Mar192010

Loyalty Wars 2010: A Guide to Crunching the Numbers on Hotel Battlefields

Hotels Compete for Loyal Guests,” is another example in a series of articles that highlight the loyalty wars of 2010. The article by Kelli B. Grant was published at SmartMoney.com this week and is a good basic read with a summary of some deals in six different hotel loyalty programs. They have all been covered on Loyalty Traveler blog. The aspect of the article I want to develop more fully is a method for comparing hotel loyalty program awards.

The hotel media is acting like this is the first year there has been competition for hotel loyalty program members. I see loyalty wars as a continual endeavor and there is really nothing remarkable about 2010 except for the fact that elite status is easier to get with several programs this year.

Best Western Rewards is currently offering instant elite to members of other programs. So what?

Hyatt has been giving away elite status for a year now and most programs will match your elite status with another hotel program.

My favorite line from the SmartMoney article is from Bjorn Hanson of New York University Tisch Center for Hospitality, “Before you switch loyalties, though, crunch the numbers on rewards to make sure you are getting the best deal.”

Great advice for a loyalty member, and I agree with this, but does anyone care to lay out a method for how to “crunch the numbers” on hotel awards in different hotel loyalty programs?

In the April 2010 issue of InsideFlyer I proposed a method for comparing hotel loyalty program awards. The InsideFlyer article is not easy reading, and I fault myself for not being a better writer, however, I wanted to show a way I think allows a frequent guest to “crunch the numbers” on hotel awards to compare hotel award value between programs. I think the method works for a basic comparison.

The rest of this post is a step by step explanation of the problems encountered when trying to compare hotel programs and award value between programs, followed by an example of how I compare award value for seven hotels in San Francisco. This article is also not an easy read, but useful if you are into calculating the value of hotel points.

 

Difficulties with calculating hotel award value across programs

There are several difficulties encountered when trying to crunch the numbers on hotel awards.

Here are a few of the variables:

Hotel loyalty programs have different rates for earning points.

  • Carlson Hotels goldpoints plus gives 20 points per $1 for Radisson Hotel stays, 15 points per $ for Country Inn & Suites.
  • Hilton HHonors members earn 15 points per $1 if earning preference is set for Points & Points, but only 10 points per $1 if earning Points & Miles.
  • Gold Passport members earn 5 points per $1.
  • Starwood Preferred Guest members earn 2 points per $1.
  • Marriott Rewards and IHG Priority Club Rewards members earn 10 points per $1, except when staying at Marriott’s Residence Inn and TownePlace Suites, or IHG’s Candlewood Suites and Staybridge Suites.

Award Categories Are Difficult to Align Across Programs    

Hotel loyalty programs use different award levels for classifying hotel awards and the hotels are unevenly distributed across award levels for different programs.

Is a Hilton category 7 the same as a Starwood category 7 award?

A person on FlyerTalk made an analysis the other day equating these two award levels in a comparison of which program offered the best value. The Hilton San Francisco Fisherman’s Wharf (category 7) or Embassy Suites, Seaside, a few miles from my home in Monterey, California (category 7) are nowhere near the same hotel market segment as the Hotel Gritti Palace (SPG category 7) in Venice, Italy or the Mystique in Santorini, Greece (SPG Category 7).

Uneven Distribution of Hotels Among Award Categories

The distribution of hotels within a program’s award category levels is variable. Hilton has just 42 hotels of 3,500 hotels in category 1 for 7,500 points a night; a little over 1% of its properties. Marriott Rewards has 288 hotels in category 1 after the March 8, 2010 changes. Marriott has almost as many hotels as Hilton in its loyalty program, yet seven times the number of hotels in its category 1 award level.

You could argue that Hilton has higher quality properties justifying fewer hotels in category 1. I don’t buy that argument.

Elite Status impacts the rate you earn loyalty points

Elite status offers the potential for up to 50% more points, but earning elite status is dependent on your hotel travel pattern. Marriott only counts nights as the one route to elite status, while all the other programs offer an additional route to elite status. The rest (except for Priority Club) allow elite status qualification for fewer stays than nights. This is the more favorable route to elite for a frequent guest who typically only has one night stays. Hilton HHonors allows elite membership to be earned through spending. Priority Club counts total earned points for elite qualification and bonus points earned through promotions and partner activity count.

