Hilton

Michelle Zara. Marketing Strategy. November 7, 2006. Case: Hilton HHonors Worldwide.

1. How does a loyalty program help or hurt a company manage its customer?

A loyalty program can help a company manage its customers by providing a way for the company to employ consumer-focused marketing instead of purely product-based marketing. Loyalty programs allow the company to track consumer preferences, enabling the company to provide customized services. Tracking the amount that different types of consumers are spending on a company's services can help the company better pinpoint the high value consumers. Further, loyal customers tend to cost less to serve and are less price sensitive.

A loyalty program could potential hurt a company in its efforts to better manage its customers by too tightly tracking a consumer's preferences. A company may be pigeon-holing their customer and not exposing them to other options they may be interested in. Also a loyalty program could actually lead to more customers with higher expectations and greater demands. Loyalty programs may also attract more lower value customers, ie., customers that try to game the system.

2. Quantify the benefit of HHonors to the member properties in the aggregate? How does this compare to the program's cost?

BENEFIT: According to the case, roughly one in five HHonors member stays were solely attributable to their membership in the program- making these stays purely incremental

COST. The cost of the program to the member properties can be broken down into two main areas.

a) Payments to HHW on guest spending that is eligible for accruing points:

b) Amount of money lost by occupying a room with a points-redeeming guest when it might have been filled by a cash-paying guest instead:

Overall the benefits of program outweigh the costs to the member properties.

3. Discuss how this benefit varies for a specific franchisee depending on his location.

The benefits of the HHonors program are not equal across different types of franchise locations. For example, airport hotels are locations where members will tend to rack up rewards points whereas resort hotels are locations where members may be more likely to redeem these points. Each time a member earns points at an airport hotel, that location is paying 4.5 cents on the dollar to HHW which is less than the loss of potential revenue that a resort gets from full-paying customers.

4. Should Hilton match the Starwood