Hilton Loyalty

9-501-010

REV: NOVEMBER 8, 2005

JOHN DEIGHTON STOWE SHOEMAKER

Hilton HHonors Worldwide: Loyalty Wars

Jeff Diskin, head of Hilton HHonors® (Hilton’s guest reward program), opened The Wall Street Journal on February 2, 1999, and read the headline, “Hotels Raise the Ante in Business-Travel Game.” The story read, “Starwood Hotels and Resorts Worldwide Inc. is expected to unveil tomorrow an aggressive frequent-guest program that it hopes will help lure more business travelers to its Sheraton, Westin and other hotels. Accompanied by a $50 million ad campaign, the program ratchets up the stakes in the loyalty-program game that big corporate hotel companies, including Starwood and its rivals at Marriott, Hilton and Hyatt are playing.”

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Diskin did not hide his concern: “These guys are raising their costs, and they’re probably raising mine too. They are reducing the cost-effectiveness of the industry’s most important marketing tool by deficit spending against their program. Loyalty programs have been at the core of how we attract and retain our best customers for over a decade. But they are only as cost-effective as our competitors let them be.”

Loyalty Marketing Programs

The idea of rewarding loyalty had its origins in coupons and trading stamps. First in the 1900s and again in the 1950s, America experienced episodes of trading-stamp frenzy that became so intense that congressional investigations were mounted. Retailers would give customers small adhesive stamps in proportion to the amount of their purchases, to be pasted into books and eventually redeemed for merchandise. The best-known operator had been the S&H Green Stamp Company. Both episodes had lasted about 20 years, declining as the consumer passion for collecting abated and vendors came to the conclusion that any advantage they might once have held had been competed away by emulators. Loyalty marketing in its modern form was born in 1981 when American Airlines introduced the AAdvantage...