 

Crunching the Numbers the goldpoints plus way

Carlson’s goldpoints plus award calculator shows the commonly used method for comparing hotel loyalty programs. The number of hotel nights is multiplied by the average room rate and the total base points are calculated.

Example of loyalty program comparison at goldpoints plus www.dothemathsite.com.

The calculations shown are based on $3,750 in annual hotel spend.

The calculator accounts for elite status, but does not tell you what level elite status is being used. It appears each night is being counted as a separate stay.

Elite Status

goldpoints plus = Gold after 20 stays or 35 nights = 50% elite bonus

$3,750 x 20 points/$1 = 75,000 base points + 37,500 elite points = 112,500 points

Marriott Rewards = Silver after 10 nights= 20% elite bonus

$3,750 x 10 points/$1 = 37,500 base points + 7,500 elite points = 45,000 points

Hilton HHonors = Gold after 16 stays or 36 nights = 25% elite bonus

$3,750 x 10 points/$1 = 37,500 base points + 18,750 bonus points (Points & Points 50% bonus) + 9,375 elite points = 65,625 points

Priority Club Rewards = Gold after reaching 20,000 points or 15 nights = 10% elite bonus.

$3,750 x 10 points/$1 = 37,500 base points + 3,750 elite points = 41,250 points

Starwood Preferred Guest = Gold after 25 nights or Platinum with 25 stays.

$3,750 x 2 points/$1 = 7,500 base points + 3,750 elite points = 11,250 points.

Note the dothemathsite.com calculator inconsistency for HHonors v. goldpoints plus.

Goldpoints plus is calculated using Gold status which requires 20 stays or 35 nights. Obviously the stays requirement is used for goldpoints plus in this example based on 25 hotel nights. But Hilton HHonors Gold is reached with 16 stays or 36 nights. The calculation shown for the dothemathsite.com result is based on nights for HHonors and results in just a Silver elite 15% bonus. Silver elite requires 4 stays or 10 nights.

Actually HHonors Gold elite should be used to be consistent in the comparison or the goldpoints plus points should also be based on Silver elite and only a 25% bonus for a total 93,750 goldpoints plus points rather than 112,500 points.

The inconsistency in the dothemathsite.com is a calculation error and not the main issue with this hotel loyalty program comparison method.

The real problem I see?  Using free nights earned as a basis for comparing hotel programs on the surface seems like a reasonable measure for comparing the value of different hotel loyalty programs, but I find this method has a couple of problems that are not so apparent.

First, the category 1 level comparison implies all category 1 levels are equivalent among the different programs. I have already explained how this is not the case between Hilton and Marriott.

Starwood Preferred Guest is another program with a pretty vacant list of category 1 hotel properties. There were around 75 Starwood hotels in category 1 in 2005 and today in 2010 there are just 29 hotels in category 1. As the number of hotels in Starwood has increased, the number of hotels available as category 1 hotel awards has decreased.

The second problem is with the mid category comparison.  The calculation explanation on DotheMathSite.com states the middle category is used for comparison.

The calculator bases Hilton awards on category 3 at 25,000 points. This does not account for the recent changes which makes category 4 the middle award level. Regardless of the Hilton category level used, there is no basis for comparing programs on each program’s defined middle category level. That just doesn’t align with real hotel award placement.

When the lights go down in the City

San Francisco is a good example for showing how this arbitrary alignment of hotel award categories is not grounded in the actual placement of hotels.

San Francisco Fisherman’s Wharf has hotels in all the major hotel chains. They are all fairly identical within a couple of blocks of each other, three or four stories, and none with anything particularly outstanding in their architectural features or amenities. They are all upscale hotels in the same hotel market segment with similar room rates most of the time.

Here are the actual hotel category placements for seven hotels in this area.

