During July 2015, IdeaWorksCompany conducted 1,440 reward queries for key hotel brands in four global frequent guest programs: Hilton HHonors, IHG Rewards, Marriott Rewards, and Starwood SPG. For each query, the lowest reward price in points was recorded along with the corresponding price in U.S. dollars. The value provided by points was adjusted to consider the different rates of point accrual for the programs.
The result provides an average “reward payback” for each program as shown in the graph below. For example, the 8.9% rate for Hilton HHonors represents average reward value payback of $8.90 for every $100 spent on hotel room rates. By comparison, IdeaWorksCompany calculated reward payback for major U.S. airlines ranges from 5.5% to 8.6%.
Reward Payback for Hotel Loyalty Programs
Reward value returned for every dollar spent on hotel rates.
Starwood – 6.1%
IHG Rewards – 8.6%
Hilton Hhonors – 8.9%
Marriott Rewards – 9.4%
The Switchfly Hotel Reward Payback Survey determines the average reward payback for each program to see how they compare against each other. Determining the average reward payback for each loyalty program will become increasingly important as more hotel chains allow customers to pay with points.
Switchfly CEO Daniel Farrar offers several ways in which hotel loyalty programs can meet and surpass consumer expectations: frequent promotions with concierge-quality services available to lower-tier members, automated check-ins without staff interaction; Wifi (which is no longer an amenity, but a requirement).
All points are not created equal
Dividing the room price (including local taxes) by the number of points per query provides a simple valuation of the point currency used by individual programs (see below table). Think of it as the room night value that can be purchased with a reward point. However, points are naturally unequal in value because of differing rates of accrual. For example, Hilton HHonors usual accrual rate is 15 HHonors Points per dollar spent at a hotel, while Sheraton SPG provides 2 Starpoints per dollar spent a hotel. Knowing the value of reward points is helpful for members who wish to assess the value of their account balances.
Simple Value of Reward Points by Hotel Loyalty Program
Best flexible room rate (with taxes) divided by reward point prices.
|Hilton HHonors||IHG Rewards||Marriott Rewards||Starwood SPG|
However, point values don’t allow consumers to compare hotel reward benefits across different loyalty programs. For this purpose, IdeaWorksCompany offers “reward payback” as a simple benchmark to measure how these programs deliver their primary benefit to everyday travelers. Think of this as the reward value returned for hotel expenditures.
The survey used 360 queries per hotel loyalty program distributed among a chain’s three leading brands. For Marriott Rewards, this comprised Marriott Hotels, Courtyard, and Fairfield Inn & Suites. Queries for each program were performed for the same 18 dates (ranging from July 2015 through February 2016) and an identical list of US and global destinations. This included New York City, San Francisco, London, and Beijing. Queries outside the US relied on a chain’s signature brand, such as Holiday Inn for IHG Rewards or Hilton Hotels and Resorts for Hilton HHonors.
Most hotel loyalty members do not hold the program’s co-branded credit card and don’t have elite status. For these members, the reward payback method provides a good measure of reward value. Members that have elite status and use a program’s co-branded credit card to pay room charges benefit from a dizzying array of bonus point possibilities. These members might consider doing their own calculations based upon the simple value of reward points presented in the table above. The value provided by reward nights is traditionally the most important attribute for many members; the results presented in the survey don’t attempt to assess all the benefits provided by hotel loyalty programs.
Reward payback extremes were found to range from 2.5% to 24%
The best reward payback occurs when room rates are high and reward point levels are low. Of course, the opposite condition yields low reward payback. The 1,440 queries were ranked from low to high to determine extreme values among the cities, dates, and hotel properties queried. The reward payback statistics listed in the table below assume members limit their paid stays and reward redemptions to the same hotel.
Imagine a hotel that provides a 24% reward payback on paid stays. That’s the reward payback associated with a February 2016 stay at the Hilton Beijing Chaoyang. Booking a room for 18 February 2016 can cost $479 or a very modest reward night price of 30,000 points. That combination, and the Hilton HHonors base accrual rate of 15 points per dollar spent, delivers an unbelievably generous reward payback. The following are some examples from the highest and lowest reward payback rates found in the survey:
Best Reward Payback for each Hotel Loyalty Program
|Hilton HHonors||18-Feb-16||Beijing - Hilton Beijing Chaoyang||30,000||$479||24.0%|
|IHG Rewards||17-Sep-15||London - Holiday Inn London Mayfair||35,000||$561||16.0%|
|Marriott Rewards||22-Feb-16||NYC - Fairfield Inn & Suites, Times Square||40,000||$806||20.2%|
|Starwood SPG||22-Feb-16||San Francisco - Westin St. Francis||12,000||$926||15.4%|
|Hilton HHonors||6-Feb-16||Chicago - Hilton Chicago||50,000||$104||3.1%|
|IHG Rewards||16-Jul-15||Dubai - Holiday Inn Embassy District||20,000||$79||3.9%|
|Marriott Rewards||6-Feb-16||Chicago - Courtyard Chicago River North||35,000||$120||3.4%|
|Starwood SPG||6-Feb-16||Chicago - Sheraton Hotel & Towers||12,000||$150||2.5%|
Low reward payback can be associated with hotel properties which are typically high-priced in terms of reward point prices and room rates. When these locations deeply discount their cash room rate - and don’t reduce the reward point level – the result is an unusually low reward payback. That’s what happened when the Chicago Hilton dropped its weekend room rate to $104 while maintaining its 50,000 reward night point price.
Pay with points will eventually replace fixed reward levels
IdeaWorksComany anticipates hotel chains will eventually implement the pay-with-points methods already used by Air New Zealand Airpoints, Southwest Rapid Rewards, and anticipated for Delta SkyMiles in 2016. Pricing reward nights using the inflexible metric of fixed-point levels generates the wildly varying results listed in the table above. Linking room night prices to prevailing room rates unites the economics of a hotel to the business of operating a loyalty program. As stated so eloquently by Southwest Airlines, “when fares go on sale, so do the points needed for redeeming a reward flight.” That’s a strategy that can benefit program members, hotel owners, and investors.