Starwood and Marriott Know They Have a Problem With Their Merger. And They Don’t Know How to Fix It Yet.

For all the talk of financial synergies, scale in dealing with online travel agencies, and the operational skill Marriott brings to managing Starwood hotels, at core there’s still guests of the chain and in particular Starwood Preferred Guest members who drive an outsize portion of room nights. Marriott doesn’t want to lose Starwood’s customers to competitors.

Meanwhile American Express is desperate to find a way to keep its Starwood Amex intact with Marriott buying Starwood.


St. Regis Bali

American Express lost Costco and lost JetBlue. The Prepaid business hasn’t been a savior.

They re-signed Delta for $2 billion a year. But the Starwood deal is nearly half that, they just re-signed Starwood even, but if there’s no Starwood Preferred Guest it’s hard for their to be a Starwood Preferred Guest – American Express relationship .. especially when Chase is the exclusive card issuer for Marriott in the U.S.

The Starwood name is expected to go away. Nonetheless, there’s 9 figures a year on the table that Marriott wants to find a way to keep (and they won’t do as well just attempting to transition members to the Marriott co-brand product). And Starwood members don’t love the idea either, no one chose to be loyal to Starwood because they were going to be equally happy with Marriott.

This is a problem all around. Starwood’s caretaker CEO recognizes it as well.

    HM: When the acquisition was announced, SPG members cried foul. Allay their fears.

    TM: We heard them loud and clear. The blogosphere lit up with concerns. What has made Starwood so valuable is its brands and loyalty program.

    We are confident that Marriott would approach it with a due-no-harm approach. We do not want to alienate our most valuable members, who drive about 50 percent of occupancy. But, because of antitrust reasons, we haven’t been able to talk about how to put these programs together, so, unfortunately, it has created a bit of a communication vacuum. People want to know, but it’s an area we can’t talk about or collaborate on yet, as we still need to compete.

    SPG won’t switch over on day one. It will need to take longer. Marriott needs to learn about the special sauce.


W Union Square

The deal hasn’t closed yet. That won’t happen until mid-year.

Then at the very least there’s a 12-18 month data migration and broader integration project. So in all likelihood Starwood Preferred Guest will remain separate through 2017.

They know they have a problem. Seeing it articulated by the CEO of American Express and the CEO of Starwood (with the CEO of Marriott simply reassuring that they don’t believe in devaluations) means they take it seriously… but they don’t know how to fix it.

The thing is there’s no way to fix it other than to:

  1. Keep Starwood Preferred Guest separate, with separate benefits, for legacy Starwood brands the way they’ve kept Ritz-Carlton Rewards separate. Over time the program becomes more like Marriott Rewards because it’ll be run by Marriott people and because running a single program for a single hotel company helps them generate efficiencies.

  2. Revamp Marriott Rewards elite benefits to promise suite upgrades when suites are available, guaranteed late checkout, and breakfast at resorts. That’s an investment they haven’t believed they needed to make given their size (which only gets bigger with the Starwood acquisition), and one that existing Marriott properties didn’t sign on for.

At least they recognize the problem. That’s the first step.

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. Why do I have a sinking feeling that I should burn up my points and move on from this program? I think I’m a year away from Lifetime Platinum and am starting to doubt that there will even be a Platinum.

  2. Marriott is not going to let the tail wag the dog. They will do whatever is more cost-effective regardless of how SPG members feel about it.

  3. I haven’t stayed at spg this year or put any spend on my spg cards. I got the Hyatt status match and I’m not looking back until I know what’s gonna happen.

  4. I’ve been loyal to Hyatt (Diamond) and SPG (Platinum) for the last 10 years. I love both chains and they compliment my travel footprint. I also put a lot of spend on my SPG AmEx cards. After this announcement, I moved my spend to my Chase Hyatt card. I’ve also applied (and approved) for the Citi Hilton card. I have also status matched to Hilton Diamond. I’ll miss some of my favorite Starwood properties but I’m not interested in being the needle in the haystack of Marriott…

  5. Amex is finally cratering under Kenny Chenault’s mediocre stewardship. They will be desperate for a marketing tie-up once SPG goes bye-bye. Maybe they can cut a deal with Wal-Mart which has a huge customer base. Now that would be a laugh given Amex marketing and strategy, which normally targets the higher income set.

  6. Really, REALLY hope this merger gets squashed by the Feds. Doesn’t matter if it’s an airline or hotel, the public is tired of these and the diminishing value/benefits that follow…

  7. The best that could happen is that some of the benefits of SPG become assimilated into Marriott Rewards. Possibly some hybridization of SPG high end brands with Ritz-Carlton rewards. But to expect the value of points and transferibility of those points to continue is very naive. SPG costs were too high and that is what makes this merger. To get high level properties and reduce costs. Continuing with a high cost rewards program just doesn’t make any sense.

  8. This is really sad. I just hope this merger doesn’t take place and thus go down in ruins. I hate Marriott properties…enuf said. Hopefully the Feds do not allow this to happen as it really crushes competition.

  9. Just as the Mormons have many wives; I think its totally appropriate for Mormon-run Marriott to have 3 loyalty programs:

    1 – Ritz Carlton Rewards (maybe even put St. Regis in there)
    2 – Marriott Rewards
    3 – SPG

    I’m sure Ed French will have a terrible ratio to transfer points between them, but it’s one way they can leave the SPG people alone.