Radisson Fisherman’s Wharf = goldpoint plus category 4 = 40,000 points

Hilton Fisherman’s Wharf = HHonors category 7 = 50,000 points

Holiday Inn Fisherman’s Wharf = Priority Club tier 3 = 25,000 points

Holiday Inn Express Fisherman’s Wharf = Priority Club tier 3 = 25,000 points

Hyatt Fisherman’s Wharf = Gold Passport category 3 = 12,000 points

Marriott Courtyard Fisherman’s Wharf = Marriott Rewards category 5 = 25,000 points

Sheraton Fisherman’s Wharf = Starwood Preferred Guest category 4 = 10,000 points

My Award Value Analysis Method for Comparing Across Programs

The main issue to address is the need to adjust these awards requiring different number of points to a common scale to allow a value comparison.

Step 1. Determine the room rate which requires an actual hotel stay date. I pick Tuesday, March 23, 2010.

Step 2. Calculate award value for each hotel based on room rate divided by points needed for award night.

Step 3. Apply an adjustment factor to correlate the rate hotel points are earned to the award value to create a common scale for comparison. The award value adjustment factor is explained below.

This table shows the results of steps one and two.

Hotels at Fisherman’s Wharf, San Francisco Tuesday 3-23-10 rate Award Value Calculation Award Value$ value/1,000 points
Radisson $116 $116/40,000 $2.90/1,000 points
Hilton $135 $135/50,000 2.70
Holiday Inn $99 $99/25,000 3.96
Holiday Inn Express $138 $138/25,000 5.52
Hyatt $189 $189/12,000 15.75
Courtyard by Marriott $179 $179/25,000 7.16
Sheraton $149 $149/10,000 14.90
Note: The last column shows award value for each program, but these values must be adjusted to a common scale to compare award value between programs. $14.90 per 1,000 points in Starwood must be adjusted to correlate the rate of earning points to the value.

 

Step three is using an adjustment factor to place each hotel program on a similar scale. For example the Hilton HHonors member earning Points & Points is accumulating base points and bonus points at the rate of 15 points per US dollar. The Starwood Preferred Guest member earns points at the rate of 2 points per $1. Reaching 10,000 points for the Sheraton award night could require as much as $5,000 in hotel spend while the HHonors non-elite member would only need to spend $3,334 to earn 50,000 points.

Elite status bonus points, promotion bonus points, credit card transaction points, and partner activity points are additional variables for earning points that are significant factors in real travel.

But for now, this is the baby steps introduction to crunching the award numbers. This adjustment to award value to enable comparison between programs will only consider base points and elite bonus points similar to the calculations in the DotheMathSite.com analysis.

Hotel Award Adjustment Factors to place awards on similar scale of 10 base points/$1)

Hotel Award Value Award Value  adjustment factor non-elite
Carlson gold points plus*(20 points/$1) Multiply by 2.00
Hilton HHonors (Points & Points = 15 points/$1) Multiply by 1.5
Hilton HHonors (Points & Miles = 10 points/$1) No adjustment
Hyatt Gold Passport =5 points/$1 Divide by 2
IHG Priority Club* = 10 points/$1 No adjustment
Marriott Rewards* = 10 points/$1 No adjustment
Starwood Preferred Guest = 2 points per $1 Divide by 5

 

Adjusted Award Values for Hotels at Fisherman’s Wharf San Francisco

Hotels at Fisherman’s Wharf, San Francisco Award Value$ value/1,000 points Award Value Adjustment Factor Adjusted Award Valuevalue/1,000 points
Radisson $2.90/1,000 points Multiply by 2 5.80
Hilton (Points & Miles) 2.70 No Adjustment         (Points & Miles) 2.70
Hilton (Points & Points) 2.70 Multiply by 1.5                 (Points & Points) 4.05
Holiday Inn 3.96 No adjustment 3.96
Holiday Inn Express 5.52 No adjustment 5.52
Hyatt 15.75 Divide by 2 7.88
Courtyard by Marriott 7.16 No adjustment 7.16
Sheraton 14.90 Divide by 5 2.98
Note: Award Values in the last column are adjusted values on a similar scale for each program.

 The gap between the programs closes up. You can see the Hilton Points & Points earner falls in the middle of the pack. Hyatt and Marriott are at the top, however, they are also the most expensive hotels for that night. Using points for these two hotels is great for an award night, but not so desirable if paying cash. If one program is consistently higher priced than another for same market segment hotels, then you may need to spend more money to stay all the hotel nights you need during the year.

