Hilton Brand Strategy, Loyalty & Distribution | In Practise

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Hilton Brand Strategy, Loyalty & Distribution

Former Global Head of Corporate Strategy at Hilton Worldwide

Why is this interview interesting?

  • How Hilton built a portfolio of brands for all market segments
  • Hotel conversions versus new builds
  • How hotel loyalty schemes are moving from simple frequency plans to full customer experiences
  • Franchisee cost strucutre and financial leverage
  • The long-run positioning of the OTAs and who owns the customer

Executive Bio

Mark Morrison

Former Global Head of Corporate Strategy at Hilton Worldwide

Mark has over 20 years experience in the hotel industry and joined Hilton in 2008 as Global Head of Corporate Strategy to help Blackstone transform the business. From 2008-16, Mark led the strategic turnaround of Hilton where he was pivotal in constructing the brand portfolio and building the loyalty scheme. He then joined Expedia as VP, Hotel Owner and Services where he rolled out strategies for owners and management companies of the largest hotel chains globally. Read more

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Interview Transcript

Mark, a pleasure to have you with us today. I think a good place to start would be to take a step back and provide some context as to when you first joined Hilton, shortly before the financial crisis and the situation with Blackstone, as owners.

Blackstone bought Hilton, in late 2007. I wasn’t there, but I think they quickly brought on Chris Nassetta, who was an experienced hotelier, who had been running Host, which was a REIT, so a real estate background. Then Chris had started to build up a team and I think they had bought on the CFO, a week or two before I joined. What Chris had been doing, in those first six to nine months is, he had been going around, meeting with different leaders in the company, trying to understand what the opportunities were and, basically, working with Blackstone to agree some high-level directional issues for the company.

I came on board, right as we starting to execute a transformation. It was a very exciting time, because you had a private equity owner, who was motivated to see change. There’s no sacred cows, so we were able to go after whatever we thought was necessary, to make the change. I came in at the moment we were ready to start executing that transformation.

As you stepped into Hilton, what was the strategy?

For me, literally, on day one, I started working on the transformation of the company. What I mean is the execution of an organizational transformation. We spent, probably, four months or so and we went through individual functions, like finance, HR and we looked at each individual function and tried to figure out, what were the changes we could make, to streamline the company? What had happened, going back to Blackstone’s thesis, is that the company was divided between different business units. You had a timeshare unit, you had the international unit, the US domestic unit and these were all run separately. There were different HR departments, different finance groups, different systems. The idea was to combine all that together and drive as much scale as we could.

Even within international US, there was a lot of regional activity going on. To shoot for scale, our idea was, you had the same systems everywhere, the same way of working. The goal at first, was to shoot for scale which is, again, streamlining everything and making it very similar. That was one of the key tenets as we went through and made the changes we made at the company, was to streamline all the business units and the regional ways of doing things, into one business.

What was the biggest challenge?

In any transformation, I think the biggest challenge is to get everybody aligned that a change needs to happen. Separate from Hilton, I’ve also worked with other companies, in an advisory capacity and you often see that the board is not all in on making dramatic changes and/or in the leadership that exists, there are people that don’t want to make that change. Having that mandate to decide what you want to do is the most important thing.

The second thing is, it’s the leadership, such as the senior VPs and above, or whatever you consider to be your senior leadership group, getting them on board. I find it fascinating, because you sometimes have very, very smart people, who really know their space. But for them, change is scary and they see a plan that they want to execute on and they’re like, I don’t need a transformation right now; we need to get going. But what they don’t often realize is that they’re operating within something that’s restrictive, that’s limiting the whole potential. Even if they did execute on, sometimes, a very good plan, you still won’t reach the full potential for the whole company. Trying to get everybody on-board, where you have a leadership group that’s of the same mind, that’s one of the bigger challenges.

Everything is really around alignment. The last thing is just aligning the culture. Once you’re done with the transformation, trying to figure out how you align everybody around the purpose of the company, again. When you do a transformation, it’s very disruptive to people who work at the company. It can be very disruptive to the leadership, too, especially if you are bringing on some new leadership. But trying to figure out how to align the culture, where everyone is motivated and they understand the purpose of the company and they are all swimming in the same direction when they get going, is a challenge. That falls into part culture and part trying to implement some performance-driven metrics, where people are aligned, in terms of what they’re doing.

