Why Has Starwood Allowed the Competition to Catch Up to It?

I’ve given Starwood Preferred Guest a bit of a hard time in recent posts. And I stand by everything that I’ve said — that their unique value propositions have been eroded. They were once head and shoulders above the pack but I believe they’d fallen behind Hyatt Gold Passport and they aren’t quite as unique in differentiating themselves from the rest of the field, either.

Still, I’d certainly rather be a Starwood Preferred Guest Platinum than a Marriott Platinum, Hilton Diamond, or Priority Club Platinum.

I don’t think that Starwood has really intentionally rested on their laurels. It’s really just speculation, based on personal observation rather than direct knowledge of their financials, but my sense is that the program has the highest cost structure of any of the major hotel loyalty offerings.

When Starwood Preferred Guest was introduced they were alone in offering what they called ‘True Redemption’ — not just ‘no blackout dates’ but also no capacity controls. Any standard room that was available at a hotel could be redeemed for points. (Sure, some properties played games with what constituted a ‘standard room’ but on the whole this was a genuine promise. Redemption was a breeze.)

My sense is that in order to get there they had to compensate their hotels more than other programs. Anecdotally, whenever a hotel lists a program’s internal reimbusement rate on my folio instead of only showing it to the program when I’m staying on points, I’ve certainly noticed higher payments to Starwood properties than to hotels in competing chains. And that’s on standard award nights. Starwood was able to get no capacity controls by further promising that when a hotel’s occupancy exceeds 90% the program actually reimbuses the hotel property at its average daily room rate. That gets really expensive for Starwood when hotels are full, and is what prompted a spike in costs that caused Starwood to introduce a higher award redemption category 7 and shift many properies up the category chain across the board around 2007.

During good times its costs were rising and the program couldn’t afford to do more for members. Meanwhile other programs were figuring out how to match its award availability offerings (like Hilton and Hyatt) while – I believe – offering lower reimbursement rates to their hotel properties. They could match Starwood’s consumer promise without matching Starwood’s costs.

That’s my arm chair speculating on how and hwy Starwood managed to let other programs catch up to it these last few years. I’m still waiting for the really smart people over there to figure out ‘What’s next?’ but I’ve been waiting for that for several years now!

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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Comments

  1. “Meanwhile other programs were figuring out how to match (SPGs) award availability offerings … while … offering lower reimbursement rates to their hotel properties.”

    The meat of your whole post is the above sentence, but it’s only an assertion. What do you suppose enables Hilton or Hyatt to offer lower reimbursement rates????

  2. @listen — yes it is an assertion based entirely on what i’ve seen on hotel folios over the years, it’s more frequent than one would imagine that the hotel lists its reimbursement rate on the folio. I’m always struck by how low that rate has been at hyatts, for instance. I don’t know the structure of the deals that allows Hyatt ro pay their properties less than SPG would ofr a similar room, but having done so they gain a competitive cost advantage over SPG.

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