- What is the currency being used by Hilton HHonors and how much is the currency worth from Hilton HHonors’ perspective? From the consumer’s perspective?
Hilton HHonors is a program run by Hilton Hotel Corporation and Hilton International. The currency used by Hilton HHonors is points earned from this loyalty program in order to reward loyal customers and to attract several other customers to the Hilton brand. This currency is used to purchase several tickets in order to reward loyal customers. On Hilton HHonors’s perspective, the currency was worth $69,837,000 in 1998. On customers’ perspective, the currency was worth $69,438,000 since the program used this amount for customers who redeemed their points. The difference was $399,000 which the program charged back to the Hilton brand. Therefore, the currency is significant to both the hotel and customers.
2. Using data in the case, what is the estimated breakage? On average, how much did HHW pay each hotel for redeemed rooms?
From the data provided in case, the estimated breakdown is given as follows;
The amount used for the payment of rooms in 1998 was $12,654,000. Therefore, from the data, there were 180,000 nights that were redeemed. This means that the HHW paid $70.3 per night.
3. Can Starwood gain a sustainable competitive advantage with its new program? Why or why not? Does Hilton’s current program offer a sustainable competitive advantage?
Starwood can gain sustainable advantage with its new reward program since it has added features that appear expensive to match. It has removed blackout dates that other reward programs had implemented during the height of seasonal demand. Therefore, in this period, customers can still use points to pay for rooms. Starwood has also removed the capacity control. This means that there will be no limiting of the number of rooms available for free stays. All unreserved rooms are available to all guests, including those paying with points. In addition to this, the company has also done away with papers. Initial operations allowed members to exchange their points for a certificate which they used to pay for a stay. The system will now accept direct points that will be used to pay for stays. Lastly, the hotel raised the rate of reimbursed hotels during the height of seasonal demand. However, Hilton’s current program still offers a competitive advantage. This is especially because of its double dipping. Otherwise, its other features look less attractive compared to those of Starwood. For instance, the point value for Starwood and the eligible charges look more attractive than that of Hilton.
4. Ways a frequency program can develop a hotel brand like Hilton or Starwood.
Frequency or loyalty programs are essential in developing brand. The first way it creates brand is by forming a system of rewarding loyal customers. This will lead to motivation of customers who will trust company’s brand name. The second way is that the program helps the company generate information about its customers and, therefore, improve on where it is not working well according to its customers. Furthermore, it helps in manipulating consumers’ behaviour. They end up liking the brand since it provides a reward feature. Frequency programs also act as defensive measures that combat competing schemes. In addition, these programs act as sophisticated sales promotion. Thus, it promotes business and all the services that a firm is offering.
5. Can you quantify the value of the HHonors program to the Hilton brand? How does the value generated by incremental business attributable to the program compare to the program’s cost?
It is evident that the HHW program is essential in attracting more customers to the Hilton brand. Although it might seem that other operating costs have been added due to this program, the program attracts more cash than it spends. For instance, in 1998, all expenses were quantified to be $69,438,000 while the revenue generated was $69,837,000. Therefore, the program successfully injected $399,000 back to the Hilton brand. This shows how this program is significant to the operation of this hotel, in addition to offering other affordable services to customers.
6. Diskin points out that, properties cheerfully pay 10% of room rates to travel agents. Imagine that hotel properties paid HHonors 10 cents per dollar instead of the current 4.5 cents. How would you recommend that HHonors should spend the additional revenue? How would the value to cost ratio of the HHonors program change as a result?
If the Hilton Hotel properties paid HHonors 10 cents per dollar instead of 4.5 cents per dollar, I would recommend that the program uses the additional revenue to improve its current state. It should look for a way to match or surpass the competitive advantage of Starwood Preferred Guest Program. The program should, therefore, improve the value of its points, eligible charges and the Airline Mileage Accrual. It should also use the additional revenue to improve on its membership restrictions.
If, however, all the additional revenue is injected to the improvement of value of points then the value to cost ration will increase. The current value to cost ratio is 10 points to $1. Therefore, the new ratio will be given by 10/4.5. This means that the point value will almost match that of the Starwood.
7. Think of HHonors as an intermediary. Imagine Hilton sold all its properties to the franchisees at market prices and kept ownership of only the HHonors database. Would the resulting corporation be more or less attractive to you?
In case Hilton sold all its properties and maintains the ownership of HHonors, the resulting corporation would be attractive. This would mean that the running and management of HHonors would be specialized and, therefore, the management will be more innovative since it will be operating independently. It would probably be able to determine the amount of revenue paid to it by the resulting corporation and hence more control of its profits and the subsequent benefits.
8. What is your assessment of the threat posed by the Starwood program to Hilton? How should Diskin advise Hilton to respond?
The Starwood program is a threat to Hilton in terms of attracting new customers. Hilton’s loyal and old customers may not be easily lost to the new Starwood’s program. However, Diskin should advice Hilton to first of all improve its program for the existing customers before thinking on how to attract other customers. After this, Hilton should carry out an evaluation to determine what it has gained so far from the HHW program. This evaluation should also involve getting the competitive advantage of this program with that of Starwood. From this point, the Hotel can then revisit its awarding of points, and improve on its terms and conditions in order to attract new customers. Therefore, HHW should aim at surpassing Starwood’s lucrative program.
9. What are the drivers of a hotel firm’s overall profitability? How does the HHonors program contribute to this profitability for Hilton?
Overall profitability of a hotel firm is determined by the number of customers it attracts. The number of customers varies depending on the season and management of a hotel firm. The fixed cost of hotel firms is usually higher and, therefore, hotels may suffer during off peak seasons. Therefore, to attract several customers, hotel firms have to ensure that they offer competitive advantage over their competitors. In order to offer competitive advantage, hotel firms have to be creative in terms of the way they attract customers. HHonors program is one of the ways that helps in attracting and retaining customers as well as increasing their loyalty to the firm. Therefore, this program works to increase competitive advantage of Hilton.
In conclusion, HHonors program is essential in creating Hilton brand and attracting customers. It should, therefore, be improved in order to offer more competitive advantage. This program should also ensure that customers become loyal to the Hotel, as well as to the program itself.