Award values ranked by hotel and program:

  1. Hyatt  7.88
  2. Marriott  7.16
  3. Radisson  5.80
  4. Holiday Inn Express  5.52
  5. Hilton (Points & Points)  4.05
  6. Holiday Inn   3.96
  7. Sheraton   2.98
  8. Hilton (Points & Miles)  2.70

Holiday Inn Express ($138) and Hilton ($135) have similar prices and Holiday Inn Express comes out a significantly higher award value at 5.52 compared to Hilton’s 4.05.

And if you take Hilton HHonors Points & Miles, meaning your rate of earning Hilton points is reduced by one-third the base points, then award value for Hilton is the lowest of the lot.

While Starwood comes out low at 2.98 for a member without elite status, the impact of elite status on award value is quite apparent.

Adjusting Award Value to Account for Elite Status

Members may earn as many as 50% more points per hotel dollar spend dependent on elite status.

  Hotel Award Value (adjusted to uniform scale of 10 base points/$1) Low elite tier in program Award Value program adjustment factor low elite Award Value Calculation Adjusted Award Value for Fisherman’s Wharf Hotels
Radisson$116 Carlson gold points plus*(20 points/$1) Silver(25%)25 points Multiply by2.50 $2.90 x 2.5 7.25
Hilton$135 Hilton HHonors (Points & Points = 15 points/$1) Silver (15%)16.5 points Multiply by 1.65  $2.70 x 1.65 4.46
Hilton$135 Hilton HHonors (Points & Miles = 10 points/$1) Silver (15%)11.5 Multiply by 1.15 $2.70 x 1.15 3.11
Hyatt$189 Hyatt Gold Passport =5 points/$1 Platinum (15%)5.75 Divide by 1.74 $15.75 ÷1.74 9.05
Holiday Inn$99 IHG Priority Club* = 10 points/$1 Gold (10%)11 Multiply by 1.1 $3.96 x 1.1 4.36
Holiday Inn Express$138 IHG Priority Club* = 10 points/$1 Gold (10%)11 Multiply by 1.1 $5.52 x 1.1 6.07
Courtyard by Marriott$179 Marriott Rewards* = 10 points/$1 Silver (20%)12 Multiply by 1.2 $7.16 x 1.2 8.59
Sheraton$149 Starwood Preferred Guest = 2 points per $1 Gold (50%)3 Divide by 3.33 $14.90 ÷ 3.33 4.47

 

Throw in a low elite status and now the Starwood Preferred Guest has a higher award value at the Sheraton than the Holiday Inn and matches the award value for the Hilton Points & Points earner.

Here are the award values ranked for the Fisherman’s Wharf hotels and low level elite status:

  1. Hyatt    9.05
  2. Marriott Courtyard   8.59
  3. Radisson   7.25
  4. Holiday Inn Express   6.07
  5. Sheraton   4.47
  6. Hilton (P&P)   4.46
  7. Holiday Inn    4.36
  8. Hilton (P&M)  3.11

The award value ranking changes again when considering top elite status. This is primarily due to Starwood not increasing at all from low level elite as an effect of SPG Platinum status while Hyatt increases from 15% to 30% and the other programs all increase to a 50% elite bonus.  

  Hotel Award Value (adjusted to uniform scale of 10 base points/$1) High elite tier in program Award Value program adjustment factor top elite Award Value Calculation Adjusted Award Value for Fisherman’s Wharf Hotels
Radisson$116 Carlson gold points plus*(20 points/$1) Gold(50%)30 points/$1 Multiply by3.0 $2.90 x 3 8.70
Hilton$135 Hilton HHonors (Points & Points = 15 points/$1) Diamond (50%)20 points/$1 Multiply by 2.00  $2.70 x 2 5.40
Hilton$135 Hilton HHonors (Points & Miles = 10 points/$1) Diamond (50%)15 points/$1 Multiply by 1.50 $2.70 x 1.50 4.05
Hyatt$189 Hyatt Gold Passport =5 points/$1 Diamond (30%)6.50 points/$1 Divide by 1.54 $15.75 ÷1.54 10.23
Holiday Inn$99 IHG Priority Club* = 10 points/$1 Platinum (50%)15 points/$1 Multiply by 1.5 $3.96 x 1.5 5.94
Holiday Inn Express$138 IHG Priority Club* = 10 points/$1 Platinum (50%)15 points/$1 Multiply by 1.5 $5.52 x 1.5 8.28
Courtyard by Marriott$179 Marriott Rewards* = 10 points/$1 Platinum (50%)15 points/$1 Multiply by 1.5 $7.16 x 1.5 10.74
Sheraton$149 Starwood Preferred Guest = 2 points per $1 Platinum (50%)3 Divide by 3.33 $14.90 ÷ 3.33 4.47