  10. @nsx at FlyerTalk

    I don’t believe it’s cost-effective to let 50% of your customers walk to competitors – especially considering Starwood’s customers spend more on average than Marriott’s. Part of the value in acquiring Starwood is acquiring high-value SPG members. Angering them immediately reduces their ROI.

    @iv
    I think a status-match could be tricky. It would force SPG members who may not already be comparing SPG and Marriott Rewards to compare the two programs. SPG members who status-match to Marriott Rewards will not be impressed.

  11. One way is to sell SPG to Amex and have Amex merge Membership Rewards into it. Then Marriott can let people either have Marriott points or Amex points (or airline miles) and the cost of elite benefits gets paid for by the respective loyalty program.

  12. Keep Starwood Preferred Guest separate, with separate benefits, for legacy Starwood brands the way they’ve kept Ritz-Carlton Rewards separate. YES!!!

  13. Once the merger takes place, it would be nice if reciprocal status was given (e.g. SPG Gold = Marriott Gold).

  14. I agree completely with Neal – keep 3 separate programs and maybe roll St. Regis into Ritz-Carlton.

    I hate Marriott!!

    Hyatt, here I come!

  15. Take it easy @neal with the slanderous comments. Whether or not you feel there should be multiple loyalty programs under the Marriott brand, why bring religion into this? You probably have eerie takes on immigration reform too…

  16. I just don’t see Marriott’s way out of this without damage to the population of SPG plats. There’s no way they will impose existing SPG rules on their existing franchisees (late checkout, suite upgrades, etc.). If there was any interest in doing that it would have already happened, and I’ll bet it would cost them money they don’t want to spend (and would offset the advantages of the merger).

    The transfer rate they may make generous as a way to keep us, since that’s a one-off cost and has the potential to really piss us off if we feel swindled by the rate.

    On the other hand keeping them separate doesn’t make any sense. It’s not like the Starwood portfolio was some sort of giant profit machine they can just hook up to their company and let fly. They want synergies, they want the cachet of SPG’s higher end properties (the upper mid stuff like W and Westin that Marriott is sorely lacking in the same way the SPG is sorely lacking limited service properties). To make that work they have to combine them together. But I can’t see how they can do that without diluting benefits down to the pathetic level of the current Marriott program. As a SPG plat if I wanted to be a Marriott plat I would be one, and I’m not. I have Marriott Gold from UA, but I rarely use it.

    I’ve already moved over to Hyatt with their match, and so far I’m liking it (especially park hyatt). They don’t have the coverage of SPG (or Marriott) so I’m having to supplement with limited service brands of others, but that’s actually given me the opportunity for some new experiences (Indigo and Hilton Garden Inn are pretty darned good, I have to say). I haven’t bothered with Marriott because outside Renaissance and Marriott properties being an elite with Marriott is virtually useless.

  17. @stvr and @Chase

    Seriously doubt this merger poses any anti-trust concerns since the combined corporation will only control 14% of US hotel rooms & 7% worldwide

  18. Here’s the bottom line: SPG members will see their status and card made less valuable through this merger. I’ve already accepted this and now won’t charge anything else to my SGP AMEX (and I have both the biz and the personal card) nor stay at SPG properties if there’s a non-Marriott, non-SPG alternative. It’s not worth it when you see all the negative results from past mergers to continue to invest in a program that won’t value you going forward. If I wanted to be with Marriott, I would have used the Marriott card and stay at their properties. I do not. As such, I need to start building up status elsewhere where I don’t feel I’ll be devalued as a customer.

  19. My main concern is whether or not they will keep the excellent transfer rate for Starpoints to airline miles. And will they give us warning if they plan to change it.

  20. Its already started. Hotels in Maui and Cancun just got upgraded from a category 5 to 6 going from 12,000- 16, 000 points per night to 20,000- 25,000 points per night. I predict Marriott is going to make these changes gradually so when the merger is complete, SPG hotels points per night are so high that it doesn’t “look” any different when the time comes
    Pretty sneaky……………..

  21. I’m not happy with this merger. I bought into the program in 2008 with our Timeshares. I am a 3* Elite member. Not only do I have a huge amount of points racked up, I also have banked weeks at my home resort in Maui. With having 3 weeks, I like to convert 1-2 into points to use for hotels or airfare. If they do away with the SPG point system. What will happen to my options/points? I technically paid for those. As my maintenance fees are over 5k a year. Not to mention, what I paid for the property. (Well over 100k) Will I get a new deed? Before we bought into Starwood, we toured Marriott and we didn’t care for the system. If I wanted to buy into Marriott, I would’ve back in 2008 as it was cheaper than what I purchased with Starwood. I’m wondering how many lawsuits are going to be started with this.

  22. Jennifer,

    I am in the same board and have been writing to those concerned and they have not returned my inquire. I am sure there are many that are 5 star that have the same concern. I think Marriott has sold their timeshare, but i hope they give a reasonable choice. I am not sure a law suit will work since they have full control, we really do not have any control. Should a law suit work to help us, count me in.

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