Hotel Giants Turn to Loyalty Licensing Deals: 10 Things to Know

Marriott and Sonder are teaming up in a 20-year licensing deal that lets members of Marriott’s loyalty program earn points at Sonder’s roughly 200 properties—about half of which are apartments. The deal is the latest in a string of similar licensing tie-ups led by Marriott, Hilton, IHG, and Hyatt.

In the past year, loyalty licensing tie-ups have included Marriott with MGM Resorts, Hilton with Small Luxury Hotels of the World, IHG with Iberostar, and Hyatt with Rio Hotel & Casino in Las Vegas.

“Each partnership will be crafted to support different objectives, whether it’s member acquisition, member retention, trying to capture more share of wallet, or get a higher number of members spending within your network,” said Chris Holdren, a former hospitality executive.

Here are 10 things to know about the trend.

1. Loyalty Licensing Isn’t New

IHG was one of the early pioneers of a loyalty licensing partnership.

In 2010, IHG signed a license agreement with Las Vegas Sands to affiliate The Venetian and The Palazzo at the Venetian with its loyalty program. Today, the properties are branded “IHG Alliance Resorts” on IHG’s site and app.

That same year, Marriott added The Cosmopolitan to its Autograph Collection of hotels, making it available for booking and rewards participation through its system.

In 2013, Starwood teamed up with Ceasars Entertainment to let customers earn points for stays across their networks. The deal ended soon after Marriott’s offer to buy Starwood closed in 2016. In 2017, Wyndham became Caesars‘ new loyalty partner.

2. Some Markets Are Hard to Enter

In 2023, Marriott did a loyalty tie-up with MGM Resorts.

A common driver of these deals is that the major hotel groups have been mostly locked out of the Las Vegas market by a few local players, but their customers like to visit Las Vegas. Loyalty partnerships allow hotel groups to give guests access and allow gaming resorts to enjoy the hotel groups’ cost advantages in marketing and distribution.

In March, Hyatt began allowing members of its loyalty program to earn and redeem points at the Rio Hotel & Casino in Vegas.

Geographic coverage can also drive non-gaming tie-ups. Sonder runs many properties in residential neighborhoods where it’s hard to open new hotels, so Marriott has extended its reach through a tie-up.

Similarly, Small Luxury Hotels of the World also has luxurious properties in tiny towns, villages, and remote resort areas where new hotel creation is difficult. So Hilton’s deal with that collection of hotels extends the group’s reach.

3. Meeting Targets for Net Rooms Growth

Why are hotels pursuing deals that are soft and temporary tie-ins rather than acquisitions?

“Because traditional hotel signings are at a low point, and because existing hotel brands are priced high, the traditional metric of room count growth has become a challenge to achieve,” said Chekitan Dev, a distinguished professor at Cornell University’s Nolan School of Hotel Administration.

“Interest rates have stifled growth, so until rates come down appreciably, firms are going to be looking for ‘nontraditional’ additions and ‘strategic alliances’ as workarounds to show growth in room count,” Dev said.

Investors bid up the share price of hotel groups that maintain steady growth in the net number of rooms. Their logic is that, on average, the fees generated by adding a hotel to a network will outweigh the costs, so whoever has the most net room growth wins.

However, these investors overlook that, just as some hotels generate higher-quality fees than others, some loyalty licensing deals are more lucrative than others. The hotel groups don’t disclose fee terms for these deals.

Investment bank analysts assume there’s typically some “dilution” from the fee volume a group would get compared to actually owning a brand.

“This maturation of the industry, or the fact that it is more challenging to grow units profitably, means that hotel brand families are likely to grow their portfolio of strategic partnerships to increase their total addressable market, create more opportunities for new and loyal guests to earn and burn points, and to increase their access to data at scale,” said Rachael Rothman, head of hotels research and data analytics, at CBRE Research.

4. Scaling for Customer Data

Hotel groups aren’t just growing their loyalty programs for their own sake. They’re eying competition with online travel agencies and banks with loyalty programs and potential rivals like Airbnb.

“While boosting net rooms growth is nice, the scale of loyalty plans is the big driver,” said Seth Borko, head of research at Skift Research.

Marriott leads among hotel groups with 210 million members. Its rivals are playing catch up. Hyatt, for instance, only has 48 million.

“Meanwhile, Expedia One Key has roughly 170 million members worldwide, and Chase has about 150 million credit card users in the U.S. alone,” Borko said.

