Why, you might ask? Because they share two wildly different messages about their businesses depending on who they’re talking to: their customers, or their actual hotel owners. I don’t find that to be a very positive company trend in any sector.
Let’s start with a simple hotel fact some of you already know, and many will be surprised by.
Most of the big name hotels you stay in are not actually owned by that big name brand. Each property is typically owned by an independent set of commercial real estate groups, friends, institutional investors or combination of all the above — they just award a contract to a big chain to help immediately put heads in beds via their well known brand and standards.
Lately, hotel loyalty programs are siding with owners over guests, as owners look to cut costs and diminish many of the “perks” of loyalty.
Hotel Messaging Reaching Inflection Point
Hardly ever, is the big Hilton, Marriott, IHG or Hyatt property actually owned by any of the them. The big chains get a contract to “flag” a property and that’s how some of you will have seen a Hilton turn into a Ritz Carlton overnight, or vice versa.
It’s also how you turn what’s just a building into a turnkey booming hotel business, overnight. If I open up Gilbert Hotels tomorrow, it’s going to take a lot more work to get paying guests in the door, than if I take Gilbert’s property and ask a big chain to come in and market it for me as one of theirs.
And yes, as you might suspect, there’s absolutely fierce competition among the big hotel chains to “win” the rights to flag a key property and include it in their global portfolio. That’s where things get messy and duplicitous, depending on the audience.
Owners want to choose a brand that brings the highest spending guests with the lowest costs to attract them, that fits with their property’s location and spec. Note the lowest costs part, because it’s important.
About That Consumer Messaging
For customers like you and me who pay to stay in the hotels, there’s a steady beat of drippy loyalty marketing, all centered around earning incredible perks and experiences if we commit to staying with their brand and being loyal. That loyalty is really all that these big hotel groups have to offer. They don’t “own” many hotels, they’re just really good at putting heads into beds wherever they have a contract to run a hotel.
The free breakfast with the lovely runny egg, or the big suite upgrade pic with the cucumbers in the eyes in a bathrobe living it up. You’ve seen it, I know you have. It’s all designed to keep the idealized version of that brand and what it can unlock for you top of mind.
It’s all designed to make it seem like you are what matters to a hotel. In a way, you are, but in a more push comes to shove way… you’re not. The contract from the property owner is.
That’s always been the tricky part of the hotel game, but the tables have turned in recent years. Owners are now more aggressive and increasingly looking at financial data looking for opportunities to save on anything and everything.
Hotel loyalty and marketing companies like Marriott, Hyatt, Hilton and IHG once really clapped back when owners of individual properties were trying to skimp out on the things promised to guests via the program. They upheld the brand standards but these days, it’s the owners that are winning, and the hotel loyalty programs are too afraid to lose their contracts to fight back for the benefit of guests.
While taking in billions in loyalty revenue from blasting those rewarding messages and creating financial services products centered around great experiences for guests, the same hotel company is simultaneously telling property owners how much they can take away from guests to offer owners better operating costs, if they switch over to their program.
“Data” Driven Buzzkills
Loyalty is no longer a fuzzy concept, but a heavily chastised line item in any hotel finance report. There is no more telling a hotel owner that creating a feeling of loyalty is priceless and pays long tail or hidden dividends, and that it’s short-sighted to glare over the cost of some eggs to keep a loyal guest happy. They want the data and they want the payback now.
In this rigorous world of financial modeling, owners want to quantifiably know exactly how much it costs them per day, per guest to offer loyalty benefits like breakfast, a suite upgrade or late checkout, and they’re constantly find ways to lower that cost. They want to see finite answers as to what those costs are driving in revenue and often using unrealistic models.
For example, a suite that wasn’t book the morning of check-in was unlikely to sell, so claiming that complimentary suite upgrades cost whatever that suite costs per night is comically off base, but often cited by owners as “how much this loyalty thing is costing” their business.
Loyalty analytics can prove concepts like driving more spend and share of wallet, but it’s more to the benefit of the hotel loyalty group than the individual property owner. If the loyalty group doesn’t reduce costs, the owner might transform their property into a different hotel brand and sign on with a different hotel loyalty group, offering similar revenue with lower costs.
And I think that’s part of the problem – the negotiations with these contracts are really about savings rather than incremental revenue at this point.
One hand is waving to the public to come in and experience perks and greatness while the other is telling the owners behind the glass that they can cut costs. It’s not that money is the only way to delight guests, but when the deal maker for a hotel is lowering costs, it’s not a great look for guests.
Loyalty Programs Are Siding With Owners And It’s A Slippery Slope
Yes, more and more we’re seeing reports surface of hotels finding creative ways to break the rules of the loyalty program through which they operate. Rooms that should be made available with points — a cost of doing business — are often hidden creatively to avoid program rules.
Other times, it’s claiming that the restaurant in the hotel is independent, so they don’t actually have to provide any complimentary breakfast at all, since they don’t have a restaurant of their own. Amusingly, sometimes it’s creating a watered down breakfast for the most loyal guests. In some instances, the “free” breakfast ends up costing more than $30 a day with cheap tactics.
This relationship between hotel property owners and the marketing and loyalty companies they choose to run their properties was kind of a red line. You could argue about a lot of things, but you couldn’t argue about providing the “bolted on” loyalty benefits that are a cost of getting overnight, lucrative business.
Marriott’s CEO has been one of the most vocal about choosing owners over guests and since, with Marriott being the largest, others have followed.
Can A Happy Medium Be Found?
It’s going to be really hard to find a happy medium where loyalty guests still feel that the effort to be loyal is worthwhile AND the hotel owners feel like they are ok with the costs. Loyalty is a lot easier when the loyalty company is the same as the owner of the business.
For example, an airline loyalty program is directly benefiting every plane they own. The program is a vehicle of the airline. Each plane isn’t independently owned by a different group of people with different expectations and complaints, like they are with hotels and loyalty.
I’m curious to see if hotel brands which DO actually own many of their hotel properties are able to better invest in guests, since they don’t have the rub of the middle man in between. One thing is for sure, hotel loyalty appears to be slowly declining. With luxury travel advisors able to secure similar benefits without any loyalty, it’s even easier to be a free agent.
by GILBERT OTT
