Case Analysis

Case Analysis

The recent frequent-guest initiative announced by Starwood Hotels has raised the stakes in the loyalty program arena.   This will most likely result in increased costs for all industry participants as other hotel chains struggle to match or beat their program.   This has placed us in a dilemma.   By broadening our rewards offerings we can appeal to a larger segment of the population, but we stand to lose any product differentiation that we enjoy compared to other hotels.   We have the choice of competing point for point in a rewards war, or positioning ourselves to provide an experience for our loyalty members that sets Hilton HHonors apart from Starwood and our other competitors.Price WarsHilton Honors should not try to compete with Starwood or any other competitors in a point-for-point battle.   Rivalry among competitors will limit the profitability of the industry.   Rivalry is especially destructive to profitability if competition gravitates solely to price, or loyalty points as in our case (Porter, 2008).   Any change to our program based solely on points will be easy for our competitors to match.   We will be forced into a game of one-upsmanship that will do nothing to increase customer loyalty because of a readily available substitute product (other hotels) and a lack of switching costs (O'Malley, 1998).   That being said, the degree to which profits are driven down depends upon the intensity and basis of the competition (Porter, 2008).   Hilton Honors should avoid this point-for-point battle; instead we should seek to differentiate our rewards program and the overall value of a stay at a Hilton property from Starwood and our other competitors.Personal RewardsAlmost two-thirds of people say they belong to at least one loyalty program, but only one-third agree it makes them more loyal to a company.   These loyalty program members are also skeptical about the company's intentions.   "They think companies are out to do the right thing for themselves and they do not...