to adjust categories this year. Some would have gone up, I believe many more would have gone down, and I would have preferred that they let the chips fall where they may based on the formulas they’ve always used. I think members reasonably feel that when category assignments go up when rates go up, they should be able to expect category assignments to fall this year of all years. But it’s true that they’re adding value in other ways, like with the suspension of high season premiums and with the recent introduction of free internet for platinums (of course Hyatt offers free internet to all of their elties already).
Ultimately, I think that if Starwood is changing the way their category assignments work then they should be upfront with their members, own that they’ve changed things around this year and not try to say it’s all about member benefit (“Though rates are expected to generally rise in 2010, we wanted to make sure all of our members are able to continue to take advantage of our 2009 award levels.”)
It’s probably true that Starwood is being held to a higher standard here, members trust Starwood more than many other programs, and I think they were truly caught by surprise with the member reaction on Flyertalk and elsewhere that saw this as a negative move.
Starwood has built up significant goodwill with its members. And changing the way that redemption categories are assigned, in a year in which members were anticipating a big benefit from the way the system has always been structured, erodes that trust — especially when the announcement of the decision seemed disingenuous.
Why does this matter? Because Starwood’s unique value propositions have been intangibles. Sure, they were first with no capacity controls on award redemption. But Hilton and Hyatt have matched that (Priority Club in my experience comes close). And their elite program includes suites, which Priority Club, Marriott, and Hilton do not. But Hyatt offers confirmed suites, so Starwood isn’t quite as unique as they once were.
On a given stay, if a Platinum member isn’t upgraded to a suite, they may not get much recognition at all. Hilton, Hyatt, and Marriott top tier elites can generally count on breakfast, at least, every day. Starwood offers lounge access, but fewer and fewer properties in the US and Europe at least offer lounges. When there’s no suite and no hotel lounge, a Platinum is for the most part just like any other guest — with the exception of a 500 point amenity at checkin (250 points at Four Points) and now free internet.
Even so, Platinums were fiercely loyal and I’d argue it’s because of consistent customer service and a candidness that’s unique among hotel programs, exemplified by Starwood Lurker on Flyertalk (and I’d also provide some recognition here to Theytus, Starwood Lurker II, who has been doing an excellent job as well).
Members expect devaluations from mileage programs to some degree, but it comes as a surprise from Starwood. Perhaps it shouldn’t. But that’s the unique position that they’re in, that’s an enormously valuable position to be in, and they act counter to it at their own peril.
Holdren seemed surprised by the reaction, thought they were doing right by their members. I hope the conversation was on some level useful to him, even if I’m not thoroughly convinced that SPG’s decision was a very sporting one.