Why Hotel Programs Should Keep Points Prices of Their Best Properties Low

Hilton HHonors so devalued their program last year that top-end hotels which once cost as little as 32,000 or 40,000 points per night on a 5-night stay like the Conrad Maldives cost 80,000 or even 95,000 points a night

When I had breakfast with Hilton HHonors Vice President Mark Weinstein last month, he explained the bind they’re in, with room rates rising and hotels full their hotels have to be compensated more for award nights.

And I told him that doesn’t mean they want to pass on the corresponding increase to their members in all cases; that members and the program can benefit by keeping the cost of certain aspirational properties more modest even if that means holding onto them as a loss leader.

That’s because they’ll build loyalty and put heads in beds throughout the year by keeping members on the treadmill, making them think that a special trip is within their grasp. Sure, they may have to stay at the Hilton Garden Inn in Yakima, Washington — but the reward at the end of the rainbow is memories that last a lifetime for themselves and their family in a special place they wouldn’t otherwise go.

For some that’s Hawaii. For others it’s someplace more exotic. And it doesn’t mean that costs don’t all get passed along. But making the best properties so out of reach, they no longer serve as a motivator, and no longer drive other business. They can think of their programs as merely rebates of a fixed (or declining) value, and they’ll defeat the very purpose of the program to earn wallet share and keep heads in beds.

Starwood Preferred Guest has a ton of fantastic aspirational properties. But at the very top end, the rooms themselves are considered suites, and so not only are they in the highest redemption category 7 (which didn’t even exist when I started with the program) but they charge double the category 7 prices because the rooms are suites. Rates are so high because of how special the rooms are, that’s why they’re category 7 in many cases in the first place, but because the rooms are special and not just the property members get double charged. That takes the redemptions out of reach of most members, having to pay 70,000 points a night or more for hotels like the W Maldives and St. Regis Bora Bora.

The Park Hyatt Maldives remained a category 6 hotel even as Hyatt introduced category 7. Maybe Hyatt understands this principle. Or maybe the hotel rates are lower on average than what you see on the website (because they’re unloading rooms cheap on the ground in China and via specialty agents dealing with the Maldives like Linara Travel.

Hotel programs can serve their chains well by giving members something to strive for and not pricing them so outrageously that redemptions aren’t realistic goals.


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. “Hotel programs can serve their chains well by giving members something to strive for and not pricing them so outrageously that redemptions aren’t realistic goals.”

    Bingo. Unless those properties really can sell out at high cash prices rather than having to dump inventory onto Priceline and Hotwire.

    With some programs the points price for a luxury resort is far above the equivalent cash price offered by Hotwire or by a Priceline express deal. Managers of the loyalty program should price awards low enough that this does not happen.

  2. Agreed. I think Hilton lost a lot of loyal travelers after they devalued… the best rewards simply became unattainable so it’s better to focus on other programs.

  3. Have been Diamond for 10 years. Turned my siblings on to Hilton and 4 became Diamond. Once they devalued I jumped ship. I expect points to devalue over time but what Hilton did was way beyond acceptable. My brother is still a Hilton guy but my 3 sisters now have status with SPG and Marriott. Over the years I mostly gave away my HH points to friends/family because I had so many but properties @ 95k/night is crazy even with over 1 million in my acct.

  4. Another leg of the table that goes along with the high end property redemption is on-property benefits and the treatment you receive as a frequent guest. In my experience unless the benefits are hard wired into the program, backed with a guarantee, the service falls short, especially on points stays. I think your comment about properties wanting more rev from points based stays explains some of the treatment I have received as a HH Diamond on points stays. Literally the worst room on the property. I wouldn’t want to spend a 100+ nights a year with a chain to get this kind of treatment. Starwood is a bit better on this front and it seems from your experiences that Hyatt is too. Marriott and Hilton can be pretty disappointing.

  5. I cannot help but think that the massive devaluation was partially driven by the upcoming IPO at the end of 2013. They wanted to goose the numbers a little.

