Hilton Hotels

Michael J. Marquis

MKTG518 Case Study I

Hilton Hotel’s Background

Led by Conrad Hilton, operations began in 1919 (Mobley Hotel in Cisco, TX).

Hilton Hotels Group went public in 1946 (15 properties in 11 states).

In 2000, acquisition of Promus Hotel Group (owned 1700 properties)

Promus Group managed Holiday Inns of America, Embassy Suites and Hampton Inn (1954).

In 2006, Hilton had presence in 78 countries w/global workforce over 100,000 (largest lodging company in the world).

Differentiator: excellent care of guests

Hotel Owners = Large % of Hilton’s business (several billion dollars of real estate invested in hotel brands)

“It’s share-of-wallet through brands, and share-of-shelf-space through owners.” – Bala Subramanian, SVP of Global Distribution Services

General Overview of Case

In 2008, Hilton Hotels Corporation poised for global growth (1,000 hotels in North America/1,000 in rest of world)

Blackstone Group acquisition for $26 Billion (32% premium over the $32.05 per share price).

New Strategy: Global growth with focus on owners, franchisees, and customers.

Challenges post-Blackstone acquisition:

Highly competitive global lodging business

Limited access to capital

High level of employee turnover

Difficult to standardize service delivery operations

Solution: Customers Really Matter (CRM) initiative

Supporting Facts: Hilton’s OnQ Platform

OnQ, according to EVP of Shared Services Tim Harvey, “embodied both the one-stop shopping nature of an integrated solution and a readiness to service customers ‘on cue’.”

OnQ Features:

Tech-focused

Custom-build enterprise system

Supports property-level operations

Same system adopted across entire Hilton family (QA)

Cost of OnQ (Big Price Tag $$$)

$93 Million initial investment

Another $102 Million invested by 2007

OnQ infrastructure maintenance = $60 million per year (in addition)

Supporting Facts: Customers Really Matter (CRM)

Benefits of the Customers Really Matter (CRM) initiative:With 78,000 calls/day (total of four North American call centers), OnQ

reservations allow agents access to guest preferences.Greater insight = decreased called time and increase cross-selling abilitiesEnables front office to pre-assign guests to rooms Exclusive benefits for Gold & Diamond level HHonors members (MyWay

program)Superior Customer Recover y– records of previous complaints (planning

ahead of time for previously disappointed guests)Proper dispatching/staffing during lean hoursTiered guest valuation system (prioritize most valued guests)Guest survey (SALT) upon guest departure (key metric for evaluating guest

experience)

Strengths

Access to CapitalBlackstone Group acquisition provides optionsCan invest in CRM strategy further or adopt new platformGlobal growth a viable strategic option

Established Standardized Delivery Service SystemHilton controls purchasing, maintaining, and refreshing property level

hardwareProvides complete turnkey solution (owners just pay a franchise fee)Major competitive advantage (solid IT infrastructure)Can be streamlined across entire Hilton family Aids in expansion efforts: more hotels, quicker pace, more consistency

(quality assurance)Superior customer service to VIP members

More Strengths

Brand RecognitionHilton Hotel Corporation is well known for its customer centric

approach to its operations (OnQ/CRM supports brand name)

Technologically Superior Tom Keltner, EV and CEO of the Americas: “Our IT infrastructure

would take years to replicate….”Custom-built enterprise/proprietary software platformConsistency across all hotels1st major multi-brand operator to launch integrated customer

relationship management effort (competition playing catch up)

Highly Competitive Global Lodging

Business

High Levels of Employee Turnover

(especially at the front desk)

Difficult to Measure ROI with Customers Really Matter (CRM)

Initiative

OnQ & CRM infrastructures are

extremely expensive to build and maintain,

year-after-year

Global strategy may be too aggressive

Too much reliance on CRM as Hilton’s

DNA

Too many performance

metrics/programs around top tier

guests

Weaknesses

Acquisition by Blackstone Group for $26 billion allows for new global expansion strategy.

Option to stick with OnQ/CRM or focus on more targeted service delivery operations platform.

OnQ/CRM has established customer centric framework (historical data for new platform if needed)

Opportunity to take a larger portion of market share (9%) from Marriott during global expansion.

OnQ is the conduit for aggressive expansion (more hotels, quicker pace, more consistency).

Can build Hilton Hotel’s infrastructure even further with new capital

Reliance on brand name while expanding globally

Eventual understanding of QRM’s ROI with increased metrics from SALT (surveys, etc.)

Customer loyalty program expansion for high-end guests

Opportunities

Threats

CompetitionMarriott International with 9% of the U.S. lodging market (Hilton has 9% as

well)Competitors have their own guest experience initiatives (Ritz Carlton’s luxury

segment & Wyndham International’s upper upscale segment).

The CRM/OnQ PlatformYearly infrastructure costs exponentially increase with global expansionIncreased difficulty achieving standardized hospitality service with global

expansionNot target enough to specific customer service related issues (too

widespread and vague)Proprietary platform becomes obsolete as other systems advanceMay not be cost-effective (difficult to determine ROI)

Global/External EnvironmentGovernmental regulationsLack of brand recognitionGlobal market conditionsCultural differences

CRM ChallengesDifficult to measure the long term success of the CRM initiativeTough to track its evaluation in terms of ROIHow does one put a metric on personalized interactions?The CRM initiative may not be cost-effective as Hilton expands globally

For CRM to be successfulHilton must focus on measurement, executive championship, employee

training and empowerment (quantify ROI)It must continue to be the DNA of HiltonMore cost-effective infrastructure solutions

The Future of CRM at the Hilton CorpIs it worth reinvesting in CRM or has the program run its course?Has the initiative enabled Hilton to differentiate its brand?Was the standardized approach better than a targeted approach?

Stated Conclusion From Case

Reinvent Brand with New Global StrategyBoost international guest experience initiatives with a targeted hospitality service

platform (do away with CRM outside of U.S.)Purchase targeted customer relationship management platform after extensive

ethnographic studies prior to entering new markets. Use Blackstone Group acquisition capital as a means of testing various service

delivery options (ensure quantitative measurement/ROI).Establish customer-centric global reputation. Continue with strategic initiative focusing on owners, franchisees and customers.More hotels, quicker pace, more consistency with different system

Maintain CRM/OnQ initiative in the U.S. Continue to differentiate oneself as lodging’s customer service leaderUse net profits from cross-selling as a key performance indicator in collaboration

with SALT survey results (profits/service KPI’s) Reduce yearly CRM/OnQ infrastructure costs by keeping system solely within the

U.S. Habitually increase technology around training, information systems, supply-chain

management (not rely so heavily on CRM as sole DNA of Hilton

Recommendations

References:

Applegate, L., Piccoli, G. & Chekitan, D. (2008). Hilton Hotels: Brand Differentiation through Customer Relationship Management. Harvard Business School. Case 9-809-029. Jul. 23, 2008.