It’s widely known how much Marriott’s envy and concern over Starwood’s generous Preferred Guest loyalty program drove the company’s decision to pay over $12 billion to acquire the hotel chain. Based on comments by Eastern Region COO and company progeny David Marriott this week, Marriott International got a much better deal than it first realized.
Only 11 percent of the total customer base participated in both Marriott and Starwood’s loyalty programs at the time of the merger, Marriott said at a New York University Lecture Thursday, much higher than the roughly 50 percent Marriott’s C-Suite anticipated. In other words, Marriott basically brought a multinational corporation sized cohort of totally new customers into its realm, in one fell swoop. Marriott swallowed the competition whole, in one enormous $12.2 billion bite.
“We were very pleased that overlap was far less than what we expected,” Marriott told students and alumni. “It ended up being an even better investment from that standpoint.”
During the lecture, a student asked David Marriott why the company decided to acquire it’s largest competitor, rather than make a smaller, more strategic but affordable acquisition. Before the allure of Starwood’s luxury brands and global profile, Marriott said boardroom eyes were drawn to the value of Starwood Preferred Guest.
Before it was folded into Marriott Rewards this summer, SPG was arguably the most lucrative loyalty rewards program in the world. Points were flexible, extraordinarily valuable. Upgrades for elites were all but guaranteed at a lot of properties. Points could be transferred directly to almost every major global airline.
SPG also enjoyed significantly higher membership among millennials and Generation Y youth.
”We recognized the value in Starwood Preferred Guest,” Marriott said. “Loyalty is becoming more and more important for today’s traveler. They had tremendous recognition for their loyalty program and their customers were really passionate.”
Marriott’s program was never considered bad. A number of loyalists, this writer included, stuck with Marriott’s professional and highly polished hospitality, knowing however that Starwood’s program was leagues better in terms of flexibility and perks.
Some of that flexibility remains, but on a per-point value basis, the new program looks more like Marriott than Starwood.
Marriott still offers (deal ended 10/31/18) SPG’s beloved 100,000-point sign-up bonus on its American Express Card (after new cardholders spend $3,000), and raised the offering on it’s own Chase co-branded Marriott Premier Rewards Card to match, but the points are effectively worth about one-third what they were under Starwood’s program.
With its acquisition, Marriott captured its largest competitor, and now has a dominant position in the world’s three biggest hotel markets: The U.S., China and Europe. Marriott also became the largest luxury hotel holding company in the world.
“We have over 300 luxury hotels around the world, which nobody can touch,” Marriott said.
Marriott told students that the company is still working on integrating both its reservations system and aspects of the joint loyalty program, alluding that early hiccups with redemptions will improve as time goes on. He said that staff were working “incredibly hard,” and that they have successfully deployed over 10 new integrated systems in the past year.
“In a normal year, we might introduce one new system, two at most,” Marriott said.
While technical systems are bound to improve, I find it highly unlikely that a loyalty program will come to match SPG’s generosity anytime in the foreseeable future. With such a dominant position across every demographic and lifestyle segment of any size (Marriott now controls over 30 brands), Marriott has no need for a pricy loyalty program to lure travelers.