Starwood and Marriott: the biggest hotel chain in the world or gambling on customer loyalty?

23 September 2016

As you may have noticed today, one of the largest hotel companies in the world just bought one of the other largest hotel companies in the world for close to $13bn. With the Chinese government having ratified the deal earlier this week, Marriott Hotels have officially acquired Starwood Hotels & Resorts, upping their global portfolio to 30 brands, 5,700 properties, and 1.2 million rooms.

The Sheratons, St Regises, Westins and Alofts (as well as the other 7 Starwood brands) will gradually all be brought under the Marriott roof. Exactly how much will operationally change is hard to tell, but as the competitive set has just got smaller for Marriott-Starwood, it could mean more space in the market for rivals to pose fresh challenges. Ritz-Carltons and St Regises on the same street that were once rivals now have to play nicely together, both now contributing to the same Marriott pockets. If not controlled carefully, especially among franchised hotels only operated by the new superbrand, what was an honest fight between neighbouring clans has now been brought under one roof and could become a proper family feud. Montagues and Capulets, eat your heart(s) out.

Having consulted for a number of the top frequent flyer and frequent guest programmes worldwide, I'm a little excited for the future of Marriott Rewards and Starwood Preferred Guest (SPG) over the coming months and years. With two of the largest and well-renowned hotel chains in the world, we've also got two of the biggest hotel loyalty programmes in the world to merge. Marriott CEO Arne Sorensen had announced the programmes will stay the same for some time, and that ‘we don't anticipate launching a newly combined program until 2018.’ As the deal broke this morning, Marriott has announced that members will be able to link their accounts immediately, match elite status and transfer outstanding points across from one programme to the other at 3-to-1 (Marriott to Starwood) ratio, and both programmes will run for at least two more years before SPG is gradually phased out. As with the recent American Airlines merger with US Airways, a permanent change to the loyalty programmes will at some point have to be made, and this decision could potentially open up the hotel loyalty space for innovation in a big way.

How? By not necessarily meeting the needs of all customers, by discontinuing the features that many are currently used to, or by simply making a programme too complicated. If you’ve got two big slices of the pie, it could be very difficult to fit them into the same bowl without spilling and losing bits over the edge – whether that’s customers or innovative functionality.

Combining the 55m Marriott Rewards members globally with the approximate 22m SPG members, and doing the maths, you’ll probably get around 65-75 million members, allowing for overlaps. That’s not as many as the 90+ million members reported by IHG Rewards Club, but still comfortably the second largest membership base globally. However, while the two loyalty propositions are both classically points- and tier status-based, the true value of the their respective ‘points’ is naturally different, as well as other variances that might significantly impact the customer value proposition in some members’ eyes if reconciled clumsily.

Starwood and Marriott loyalty point value comparison

Starwood and Marriott loyalty point value comparison

Table 1 – comparative earning ratios (by tier) for SPG and Marriott Rewards

For the loyalty aficionados and hard core mileage junkies, the table above shows the basic earning rates for each tier in both Marriott Rewards and SPG. While their earning mechanics aren’t hugely different, Marriott Rewards members, earn a base 10 points per dollar in most of the Marriott brands, so their minimum redemption for a free night is 7,500 (requiring an initial spend of $750). For Starwood, members require 3,000 ‘Starpoints’ to redeem for a weeknight in their lowest category hotels: that’s an initial spend of $1500, twice as much as the equivalent Marriott members. Move up to the highest Platinum tiers redeeming for the top hotels in their portfolios, the ratios only get slightly more favourable for SPG. Earning 15 points per dollar, a Marriott member needs to spend nearly $4700 to redeem for a room in the Ritz-Carlton New York, while an SPG Platinum member needs to spend around $8000 to earn enough Starpoints for a room at the comparative St Regis around the corner. When it comes to current required spend for redemption, it’s a no brainer, but there is far more to a loyalty proposition than just points and prizes.

Depending on the outcome of this transition, it is possible that one set of brand ‘loyalists’ could end up significantly worse off – either in terms of earning and redemption, or in terms of customer and loyalty experience, neither of which they’d probably be very happy about. Moreover, the analysts will be having a fun time trying to balance the books on both programmes to make sure, even if a brand new programme is eventually launched to combine the two, that any changed programme remains profitable, which, with a merger as big as this, is no small feat. The announced points transfer of 3-to-1 is cleverly designed to reduce the liability Marriott will be taking on, so SPG points are worth less when transferred over, and in doing so encourages elite members with hordes of Starpoints to redeem them sooner rather than later to get the most ‘bang for their buck’.

What would this mean for the loyalty market, then? SPG, a loyalty brand revered globally for its levels of social engagement and innovation through its ‘Moments’ points auctions, sweepstake prize draws and its funky Snapchat filters, versus Marriott, who recently beta-trialled ‘PointsPlus’ awarding points for likes and shares through Twitter and Facebook, and award gamified badges for meeting particular stay criteria. Can they successfully combine all of these impressive mechanics together into one programme, or might the customer value proposition suffer as a result of ‘engagement overload’ and the programme becoming too complex for members to care about? Could a successful feature like SPG Moments ever be potentially ‘sunsetted’? Sorensen and the loyalty teams at Marriott-Starwood have some big choices to make - but crucially for the competition, if they don’t get it totally right, a gap could quickly open up in the market for someone else to engage guests better. If two of the most engaging hotel brands in the world will soon have to engage as one, will another brand take the initiative and take advantage of what’s left behind? Only time will tell.

Thoughts, questions, comments, challenges? Feel free to contact us to discuss anything from engaging hotel guests in the right way, to travel sector insights, to managing from your loyalty programme’s finances. We drive customer devotion, profitably.