This may sound harsh, but I find that large hotel chains are some of the most unscrupulous companies in the travel industry. Ouch, I said it, give me bed bugs and an overcooked egg!
Why, you might ask? Because they are communicating two completely different messages about their company depending on who they are talking to: their customers or the actual hotel owners. I don’t think that is a very positive business trend in any industry.
Let’s start with a simple fact about hotels that some of you already know and that will surprise many.
Most of the big brand hotels you stay at aren’t actually owned by that big brand. Each property is usually owned independently by a group of commercial real estate groups, friends, institutional investors, or a combination of all of these – they simply award a contract to a big chain to get guests into beds immediately with their well-known brand and standards.
Recently, hotel loyalty programs have increasingly been on the side of owners rather than guests, as they seek to cut costs and eliminate many of the “benefits” of loyalty programs.
Hotel messaging reaches tipping point
The big Hilton, Marriott, IHG or Hyatt hotels are hardly ever owned by one of these hotels. The big chains get a contract to “brand” a hotel and so some of you have probably seen a Hilton become a Ritz Carlton overnight or vice versa.
This is how you can turn a simple building into a turnkey, thriving hotel business overnight. If I open Gilbert Hotels tomorrow, it will be much more difficult to attract paying guests than if I take over Gilbert’s property and ask a major chain to market it for me as one of their hotels.
And yes, as you might suspect, there is fierce competition between the major hotel chains to “win” the rights to brand a major hotel and include it in their global portfolio. That’s where things get messy and duplicitous, depending on your target audience.
Owners want to choose a brand that will attract the most affluent guests at the lowest cost and that fits the location and amenities of their property. Look for the lowest cost, because that’s important.
About That Consumer Messaging
For customers like you and me who pay to stay at the hotels, there is a constant loyalty marketing that is all about receiving incredible perks and experiences if we commit to staying loyal to their brand. This loyalty is really all these large hotel groups have to offer. They don’t “own” many hotels, they’re just really good at putting heads in beds wherever they have a contract to operate a hotel.
The free breakfast with the lovely runny egg or the big suite upgrade image with the cucumbers in your eyes in your bathrobe, luxuriating in. You’ve seen it, I’m sure you have. It’s all designed to stick in your mind the idealized version of that brand and what it can unlock for you.
Everything is designed to give the impression You are what counts for a hotel. In a way, you are, but when push comes to shove… you are not. It is the owner’s contract that counts.
This has always been the difficult part of the hotel business, but in recent years the tide has turned. Owners are now more aggressive and are increasingly examining financials to find savings wherever possible.
Hotel loyalty program and marketing companies like Marriott, Hyatt, Hilton and IHG once fought back when individual hotel owners tried to cut corners on the benefits promised to guests through the program. They upheld brand standards, but today it’s the owners who win, and hotel loyalty programs are too afraid of losing their contracts to fight back for the benefit of guests.
While the same hotel company is making billions in revenue by spreading these rewards messages and creating financial services products that focus on the great guest experience, it is simultaneously telling property owners how much money they can extract from their guests in order to provide the owners with cheaper operating costs if they switch to its program.
“Data”-driven killjoys
Loyalty is no longer a vague concept, but a highly criticized line item on any hotel financial report. You can no longer tell a hotel owner that creating a sense of loyalty is priceless and has long-term or hidden payoffs, and that it is short-sighted to overlook the cost of a few eggs to keep a loyal guest happy. They want the data and they want the payback immediately.
In this sophisticated world of financial modeling, owners want to know quantifiably 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 looking for ways to reduce those costs. They want accurate answers on how those costs increase revenue, and they often use unrealistic models to do so.
For example, it’s unlikely that a suite will be sold if it wasn’t booked on the morning of check-in. So the claim that free suite upgrades cost the price of the suite per night is completely off the mark. However, owners often point out that their business “costs as much” as this loyalty thing.
Loyalty analytics can help you understand concepts like higher spending and higher revenue, but this benefits the hotel loyalty group rather than the individual owner. If the loyalty group does not reduce costs, the owner may convert their property to a different hotel brand and join another hotel loyalty group that offers similar revenue at a lower cost.
And I think that’s part of the problem: the negotiations on these contracts are currently more about savings than about additional revenue.
One hand beckons the public to come in and experience perks and awesomeness, while the other tells 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 dealmaker for a hotel is to cut costs, that doesn’t paint a good picture for guests.
Loyalty programs are on the side of the owners – and that is a delicate matter
Yes, there are more and more reports of hotels finding creative ways to get around their loyalty program rules. Rooms that should be available with points – which is a cost of doing business – are often hidden in creative ways to get around the program rules.
Sometimes they claim that the hotel restaurant is independent and therefore doesn’t have to offer a free breakfast because the hotel doesn’t have its own restaurant. Amusingly, they sometimes prepare a watered down breakfast for the most loyal guests. In some cases, the “free” breakfast ends up costing more than $30 a day due to cheap tactics.
This relationship between hotel owners and the marketing and loyalty program companies they choose to manage their hotels was something of a red line. There was a lot that could be argued about, but not the provision of the “extra” loyalty benefits that are a price to pay for lucrative overnight business.
Marriott’s CEO has been one of the most vocal in calling for owners to be put before guests, and since then, with Marriott being the largest company, others have followed suit.
Can a happy middle ground be found?
It’s going to be really hard to find a happy medium where loyal guests still feel like it’s worth the effort to stay loyal AND hotel owners feel like they’re OK with the cost. Loyalty is much easier when the loyalty company and the owner of the company are the same.
For example, an airline loyalty program directly benefits every aircraft it owns. The program is a vehicle of the airline. Each aircraft is not independently owned by a different group of people with different expectations and complaints, as is the case with hotels and loyalty programs.
I’m curious to see if hotel brands that actually own many of their properties can better invest in guests since they don’t have to rely on the middleman. One thing is for sure: loyalty to hotels seems to be slowly declining. Since luxury travel agents can reap similar benefits without loyalty, it’s even easier to be a free agent.