    Loyalty programs of all stripes would be better served by making small incremental changes year afyer year rather than keeping things stagnant and then pulling the rug out from under everyone.

  6. I have 600k left in hilton but they have gotten their last paid stay out of this Diamond…….what you lay out is so spot on and it is a shame they they “just don’t get it”. Their new management might want to try a different line of work………

  7. This observation is so crazy obvious it astounds me loyalty executives don’t understand it. This is the whole point of loyalty!

  8. Something you touched on also. How many of those properties are goosing their occupancy rates by selling highly discounted rooms to priceline and hotwire. Then claiming close to rack rate reimbursements from the HHonors program for point stays.

    I do have to disagree with your comparison to SPG high category properties. There is no real value in spending the amount points a night for those cat 5-7 properties, inspirational or not. The points are way too hard to accumulate and too valuable elsewhere.

  9. Interestingly enough, I just took a 30 min survey for Hilton (done through a 3rd party). It was about 40 questions giving scenarios asking which redemption I would pick & why. Each presented 4 options with prices, location to where I wanted to be (walk able, 10 miles, ect) as well as hypothetical price of the hotel in dollars and points. They also included a dollars & points option. They obviously are really try to get a feel for what drives decisions regarding hotel stays. I got a $15 Amazon gift card of the deal & a chance to show Hilton what I value so I was happy to do it.

  10. The books don’t lie. He sees them, we don’t. He is not running a charity to make people feel fuzzy inside by putting the family up in the Maldives for free. If his hotels are full what else matters? I am sure he has plenty of people running the analytics and is quite happy with his position, or else he would change it. I dont see how one can give him advice on his business model without seeing the other side – the outcome – to which it corresponds.

    I just find it strange that the default position is that we are entitled to something benevolent from a for profit company.

  11. Also, I’d like to mention that back on 4/22 I did some simple estimation arriving at a Koh Samui redemption still corresponding to almost a 25% return on spend. You mentioned that “Redemptions at Conrad Koh Samui are still above average value for HHonors and not how most points most of the time will be used.” So you seemed to acknowledge that the high end was in fact a good value.

    Seriously not trying to just be a contrarian or a pain, but to have some good discussion hopefully. BELIEVE ME that if the highest-tier redemptions dropped back to 50k, I would not be complaining…I’d probably be on a plane there the next week!!!

  12. I burned some serious Hilton points at the Conrad Koh Samui (in the pictures) before the property got devalued …

  13. Gary. i kinda think hilton acknowledged this by the lack of devaluation this year- i think they know they did damage. thing is, EVERYONE in travel (air/hotel) are so drunk with the current environment that they are acting like this is their first rodeo and the current favourable trends for them will not stop and that the economic cycle won’t turn against them ever again (with >$4 trillion in printed $ needing to come home to roost, i find this rather naive). so… they think they don’t need loyalty because beds and seats are full regardless of how poorly they behave.

    that said- i think they may have it figured out anyway. if the shit hits the fan and they feel it, they’ll just run very generous promos like they did 5 years ago and it will work (more so for hotels than air). the ‘stay 2 get 1’ type promos will fill rooms but not mess up the programs too much.

    the thing i don’t get is how they are sooo generous with credit card spend/sign up to such an extent that earning thru stays is a fools game unless someone else (employer) is paying. btw, i HATE all you guys! 😉 (i’m self employed and it’s my dime always). they value credit card loyalty way above actual loyalty now. i find that odd- but the #’s must work or they wouldn’t be doing it…

  14. One major problem I have with Hilton is that the awards points are NOT a SET points. There are alot of Hilton hotel per website say 70-95k/night. But when you go to actually book one. You will find it its over the advertised points.

    ex. DoubleTree by Hilton Alana Waikiki Hotel per “http://hhonorspointssearchtool.com” its 40k low season and 50k High season. But when you look up some dates in June(40K), Hilton site show 55K+ to 63K+ per night. Some beach location Hilton are so outrageous going north of 150k/night!!! Where and how do they get these points price???? They are never a SET points nights

  15. I used to give almost all of my bus to Hilton before the devaluation. Now I give Hilton ZERO revenue stays. What they did was very disingenuous.

