Hyatt’s CEO Rethinking Loyalty and Skeptical of Marriott-Starwood Merger

Hyatt’s CEO Mark Hoplamazian says loyalty shouldn’t focus on points. Points are a rebate, and they’re necessary to compete, but loyalty is about an overall value proposition that goes beyond the economic calculation for a given stay.

And they’re rethinking loyalty. When a CEO says that I think we expect some changes, but in my experience Hyatt usually moves slowly so I wouldn’t expect them right away.


Hyatt Regency Pier 66

We’ve recognized that if you conceive of loyalty through the lens of a transactional interaction, then you’re destined to a commoditized future.

If all it is is an organized discounting system: There’s no emotional-based relationship that you can develop out of that. That’s just price.

Increasingly we are rethinking loyalty in a very, very broad way. Not just the program but also what it means to actually extend the sense of our brand and our purpose to those interactions with our guests, and having that be the center of our focus and attention.

Yes, we will maintain a points program as well, because I think it does actually create some recognition that is giving something of innate value or inherent value to someone who’s a big customer of yours. But that’s going to be the end of the effort. There’s going to be other things that we will focus on, and most of that is going to be around creating experiences for people so that they can experience our brand in more diverse ways. That’s actually the rewrite that we’re in the process of doing right now. I think we can do it, given our scale.

He does not tell us what this means in practice. There’s little question that you do not simply want a rebate program, which is what especially a revenue-based points program is, precisely because it’s a discount for the customer that’s supposed to be your least price sensitive (along certain margins anyway). You want to treat your guests well, or your passengers well in the case of an airline, so that they choose you each time whether or not you work out to be the cheapest among the options that are possible fits for their travel.

A successful loyalty program offers both recognition (an elite program, though potentially some benefits even for base members with whom you have a permission-based marketing relationship) as well as reward (the points program). Hyatt seems to think that the emphasize ought to shift more towards the former than the latter.


Andaz Wall Street

Hoplamazian also argues that scale and negotiating leverage aren’t a reason to do a big merger like Marriott’s acquisition of Starwood. Battling the rates paid out to online travel agencies is one of the key stories being told about why Marriott wanted Starwood. Hyatt’s CEO doesn’t think the math adds up.

Let’s assume for a moment that there’s some significant advantage, and you could even make up how you could size that potential advantage if you stipulated to it. The totality of room nights that are being sold through OTAs for either Marriott or Starwood — you can ask them yourselves — I’m guessing it’s in the low double-digit range of the total room sales base that they have.

Okay, so if that’s the case, and they’re going to pick up 100 basis points or 200 basis points (I don’t know what the number is) of advantage over reduction of cost for 10 percent of their business. That’s really the rationale to do a $14 billion transaction? I think the level of rigor that’s being applied to the kinds of statements that are being made is a little surprising.

Of course while Hoplamazian defends Hyatt’s performance being small, he went after Starwood too – which is twice the size of Hyatt. And he almost managed to put together that deal. Although the narrative for Hyatt would have been more about scale (being where their customers and potential customers are) than about negotiating leverage.

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. My recent discussions with execs from a global brand gave me an interesting insight into the view of Expedia etc.

    The hotel OWNERS do not care so much. Let’s imagine Expedia takes 20%. Well, the brand takes a similar – smaller admittedly – chunk from direct bookers. The difference to the hotel OWNER is margin. And, of course, the revenue from an Expedia customer after their cut will still be higher than the hotel gets from many of its corporate deals.

    The loser is the brand. Instead of 15% booking and royalty income they just get the royalty income of, say, 5%.

    When we talk about the big loser from the rise of Expedia, the loser is not the hotel owner, it is the brand owner.

  2. If they will care more about recognition instead of points, then why still be a transfer partner of UR?

  3. He does have a point about revenue based earning, it doesn’t have much to with loyalty and in the end makes your best customers less profitable and disengages the masses.

  4. I think he’s absolutely right. My favorite hotel in NYC doesn’t even have a loyalty program and yet I wouldn’t stay anywhere else. Why? They know me. They go out of their way to recognize my needs, my desires, my habits, and accommodate my requests whenever at all possible. I’m a reasonable guy, so I don’t make absurd requests: usually it’s about a very late checkout or receiving (many) packages on my behalf or making sure I’m in my favorite room every time, regardless of what time I check-in. Because they manage to do all of the above, I don’t need a “rebate” in the form of points or a card that says I’m Platinum.

  5. @Andrew two things. First, Chase issues their co-brand card, that’s been part of the deal. Second, the card itself is an extension of the brand, they see value in their customers carrying the hyatt card in their wallet.

  6. There’s an important economic incentive that Hoplamazian isn’t considering. My hotel stays are paid for by corporate clients. Reward points are paid by the hotel to me for my loyalty – it is essentially a modest transfer from the corporation to me via Hyatt. And, believe me, without it I wouldn’t consistently be searching for the nearest Hyatt when I travel.

  7. Hyatt should start walking the talk then. Start by counting award stays as qualifying for your loyal members.

  8. Hopefully this means Hyatt will focus more on elite perks, particularly for mid-tier. Hyatt is a bit behind the curve by not offering free breakfast to Plats, not to mention guaranteed late checkouts or really much of anything beyond bonus points. Both Hyatt and SPG could learn something from Marriott and Hilton about treatment of mid-tier elites (IHG is pretty much a lost cause).

  9. @Gary,

    When I said why are they participating in UR, I specifically meant why do they allow UR points to be transferred into the program. That is mostly about rewards and not about loyalty. Based on the loyalty view, people should only earn points for staying that the hotels or charging on the co-branded card.

  10. @Boraxo, Marriott’s mid tier is 50 nights (although with the Marriott CC that drops to 35 nights). Hyatt Diamond is 25 stays or 50 nights, but most here move hotels every day, so Diamond is really 25 nights for those people. (I think those are still the Hyatt numbers).

    Of course mid-tier Hyatt (Plat) is the give away level with certain CCs, although I guess you could say Marriott Gold is give away if you have UA Gold or higher. And Marriott Gold gives you lounge access and not much less than Marriott Plat (5 nights).

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