Marriott-Starwood merger: Pleasure or pain for Starwood loyalists?

WM Circle Logo

By: RickFerguson |

Posted on March 29, 2016

Now that the on-again/off-again acquisition of Starwood Hotels by Marriott International is back on again, industry observers have turned their attention to the most pressing question regarding the merger: How badly will Starwood Preferred Guest members get burned?

No one expects that the company will continue to operate two programmes in perpetuity; at some point, either Marriott's or Starwood's programme will fold. Speaking to ABC News, NerdWallet's Sean McQuay speaks for the conventional wisdon when he predicts that Marriott will devalue the Starwood programme. In simple financial terms, Marriott's points are generally perceived to offer around 1 cent of economic value per dollar spent, while Starwood offers among the richest benefits in the industry with members earning around 2 cents per dollar.

The silver lining for Starwood customers: even after the acquisition is approved by Starwood shareholders, merging the two programmes Money quote from McQuay:

"I expect combining the brands will take a while, not to mention IT back-end systems...It takes a couple years by the time the merger is announced to when the loyalty programmes merge."

True enough. Interestingly, a slide deck from a Marriott investor presentation recently leaked online that revealed Marriott's plan to continue to operate parallel loyalty programmes during the integration to "maintain existing member benefits while also building bridges between the programmes to enhance member experience."

To us, that sounds like Marriott members might see some of those cushy Preferred Guest soft benefits port over to their programme, which will be a nice way to stem any attrition from those elite-status Marriott members who will no doubt be heavily courted by Hilton or Hyatt. In the long term, Marriott does envision a combined platform conferring the following benefits back to the company:

  • "Provide members with unprededented choice, value and access
  • Position us to compete more aggressively in the digital marketplace
  • Benefit form SPG's expertise with affluent consumers in the lifestyle segment
  • Benefit from Marriott's long-standing relationships with frequent business travelers across a broad brand portfolio
  • Enhance our understanding of csutomer travel preferences, further personalising the guest experience
  • Introduce new partnerships to drive greater member engagement
  • Increase competitiveness with other co-branded bank cards

Marriott further promises that this combined platform will deliver "meaningful growth in membership and unparalleled loyalty."

That's all well enough, and it certainly appears that Marriott is saying all the right things about maintaining the loyalty of Preferred Guest members. Still, we think McQuay is right in expecting programme devaluation; there's simply no precedent for a combined loyalty programme to offer richer benefits in a post-merger environment, and the smart money will bet against Marriott continuing to offer their combined memberships points at a 2% funding rate.

The true test for Marriott will be how well, how transparently, and how far in advance they communicate changes to members. There's also certainly some low-hanging fruit for Marriott in terms of building trust with skeptical elite members of both programmes: offering matching elite status for members of either programme, for example, will go a long way toward "building bridges" while enhancing the "member experience."

For what it's worth, here's one more piece of unsolicited advice for those executives eventually charged with combining the two programmes: keep the Preferred Guest branding. While smaller in membership numbers, Preferred Guest is the stronger and more innovative brand, and Marriott's brands will benefit by association. Think of it this way: ask a Marriott elite member to what hotel programme she belongs, and she'll likely say, "I belong to Marriott's programme." Ask a Starwood elite member, and she'll likely say, "I'm a member of Preferred Guest." That brand cache has value - and Marriott would be wise to hold onto it.

- Rick Ferguson

More Info: