My Followup

Okay, Okay, Okay. I screwed up. In last month’s commentary on the intriguing promotional campaign by IHG Priority Club to bring light to recent changes in the Hilton HHonors program, I got greedy and alluded to perhaps getting 354,173 bonus points in the 20 percent match offer of Hilton HHonors points. Fact is, the IHG offer was a 20 percent match up to 20,000 points. The dreamer that I am got me swinging for the fences. I’d like to thank all our readers who seemed to delight in setting me straight! I loved each and every comment. Many readers also took the time to say they appreciated my take on the situation and that the topic was of great interest. With that in mind, I decided to ring Hilton HHonors up and got Jeff Diskin, SVP Customer Marketing at Hilton, on the phone to talk about where Hilton HHonors is at this point. Read and listen in on this phone call.
Randy
There have been big changes with Hilton overall. Is this a new HHonors or just tweaking the overall strategy on how you look at promotional offers for your members? Hilton seemed only to believe in 1:1 marketing.
Jeff Diskin
It’s an overall strategy to do a lot more promotional activity. We’re still going to be doing a lot of direct one-to-one marketing. Strategy wise, we are going to be committed to having a global-level systemwide promotion all the time. We are definitely going to be driving to have more promotional activities and to leverage the relationships we have with customers to bring them all sorts of value.

We’ll be pushing hard for new enrollments. In the past, we focused more on the “super elites” and we need to take it down a notch by being interested in facilitating relationships with all travelers. And that may or may not be through a HHonors program–maybe something that’s more rate or value added. We are driving towards solidifying the relationship we have with travelers and that will provide a platform to do all the different things that will provide value for them and business for us.

Randy
You caught me off guard by saying you’re taking it down a notch. There seems to be an ongoing effort from most loyalty programs of going after the premium customers. But you’re saying there are the masses out there and that’s unique.
Jeff
We think that there are great opportunities to connect with travelers who may be emerging heavy frequent flyers. If we can get them early on, instead of trying to bring them over, it’s a far better opportunity. Plus, we won’t be stepping down from what we’re doing in trying to convert the super elite. But what we have to do is augment that by being more broad in our system promotions, value-add rate promotions and enrollments to broaden our net. Some of that is a function of how big our network has become. This aligns very well with our global strategy of exporting the U.S. brands into international markets–building local memberships in a lot of the countries where the Hampton and Hilton Garden Inns are growing–and we’re able to push them into places like Italy, Turkey and China.

I do think that whatever hurdles and impediments there seemed to be in the past to reach a more broad stock of traveler really isn’t there any more. Our communication costs are a lot less in terms of email. We have a better opportunity for targeting and segmenting offers both from a communication channel, and also to the hotels, for services we might be able to provide. It seems to be the right time to shift in that direction.

Randy
Is that in part because of your international growth and what HHonors is doing to approach that segment?
Jeff
That’s a key point because in different areas of the world there are different degrees of sophistication about loyalty programs. Sometimes you go into a market where it’s a part of people’s everyday life–whether it’s grocery shopping or buying their gas, there’s a greater understanding–and then there are places where there’s not much of it going on. For us, coming from the fact that we were from a very U.S.-centric Hilton Hotel Corporation, the international side very much counted on an international English-speaking customer. As we move into these other markets, we have to actually create a more local, domestic proposition. If you think about China or Turkey, we have properties going in, but nothing like the degree of the U.S. or U.K. So it’s about trying to find the types of partners to help us build a domestic customer that will be filling the Hampton and Garden Inns of the world, whereas the Hilton and Waldorf hotels depend much more on the international English-speaking customers. So for us it gets into language, partners–and not just travel partners–but others as well where we can build up a database. And build up the value propositions while we’re still creating a mega distribution of our hotels. When you think about VIP levels and what you have to do in order to achieve them, and if we don’t have enough distribution in the market, we have to figure out ways [for members to become elite]–like count stays twice or reduce the number of stays required to become a VIP. We are starting to build that relationship with the consumer so it becomes a natural thing for them to look for our hotels.
Randy
Recently Starwood announced free Internet for their Platinum members, then Marriott quickly matched that for Platinum and Gold members. Free Internet–what does an expensive decision like this look like for Hilton HHonors?
Jeff
I think from the industry perspective this is an important gain to business travelers and for us, we were already looking at some options similar to what those folks are doing. We’ve been enabling our Golds and Diamonds to opt to take free high-speed Internet for the last few years and it never shows up as a high [demand] because for most business travelers, the company is paying for their Internet. For our customers, you get choices, such as extra points, free breakfast, executive lounge access or high speed Internet. They choose points.

For us, it does mean that what our competitors are doing is the same direction we’ve been anticipating and preparing for. We see that there is a need and desire to provide more real value to the top elite level customer.