What will happen is, when you run a transformation, inevitably, some functions or some parts of the company will try to revert back to what they were doing before, because they would say, that’s what we were doing before. Sometimes, you need fundamental change. To press change down into the company is beyond just the nine to 18 months of the transformation process. There’s an ongoing transformation effort, in terms of making sure that whatever you wanted to, sticks.

You step into Hilton, there’s implementing systems for scale, changing the culture, transforming the business, spinning out timeshare. How did you then think about building a portfolio of brands, under one roof?

The regional idea wasn’t really a ground expansion of brands. I guess there was an idea that one or two would be launched. But just thinking about the rationale would be brand to brand. The Hampton Inn brand, for example, was performing very well, but the question would be, if you looked at Hampton Inn, its average daily rate was north of $100. Meanwhile, Marriott had Fairfield Inn, which was averaging more like $75. There was space for Hilton to say, hey, there’s another part of the market that, maybe, we are not capturing. Part of that comes from looking at the customers and part of that’s also coming from owners, where owners are happy with their Hampton Inn and they say, we’d like to build another product with you. We already have a Hampton Inn, in the market, but we see an opportunity to go to this other space. That’s just one example where Hilton launched Tru, which was a slightly more downscale product, to Hampton Inn.

We looked at the full spectrum. I think the other thing I will just mention, really quickly, is luxury. Hilton was, and even today, continues to have a lower supply in the Luxury segment. Luxury is important, firstly, because talking about filling up the space, it’s important that you can go after the luxury-oriented customer. But the other thing is, there’s a halo effect. When you have the Waldorf Astoria, in Beverly Hills, that shows up in a lot of magazines or on TV shows and that is good for branding. There’s a mixture of getting that customer, but then also having that halo effect of the hotels themselves.

Does a higher premium mix drive more loyalty to the brand, in that sense? As you said, it drives awareness and great brand equity, in a way. Does that actually lead to higher loyalty penetration and stickiness with customers?

I would agree with that, yes. There’s a couple of things to be said there. You have to have the hotels in the right locations, to drive frequency and loyalty. The challenge you have with sub-scale brands is, how do you drive loyalty if you only have 20 locations and you go to New York City and there is nothing in Time Square, if you are a customer, you obviously have to go with another brand. It’s making sure you have the buildings in the right locations and then, within that, more to your point, people want to trade up, at times, to go on a nice vacation with their spouse, or resorts are also important. Having those places where people can burn their points, in a location, when they want to take a week off over Spring Break. Having those, what we call burn properties, places where people want to go at their leisure and they’re aspirational properties, is important to have, in terms of helping to support loyalty.

How would you compare Hilton’s portfolio to Marriott’s, for example?

At least when I was there, Marriott had the Ritz-Carlton brand and they also had JW Marriott, which was relatively bigger than Conrad. Ritz-Carlton and JW Marriott were just significantly bigger and there was a big opportunity to grow in luxury. Then Marriott, at the time, I think it had a few more brands but, generally speaking, I think there are a lot of comparisons. Their appeal of Courtyard and other brands, in Residence Inn, much like Hilton had some counterparts to those. I think Marriott is also a very good company and they have some very good brands.

I think what was interesting was, Marriott launched Autograph Collection, while I was at Hilton. Autograph Collection was this idea that you don’t have to have strict brand standards but, basically, you create some kind of pillars around what the hotel needs to be. Then you go out and you convert hotels that are independent hotels that might have a more unique flavor. It’s not a programmed hotel; it’s whatever is in the local market. Again, it just has to meet some basic standards but it’s more like what we call collection brands. It’s interesting, when Autograph launched, it was a very slow launch, at first. I think there were some questions around, what am I really getting when I do this. What has happened, over time, is the importance of the loyalty system and the technology systems and the marketing and distribution systems, which have become much more important than even the individual brands themselves, within these brand families.

Suddenly, something like the Autograph Collection started really taking off. Therefore, you start to see Hilton also getting in the game and now you’ve seen pretty much every brand family has these collection brands. The benefit for the system, like Marriott or Hilton, is that you have what we call conversion brands. Rather than signing a deal, especially in a downtown area, where it might take three to five years to build a hotel, you can convert a hotel and it joins your system within three to six months and it’s already up and running and you start generating fees right away. From a financial perspective, they are also very attractive.

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Hilton Brand Strategy, Loyalty & Distribution

June 4, 2020

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