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The Truth about Loyalty Programs: Five (or so) Questions with Adam Burke, Senior Vice President and Managing Director of Hilton HHonors

Posted by Judy Melanson on Sat, Jul 28, 2007

CMB: How would you describe the importance of the HHonors program to the Hilton Family of brands?

Adam: I think there are two ways of looking at it. First is the historical competitive reality of the market and second, how you most effectively utilize a loyalty program.

Over the past few years, loyalty programs have become a key differentiator that gives customers a reason to consolidate their stays with us no matter what market they are in. So its a function of being a competitive necessity, but ultimately what makes it important is how cost effectively you can leverage the program to generate incremental stay activity. And that to me is central to it.

The importance of it to the Hilton Family is several fold. First of all, contextually it puts an umbrella over all of our brands and gives people a compelling reason to choose a Hilton Family brand no matter what market they are in.

Second, it is important because they have been able to quantitatively demonstrate there is sizable incrementality associated with members of the program so we know we are capturing incremental market share.

Most important is that the program is really a device by which we can enter into a relationship with our customers and we want to know about them as much as they want let us to know about them. So it is very much customer driven but to me it is vital because the competitive battle ground of the future is that all of the hotel companies are trying to cultivate relationships with their best guests. It is not just what information we have learned, it is how effectively we use that information to truly personalize the guest experience across every touch point. Thats why the program is so vital because it gives us a platform to really engage and deliver a customized experience for our best guests.

CMB: In past strategy sessions, we have talked about the need to set the term loyalty program aside and challenge people to focus on best guests, and think about the role of the HHonors program in providing for them.

Adam: Thats right, absolutely. Were not just focused on a program anymore. The biggest change is that I dont think that you could say that the program exists separate and apart from the branding work. The program is now a core brand attribute, just as any other feature of the brand value proposition is. And that our focus internally is best customers, not just best guests or members, many of whom are part of the program, but there is a sub-segment of those who are not. The objective is to utilize an engaged customer strategy across all best customers

CMB: Regardless of whether or not they are members.

Adam: Correct.

CMB: How has the program evolved over the past few years?

Adam: It is really a continual evolution. The biggest shift has been away from any singular message points and toward a customer-drive approach. Historically, I think that all of the programs relied on one key selling message. For Hilton HHonors it was points and miles. I think that as technology has finally caught up with customer expectations to the point now where can now deliver against the personalized choices that our customers make that yes, there are still some broad consumer facing messages that we use, but we have definitely moved away from a mass market general media approach towards much more of a segmented, direct communications approach including the offers that we make to different customers.

CMB: For example?

Adam: Whereas five or six years ago, we might have put out a promotion that would be – for a certain period of time there would be double points for everyone. The challenge with that is invariably that when you offer that across the board there will be some degree of cannibalization, because youre going to offer it to people who would have stayed anyway, you have no ability to really target it, it is difficult to really measure the incrementality of that offer, and it is very expensive to run. What we have been able to do instead is to develop a very rich segmentation model that allows us to say, Okay, lets offer different offers to different customer segments through direct channels where the offers that were putting in front of different segments are particularly relevant to them. The result is that we have seen a substantial return on our investment because were able to differentiate the offers by audience.

CMB: Looking towards the future, you talked about an evolution of the program, where do you see it 3-5 years down the road in terms of customization? Or are you reaching a point where it is more as an issue of execution than evolution?

Adam: You hit the nail on the head when you talked about the importance of execution. I think the programs that are going to be the most successful are those that are able to consistently and exceptionally deliver against the customer promise. Rather than our customers having to try to weave through the maze of information that is out there in our industry, which – lets face it, is very cluttered in terms of what all the programs offer I think that youll see that the HHonors program is going to be very differentiated by virtue of three things – simplicity, flexibility, and acceptability to our audience.

CMB: What role has research played in the evolution of the program?

Adam: I think research is absolutely fundamental to our efforts. We are very much driven by the voice of the customer and that it has been at the heart of how we have refined our program continually over the past decade. I would also say that there is a balancing act here. Research has been absolutely central to our strategic and tactical decision-making. Increasingly, however, we have relied on both traditional research methodologies and virtual communities to try to strike a balance between using research as a means of validating assumptions and learning about customer preference, while at the same time being more aware of emerging trends and trying to be at the forefront of innovation. Hopefully we can provide customers with things that they might not have even envisioned yet.

CMB: What challenges do think programs like HHonors will face in the future?

Adam: To be honest, remember that famous quote from Walt Kennedys Pogo Weve met the enemy and he is us? The biggest threat to ourselves is ourselves. It comes down to delivery and execution. I am confident enough in our strategy that, if well executed we will be highly successful. I think the greatest challenge by far is consistency and quality of execution.

CMB: Given that all of the big players have relatively viable programs, how do you steal market share? Does another company have to fall down on the execution to create opportunities for HHonors?

Adam: I dont think it is just about execution. It is about having the vision to stay with a long-term strategy based on who your core audience is. There is an inherent danger that in trying to personalize you can also try to be all things to all people. If you talk about additional challenges, one is that the clutter in the industry lacks a common currency across programs. Other than the most frequent travelers, a lot of people are still confused as to which companies offer what. We need to simplify the message to the point where customers are very clear on what differentiates us from the competitive set and in terms of a longer term strategy – it is ultimately a share of wallet game among the audience that is already out there and it will be a function of how we address emerging geographic segments like China and India and emerging demographic segments like the Baby Busters, Gen-X, Gen-Y. I think its going to be a matter of how adaptable we are in addressing those audiences in a way that doesnt take our eye off of our core audiences.

CMB: You talked about simplification and sticking to a strategic plan, what additional suggestions do you have for someone managing or setting up a loyalty program?

Adam:  First and foremost… Measure. Measure. Measure.

CMB: Good Answer!

Adam: Thats the biggest issue. If you want to maximize the return you should only field initiatives for the most part – I say the most part because you should be willing to accept some degree of risk taking and some qualitative, gut-feel initiatives but anytime you are going to try something you should be merciless about committing up front to what metrics will determine if something is successful.

Part of that also is being adaptable enough to recognize that as we go into a more personalized strategy it gets more difficult to determine which attributes of a program are specifically driving the decision. Because it is wonderful to say that factor x is most important to someone, but for most people it is going to be a combination of factors that make up the value proposition. You have to have a willingness to see your metrics evolve over time, see what is most appropriate to measure, and also look to methodologies like Discrete Choice analysis. Because if you rely on directly asking the customer what they want, it is going to be very difficult to come up with meaningful, directional input.

So, Id say its measure, measure, measure, have an openness to revalidating and modifying your measurement over time as necessary, look at Discrete Choice analysis as a key means for identifying what is most important, and make sure that you are continuously letting your owners, operators, whoever your key constituent groups are, look under the hood and know exactly what you do, how you do it, and why you do it. Ultimately, loyalty program managers depend on execution. If they dont have both support and more importantly, understanding of why we do what we do, youll find that there is not much commitment and buy-in to doing the necessary things to execute flawlessly at the business unit level.

Topics: strategy consulting, Researchers in Residence, customer experience and loyalty