Will Marriott’s Enormous Loyalty Program Asset Show Significant Increases in Customer Value?

For Marriott International, its acquisition of Starwood Hotels and Resorts Worldwide was a massive deal that enlarges its loyalty program pool considerably.

During Marriott’s Nov. 8 third-quarter earnings conference call, Marriott International President and CEO Arne Sorenson said that only 16 percent of the combined 85 million Marriott Rewards and Starwood Preferred Guest loyalty members belonged to both programs, giving the company an opportunity to gain substantial incremental business. He also said that Marriott will cut costs at both the corporate and property levels, primarily by negotiating more favorable OTA agreements for the former Starwood properties. Such cost-cutting will be essential, as Marriott is poised to expand its presence, both via room numbers and brand count.

While Marriott and the former Starwood properties will now account for about one in seven U.S. hotel rooms, the combined company accounts for more than a third of the domestic development pipeline. Globally, Sorenson forecast that next year Marriott will boost its room count, which currently stands at about 1.2 million, by 6 percent, or about 70,000.

“On September twenty-third, we completed the most transformational transaction in the company’s history,” Sorenson said. “Within minutes after the merger closed, we linked three enormous loyalty programs, Marriott Rewards, Ritz-Carlton Rewards, and Starwood Preferred Guest, further announcing that we would match member status between the programs. We immediately enabled our loyal travelers to earn points in one program and redeem in the other. In fact, over 3.3 billion points were transferred between the programs in the first month alone, while the first transfer and redemption reservation occurred just fifteen minutes after we closed the transaction. Getting the loyalty programs right has been a big priority for us since the deal was announced.”

Referring to Sorenson’s “getting the loyalty programs right” comment, Loyalty360 asked some its members for their opinions on this daunting task.

Clay Walton-House, practice leader−customer retention & loyalty, Lenati, offered a comprehensive view of the situation.

“What Marriot has undertaken in merging the Marriot, Ritz-Carlton, and Starwood loyalty programs truly is unprecedented—the volume of members in these programs is enormous, and immediately vaulted the new integrated program to one of the largest in the world,” Walton-House said. “While it’s true that Marriot now has at its disposal an enormous asset in the form of the loyalty membership base that can be grown and monetized, what’s unclear is just how well the portfolio strategy will lead to significant increases in customer value for the company.”

Guests of Marriot and Starwood have had access to their respective hotel chains for years, and only 16 percnt of customers were enrolled in both brands’ loyalty programs, he noted.

“Unlike other industries like retail, for example, where cross-shopping brands may lead to a completely different product offering that meets an altogether different customer need, hoteliers as large as Starwood and Marriot already offered portfolios of brands that are largely similar when compared as a whole,” Walton-House said. “Guests may choose a particular hotel brand over another due to their history with the brand or preference for some of the detailed differentiators, but there is no altogether new use case or customer need to be met by merging the portfolios—only new options.”

For this reason, Walton-House added, it’s fair to question the long-term success factors that should be applied in judging this merger.

“Clearly, there is much for Marriot to gain in acquiring the market share, merging capabilities to drive down costs, and realizing increasing economies of scale,” Walton-House explained. “Yet whether this merger leads to increased customer value may come down to how well loyalty members can be convinced that the newly integrated portfolio offers something that is truly incremental to what they had before, not just a larger selection of the same—and that may be a tough sell.”

Aside from buying more market share via the merger, Walton-House said the real questions are: “Will loyalty members now travel more often due to the increased options? Will they stay longer, or use more services? Will they move ‘up’ the portfolio to higher end hotel brands? These are the behaviors that will lead to incremental customer value and will require some very smart marketing to members if Marriot is to succeed.”

Jeff Sopko, president, insights & marketing, Baesman, said Marriott has a “massive undertaking” yet the positive for loyalty is it’s all about scale.

“What’s paramount is that Marriott provide extremely clear communication to ease fears of point merger issues and to highlight the amazing benefits members receive through the influx of properties they can book,” he said. “3.3 billion points represent a very promising start for the newly merged company.”

Carrie McIlveen, U.S. director of marketing for Metia, told Loyalty360 there is a growing importance of loyalty programs in the hospitality industry.

“It appears Marriott is definitely achieving this goal with the recent merger,” she said. “With 85 million loyalty members, there will no doubt be some growing pains. Marriott, however, is already delivering real benefits with a three-to-one transfer ratio across its family of brands. It is providing great variety and choices for its members and, most importantly, smooth transition of the three loyalty programs.”

Clutch COO Brad Marg said Marriott has an enormous opportunity.

“If it executes well, it will control a huge portion of the market for all categories of travel,” Marg said. “As for the short term, it appears that it is moving cautiously, efficiently, and with great care. That seems to be the right formula for its planned long-term success.”

Stellar Loyalty CMO Narina Sippy said Marriott and Starwood have two of the most prominent loyalty programs in the hospitality industry, representing the largest hotel loyalty program merger to date.

“It is an unprecedented opportunity for both brands and a daunting task in managing customer expectations and delivering a win/win outcome,” Sippy said. “Marriott deserves credit for boldly combining the best of each program, offering a three-to-one transfer ratio and maintaining exclusive perks that guests have come to expect from each program. It has shown it’s up for the challenge, and if Marriott maintains this high level of execution on its strategy, it will undoubtedly increase loyalty across its portfolio of brands.”

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