 

The rankings shift again when the elite bonus points of top-tier loyalty members are factored into the earning side of the award value equation. Courtyard now moves to the top and Priority Club leaps above Hilton. This is due to the fact that a Priority Club Platinum member is earning 50% more points at 15 points per $1 in hotel spend. The Hilton Points & Points member is only earning 33% more points at 20 points per $1 as a Diamond member, compared to 15 points per dollar for the HHonors member with no elite status.

Hotel award value rank for Fisherman’s Wharf for high elite loyalty members

 

  1. Courtyard  by Marriott   10.74
  2. Hyatt  10.23
  3. Radisson   8.70
  4. Holiday Inn Express   8.28
  5. Holiday Inn  5.94
  6. Hilton(Points & Points)  5.40
  7. Sheraton   4.47
  8. Hilton (Points & Miles)  4.05

 

The Missing Factor – Promotions, Promotions, Promotions!

Promotions are variable. My opinion from watching promotions across the different loyalty programs for several years is the promotion points earned with Starwood, Hyatt, and Priority Club make up a far higher percentage of total points earned during the course of a year of hotel travel than seen with Hilton or Marriott. Actually quantifying the promotion variable is difficult and the ability to earn promotion points is dependent on your travel pattern.

Ignoring promotions favors Hilton and goldpoints plus due to the higher level of base points earned per $1. In real travel promotion points and other bonus points from credit cards and partner activities are additional factors to be considered. Over the past couple of years Hilton HHonors has taken the lead with credit card earning while falling behind on promotion points earning compared to other programs.

So what’s my point?

The bottom line and the point of this post is to illustrate how “crunching the numbers” is actually quite a bit more involved than one might think when reading a simple statement from the SmartMoney.com, “Before you switch loyalties…crunch the numbers on rewards to make sure you are getting the best deal.”

I have thought about how to crunch the numbers to compare awards between programs. I present a method here that is far from perfect, but at least provides a simple starting point for comparing award values between hotel loyalty programs.  I think this method is more accurate and fair in its comparison of hotel award value between programs than I have seen in other analyses.

[Article correction April 12, 2010 – The original version of this article incorrectly listed Gold elite status as requiring 40 nights when it is 35 nights or 20 stays. This error did not affect any of the calculations or analysis.]

About Ric Garrido

Ric Garrido of Monterey, California started Loyalty Traveler in 2006 for traveler education on hotel and air travel, primarily using frequent flyer and frequent guest loyalty programs for bargain travel. Loyalty Traveler joined BoardingArea.com in 2008.

More articles by Ric Garrido »

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Comments

  1. One factor you did not take into consideration in the calculation of Starwood Platinum is that you can opt to receive 500 bonus points per stay as part of the benefit. It would be interesting to see if this effect the calculation.

  2. When booking a hotel in a busy city location or at a busy time of year, hotels are less likely to let you use points for free nights or upgrades. Many programs,like SPG (Starwood) allow you to pay cash + points. I’ve found this a great way to book a nice room ( usually the free rooms are by an elevator, ice machine, lower floor etc). But by using the points and cash option, the rooms are usually upgrades. You still earn points on the portion of the room paid in cash so it’s a win/win.

  3. David – Platinum amenity points make a big difference. 500 points for a Sheraton stay is equivalent to $250 in hotel spend base points. Also, the high rate members earn promotion bonus points relative to base points means SPG rewards will probably rank higher in real travel.

    Hyatt, IHG and SPG members will usually have a larger proportion of points earned from promotions relative to base spend points compared to teh other programs.

    Brenda – in my experience there are no Starpoints earned for the cash portion paid on a Cash & Points award stay. Incidental spend during the Cash & Points stay earns points.

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