Randy
The hotel industry seems quicker on its feet these days. Is that looking comfortable to Hilton?
Jeff
I think that the whole industry today, with respect to high speed Internet, is something that everyone has seen or was looking at so that enables for a quick react. I do think overall that the marketplace microeconomics is requiring a degree of nimble response and to be proactive with innovation. We’re all out there making sure we can do the best we can for our customers. I think that from a micro perspective one of the things that really helps us at Hilton is the power of the brands we represent. In context the focus service brands that we offer, which are the most in terms of sheer number of hotels, are clearly at the top of their categories. In the case of Hilton, we have a brand that is known globally and still has some upsides of retaining loyalty among customers. The first thing should always be the quality of the hotels and where they’re located so that they match business needs or vacation opportunities. Then there are the overlays of points and miles, no blackout dates–so I think we have a lot of the core things covered. And I think regarding the overall industry, there is still plenty of room for innovation–and there are some things we’re planning to do that we can hopefully do better and first. So the next view is what these loyalty programs can do for travel overall, not just frequent travelers. We’re excited about that prospect but I do anticipate that the next couple of years there will be real competitive pressures to fight for that customer.

Randy
And the industry seems to be a bit more predatory, don’t you think?
Jeff
It would certainly seem that some are more predatory. But there are two ways to view that. Some of it is that there have been some things that have garnered a lot of publicity and brought some attention to the category overall. But on the parts of some of the companies that are doing it, you could also say there is a degree of desperation trying to cover some deficiency that they have. From my perspective, you can look for one thing in the scope of all the things that the programs provide and pick at it. But you have to take the holistic view, which is the way most people and travelers make their decision-making. It’s from that front, I think to a degree, that at least for us and maybe for another category leader, such as Marriott, that we’re seeing desperation on the part of others. They don’t have the quality of brand or the core of relationships or the numbers of travelers. It’s those types of things that now drive people to make that decision. So because of the environment we’re in with the declining occupancy it makes them be more predatory. I can’t say if it works or not–I’ve never been a fan of negative campaigns or a fan of things where people promise stuff they can’t deliver because it casts a negative light towards the whole category. Given that we’re near the top we for one choose not to play in that game.

Randy
You’ve just hit 25 million members in a declining occupancy period. What causes you to still grow?
Jeff
A lot of our enrollment activity over the past six months has been driven around those systemwide promotions that are attracting new travelers to our database. But to your point of the predatory efforts, for all the PR that has been in the marketplace over the past six months we have actually had the highest levels of penetration of HHonors occupancy and enrollments over that period than we’ve ever had. So in some context that also points to the fact that travelers themselves are looking for more ways to get value–as well as the things we now can focus on that we may have left on the table in the past.

Randy
Last year Marriott introduced a points roll-over benefit for elites. It wasn’t matched. Delta adopted the same for the airline industry, and that didn’t get matched. And with Delta’s new Diamond level, there seems to be more focus on super elites. What are your thoughts as far as responding to every promotion in the industry?
Jeff
I don’t feel we need to respond to everything, that’s for sure. But when people get to the top threshold or tier of their program a lot of them will say “I’m now going to try to get another program’s upper tier level if I can.” So I see what Marriott did was rather inventive in the way they were trying to ensure there was no reason for a member to do that. But I’m not sure if that’s the most effective means. Which is partially why we are in the mix of evaluating another tier level to give those people that are at the Diamond level plus something else to strive for. And clearly there is an opportunity for us to do something there. I can tell you we’re going to find a solution that works for us in that space. We’ve done a lot of research with focus groups to get input and found this very helpful. The point you made about us and Marriott, the reason I say we’re the category leaders is if you look at the quality of the brands and the price points they encompass, we are the only two that have global distribution of brands that people prefer across all the price points. In our case from Hampton to Waldorfs, we’re the only ones that participate on the full basis. You get the 10 points per dollar, we don’t reduce it at the Hampton. I don’t think others have the distribution or the quality of hotels.

Randy
In your research, was there one or two things that caught you off guard?
Jeff
We were and have been, sort of “over indexed” for some period of time in terms of the value of some reward properties, and frankly we weren’t getting credit for that. Because what the research pointed out is what you do with your points is of great interest to you when you’re looking to shop with them. People are looking to shop with them because they are looking to offset the cash outlay with whatever points they’ve accumulated. So everybody is within the same environment which is very difficult for people within the hotel space. What it does is basically focus on the return on spend that members get. And being over indexed in terms of the base level doesn’t give you enough payback because not enough people can understand or know what it is. We are actually recognizing that it’s much more important to have promotional activity in the marketplace to segment divide and conquer and put different initiatives in place for different groups of travelers. Not just by their tier level but also by the type–if they’re resort stayers or meeting planners–versus just having a core proposition which we over indexed. So, it was surprising to learn that, but when you think about it, you would have thought we would have known anyway.

Randy
Airline programs seem to be moving towards new award options. With Miles + Cash and dynamic award charts as options, your thoughts (with your airline background) on how that looks in the hotel space?
Jeff
I see that there are a few folks tiptoeing around a part of that. I think that anything you can do to enhance the reward utility for the travelers is going to be great. For example, we talk about our no blackout dates policy and we don’t capacity control likes others do. But our no blackout policy is on standard rooms, so creating a facility where people could redeem points for all the other types of rooms, or to be able to upgrade to other types of rooms with points or to pay for their reunion or wedding with points, are all things that would enhance the utility for travelers–so I do see that as something directionally folks will try to do.