    What Hilton should have done was not allow transfers of pts from programs such as Virgin at such favorable rates. People were opening up credit cards with Virgin for example and transferring the pts to Hilton and staying at very expensive hotels. Does SPG allow this? No.

    To add insult to injury Hilton increased the number of nts and stays to qualify for gold status for people that actually PAY for stays and yet SIMPLY give away gold status to co-branded credit card holders and people like MBA grads. ABSOLUTELY INSULTING. I AM DONE WITH HILTON.

  16. @Gary, you’ve made a variation of this argument for quite a while now, and I agree with it completely. Some of us are able to leverage the value proposition better, but keeping these in reach seems like it would keep far more people on the treadmill, as you say.
    But, you meet with execs from all these different programs from time to time and must make this argument to them – how do they respond? Surely some of these chats are off the record, but is anyone even receptive to this line of thinking?

  17. I certainly agree with most of what (I think) you’ve said here. That said, did you read this post before hitting the magic “Go” button? This is probably one of the least well written posts I’ve ever seen on your blog and nothing close to your usual standard. A little more attention to clarity and detail will go a long way…

  18. I keep reading about how HH gutted it’s value. Sure, on a relative basis it did – but that was because HH was hands down the most generous hotel award program. But even after the devaluation, HH remains extremely competitve (go look at Loyalty Lobby and OMAT analysis – or better yet, do your own).

    With Hyatt’s devaluation, HH is now neck and neck for top tier value. About the only better program for low/mid tier is Carlson with their (unsustainable) 2nd night free benefit. However, I never stay at Carlson because they don’t have true top tier.

    Combine with large amount of properties, easy to obtain status, easy ability to generate lots of low cost points via MS and HH is far and away my top hotel award program.

    As for your main point about subsidizing some aspirational properties, couldn’t agree more. I would not have bothered to sign up for credit cards, put spend on them or choosen to stay at brand specific properties absent ability to stay at places I’d otherwise never visit because of the price. However, if I can leverage points to stay at high end properties for the equivalent price of my usual “reasonably priced” property when paying cash, they’ve found a new customer. Compare to SPG – their top tier are ridiculously expensive on points – you can sometimes pay lower cash prices than what it cost to earn sufficient SPG for a “free” night. As such, I never stay at SPG properties any more – all my SPG points are transferred to airlines.

  19. The argument put forward in this post seems like a typical example of begging the question — high value, low cost awards are very good for us, therefore there must be a logical argument to be made about why they’re good for the company as well.

    Hilton had a major devaluation last year, Gary states that will cost them loyalty and therefore business. Yet their first quarter profit this year was up over 300% vs. same quarter last year. As with Delta, the prediction that a poor loyalty program will harm a business’s bottom line is belied by the facts.

    A concern for the bottom line, at least in flush times, is empirically not a reason for companies to maintain very generous rewards programs. But isn’t it pretty to think so?

  20. Spent 6 days at PH Maldives in 2013 and wondered at all the honeymooning Chinese couples. Couldn’t believe these 20 somethings were paying rack or had points to cover costs let alone the $500 air from Male. Thanks for clarifying.

  21. Among savvy frequent flyers, I think there is a tendency to think that we are “typical” members of their loyalty programs. That is very far from the truth. How many people do you know in “the real world” who understand — and care — about the details of these loyalty programs? I’ve never run into a single such person in my life. They’re very rare. So I don’t think the head of Hilton HHonors worries too much if the Maldives are out of reach for redemptions. It doesn’t drive the profitability of the company one iota.

  22. Hilton is greedy to the point of not caring, if they were an airline they would be delta…with devaluations so dramatic they drive loyalty members to the competition. IAHPHX said it, we are not the “typical” members, we are much more educated about the dynamics of the loyalty program, but even the regular guys will be disappointed when they finally think they have enough for an award only to see it will take a third more points, that they may not get before the next devalue.

