Booking direct: CEOs on lower rates for loyalty members
 
Booking direct: CEOs on lower rates for loyalty members
10 MAY 2016 8:22 AM

Some major hotel companies have announced reduced room rates for loyalty program members, and discussion during first-quarter earnings calls turned to the fight against OTAs for direct bookings. 

GLOBAL REPORT—As online travel agencies continue to siphon revenue from major hotel companies by marketing to travelers more effectively, some companies are reclaiming direct bookings by offering lower rates to loyalty members if they book direct.

The strategy marks another chapter in the war between OTAs and hoteliers as they seek to capture guests earlier in the booking phase. Hilton Worldwide Holdings led the vanguard after announcing the “Stop Clicking Around” marketing campaign in February, which encouraged Hilton HHonors members to book direct on Hilton’s brand websites and receive a discounted room rate. Marriott International followed less than a month later, revealing “Marriott Rewards Member Rates,” which reward Marriott loyalty members with lower rates when booking directly online, through Marriott’s app and via call centers and select corporate travel professionals.

Hyatt Hotels Corporation and InterContinental Hotels Group joined the effort starting in the second quarter. In April, Hyatt announced an up-to-10% discount on room rates for Hyatt Gold Passport members who book directly online. IHG then revealed its “Your Rate by IHG Rewards Club” promotion, which will give IHG Rewards Club members a discounted rate at the company’s hotels in the Americas and Europe.

During first-quarter 2016 earnings conference calls with analysts, executives from these major companies discussed the rollout of their direct-booking strategies. CEOs from other companies also addressed their relationship with OTAs and how they intend to solve the direct-booking puzzle. Below is a recap on the subject from each company’s respective earnings call:


Chris Nassetta, president and CEO, Hilton Worldwide Holdings
“What ‘Stop Clicking Around’ is really intended to do is in a fairly loud way admittedly make it clear to customers how they are going to have the best experience and where they are going to get the best value, because I think not all customers really understand that. … I think everybody benefits from it. In the end, I think the customers benefit because they are going to get a better experience and they are going to get a better value. … The more that we can have a direct relationship with our customers, the more efficiently we can distribute our product and our owners’ product, the better their returns are going to be, the happier they are going to be, the more hotels they're going to build into the system.”


Arne Sorenson, president and CEO, Marriott International
“We announced (Marriott Rewards Member Rates) about a month ago, but they became effective a little bit after that. It's still quite early, and we have not put as many dollars into marketing those rates yet. Obviously they are visible online and we're doing some things. I think the early response has been positive, but it's too early to give you the kind of statistics that you've heard from some others who have been out there on market longer with us. We've obviously done it because we're optimistic about this approach driving an increase in direct bookings and driving much more awareness of the advantages of direct booking.”


Mark Hoplamazian, president and CEO, Hyatt Hotels Corporation
“We took (the Hyatt loyalty rate discount) national in the U.S. just a couple of weeks ago, so we really don't have any meaningful data from that launch at this moment. But if we look back over the eight markets that we had tested, we had a very significant increase in Gold Passport member signups. … We're trying to make sure that this isn't in essence cannibalizing bookings that would otherwise be made by our Gold Passport customers. And what we've found is that a majority—a clear majority—of the bookings relate to either new members or previously inactive Gold Passport members. So it's having the intended effect of bringing more people into the program and increasing their activity base.

“This member discount rate is actually a yieldable rate. That is, it's a manageable rate by the hotels. So they're not required to sell the member discount rate at any given point in time. And the level of discount that they apply is actually in their hands. Now we've got recommendations for them, and we've modeled how they should be thinking about pricing in different points in time based on data that we've got, that we've analyzed. But otherwise it's really in their hands. So I would say across the board it's been actually a remarkably positive test case so far. And that's really the proximate reason why we elected to roll it out more broadly.”


Richard Solomons, CEO of InterContinental Hotels Group, in a 6 May statement updating analysts on IHG performance
“We continue to evolve and enhance our leading loyalty program, IHG Rewards Club. This week we announced that IHG Rewards Club members will be offered exclusive, preferential rates when they book through our direct channels. This new benefit further strengthens our loyalty offer by helping us build deeper relationships with our most loyal guests, whilst driving more direct bookings to our hotels.”


Steve Joyce, president and CEO, Choice Hotels International
“You’re going to continue to see us try to drive business to our channels simply because they’re dramatically more profitable than an OTA trying to suck 15%, 20% out of the deal. As we look at this going forward, one of our sole missions is to try to limit the amount of activity going from the OTAs and coming from our proprietary channels … and if you look around the industry, everybody else is doing the same thing.”


Tom Baltimore, president and CEO, RLJ Lodging Trust
“We enthusiastically support (lower rates for loyalty members) and congratulate all efforts being made by our business partners. Anything that can reduce the cost of acquisition is going to be a huge benefit. We continue to encourage those companies to continue those efforts. … Brands are continuing to grow their loyalty programs. That’s only going to strengthen the connection, which in the long run will allow us to benefit from lower booking cost from these channels, therefore benefitting owners.”


Ross Bierkan, EVP, chief investment officer and interim CEO, RLJ Lodging Trust
“In New York City we have seen positive impact (of Hilton’s new lower rate for loyalty program members). We’ve seen a savings in commissions, a reduction in OTA bookings and displacement of them with direct bookings through the brand channels. So far, preliminarily, it looks like it’s going to work.”

2 Comments

  • Priscilla May 23, 2016 11:24 AM Reply

    This strategy was heavily discussed 3+ years ago at "certain" lodging companies but was rejected due to rate parity issues that were in the contracts (favored nation clauses) in addition to loyalties to OTA's and against Sales within the Distribution corporate structure (just look at YOY revenue growth of OTA's). Unfortunately, this strategy is too little and too late. These rates now become the new normal that the corporate segment will base it's negotiations on going forward. An unnecessary discount to your most rate inelastic customers. Congrats to Hilton, Marriott and Choice for at least being forward thinking and having the guts to fighting the beast over the years. Just sayin'.

  • David June 10, 2016 10:18 AM Reply

    This isn't new this year -- it started in Europe over a year ago.

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