  23. @LarryInNYC I’ve separately written that flush times have made programs focus on loyalty, a company may be profitable but that doesn’t answer the counterfactual and could well be short-sighted. My argument is without Hawaii in reach, the valuable asset of loyal members loses that motivation, that’s going to hurt more when you’re not filling rooms without your loyalty progran.

  24. @Paul – actually I’ve done spreadsheets on the relative value of loyalty programs and published them here, Hilton used to be ‘overindexed’ to use Jeff Diskin’s term but now they do take about 30% more spend than most of the competition to get a top tier hotel night.

  25. I think you should differentiate between schemes with last room availability or not.

    If you have last room availability, a disproportionately cheap redemption will ensure the hotel gets a lot of reward nights. This IN ITSELF will push the hotel to 95 per cent occupancy and trigger higher payments.

    I see the issue here.

    However, if you do NOT have last room availability there is NO excuse for pushing up point levels because the point price is less of a factor in filling the hotel – when that 5 per cent reward allocation is gone, its gone. If only 2 villas at Koh Samui are releases for rewards then whether those rooms are 10k, 50k or 100k doesn’t even begin to move the needle in terms of overall cost to Hilton across the entire Hilton system.

  26. Voted with my feet , do not do payed stays
    at Hilton any longer ,I love Starwoods and HYATT
    now

    What you wrote today is right on , in past I
    stayed at lower category Hilton so I could
    take the family on a vacation that I could not otherwise afford

  27. I left the Hilton Program exactly for that reason. After 7 years of Diamond (which could have been double or triple Diamond if those status existed), I sadly went away because the Maldives and most Conrad were not accessible anymore. Hilton lost around 150-200 nights per year in HGI for this….I am not sure how they did their business case for this but I believe they lost a lot. Admittedly, i was not a “standard customer” but just from the peoples I know, 3 more persons left for Starwood….It is a lot of money to loose for a two weeks per year in Hawaii or Maldives. Spending 80% of your life in planes and hotels is not an easy life but once you set your feet on the Maldivian sands, all of this is forgotten and you go back to it. Now, Starwood has 66 nights in – 6 For Hilton!

  28. I, too, voted with my feet: for a guy who typically had 30+ stays at Hilton for over a decade, I had 6 last year and 4 of them were on a reward. Burned down most of the remaining 500,000 points with a long stay at the old rates at a top place. This year, I’ve had one hilton stay, a town without IHG, SPG, Marriott, or Radisson. SPG has gotten the bulk of the business, but I’m staying at some luxurious independent properties, too, and this is really a breath of fresh air: no chain-mandated USA Today (a real local paper instead), perhaps a fine restaurant rather than an afterthought, and I’m most pleased to avoid arguing for my breakfast, any room upgrade whatsoever, late checkout, etc. I am “asking” for these things if they are important, which is so much better than being entitled or encouraged and having to argue over the shrinking breakfast, for example.

  29. @Henrik – I don’t understand how you are saying those properties are no longer accessible. 200 nights a year in an HGI at what, $150 a night? That is $30,000 in spend. If you’re doing points and points then you’re getting 15 points per base dollar, plus 5 more for diamond and 10 more for paying for the nights with the reserve card. So you’re earning at least 30 points/dollar, not even counting for quarterly promos which generally tack on a lot more, or the 750 points/stay you might elect to take as a myway benefit for HGI (if you’re doing a ton of 1 or 2 night stays might make sense). And you’re also earning points on the CC side not just on the base rate but on taxes and fees too. So you’re earning at a minimum 900,000 points a year. That’s enough for 9.5 nights @ Conrad Maldives for 95,000/night. But if you split that into 2 5-night trips or one 10-night trip then you get those 10 nights for 760,000. So you have 140k left over to do, idk, 5 nights in Prague (30k/night, 5th night free)? Yes it stinks that it’s more than it used to be but I fail to see how this is such a raw deal.

  30. I’m burning though a million Hilton points then I’m also done. Done in the sense that I wont go out of my way to stay with them, but if I need to stay somewhere and Hilton is convenient and cheap – sure.

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