Old-fashioned ideas that loyalty programs are simply about rewarding repeat customers are going by the wayside.

“What loyalty programs have evolved into is customer data analysis tools, where they capture information about you and your purchase patterns,” Holdren said. “The data lets them get to know you as a person, so they can offer more tailored marketing to support the growth of the business.”

The companies with the biggest customer databases, best customer analytics, and most efficient marketing will see gains, such as making their co-branded credit cards more attractive to the banks that pay them fees.

“Access to the data at scale will lead to consolidation and higher franchise fees over time,” Rothman said. “The financial and talent resources required will leave many smaller companies at a disadvantage.”

5. Capturing New Customer Segments

Some brands tend to draw particular customer segments that major hotel groups may otherwise struggle to reach.

“Partnerships are also partly about continuing to make the loyalty program value proposition relevant to a rapidly evolving customer base,” said Ramya Murali, a co-lead consumer loyalty offering, principal at Deloitte.

Sonder has a youthful clientele, and its many apartment-style properties could help Marriott stay relevant in a world where your grandma might run an Airbnb empire. Small Luxury Hotels of the World has a coveted high-net-worth customer base that seeks distinctively designed properties. Hence, Marriott’s and HIlton’s respective interests.

One way to woo customers is to offer special rewards tied to their favorite interests, such as a chance to go to a small private event with a favorite musical artist or professional athlete.

“Marriott’s deal with MGM Resorts, for instance, has access to a variety of Vegas experiences that I expect will be integrated into experiential offerings for Marriott Bonvoy members,” Borko said.

6. Adding Brands Leads to More Direct Bookings

Hotel groups talk a lot about giving members of their loyalty programs more choices and that a “customer-first” perspective drives their interest in these tie-ups. But other commercial side benefits also matter.

One reason why hotel groups like to keep adding brands is that consolidation can hasten market share gains.

“This chart from Skift research shows that as hotel brands gain market share, more bookings are made directly,” said Pranavi Agarwal, senior research analyst. That’s partly because loyalty members are more likely to book directly.

“The Marriott-Sonder deal goes along with the theme we have been highlighting for years: it seems to be a race for ‘those with the most brands win,’” said Alan Woinski, editor of Skift’s Daily Lodging Report.

7. Lower Distribution Costs Matter

Gaming resort brands can access a lower distribution cost by being featured on a hotel operator’s websites and apps instead of paying higher commissions to acquire customers through online travel agencies.

This logic also applies to loyalty tie-ups with non-gaming brands like Sonder or Hilton’s deal earlier this year with Small Luxury Hotels of the World.

Loyalty programs have become the ‘tip of the spear’ when approaching third-party owners or brands to get them to affiliate.

“Anything that adds ‘scale’ to the program makes it stronger for everyone,” Dev said.

8. The More Brands, the Higher the Engagement

A related reason why hotel groups are interested in soft loyalty tie-ups is that they want to drive greater engagement from their current membership.

People only stay in hotels so many nights a year. If you can get them to stay with you in places where your hotels aren’t as common, whether it’s Las Vegas or a residential neighborhood with a Sonder, you might increase engagement.

“A trend we’re seeing in loyalty programs across industries, not just within the hospitality industry, is an increasing focus on partnerships to create more touchpoints and drive stickiness with customers,” said Murali of Deloitte.

9. Potential Future Deals

Given the above factors, it seems likely that hotel groups will continue to show interest in loyalty licensing deals with third parties.

“These are easy wins for an asset-light hotel group — the ability to build out a luxury or lifestyle brand without the need for M&A or organic development that would take many years and a lot of investment,” Agarwal said. “This luxury and lifestyle area is clearly an important playing ground for the major hoteliers at the moment. I wouldn’t be surprised to see more of these deals.”

Analysts have anonymously floated a few candidates.

• Hyatt might seek to tie up a loyalty licensing deal with some of the luxury and lifestyle brands owned by Standard International, including The Standard, rather than pursue a more complicated outright acquisition, as media reports last month suggested may happen this year.

• Given that Hilton partnered with Small Luxury Hotels of the World, the major hotel groups may next target the other major collections of independent properties, such as Leading Hotels of the World and Preferred Hotels & Resorts.

• Given that the Marriott/MGM Resorts deal highlighted the interest of major groups in hard-to-break-in markets with a lot of group business, Loews Hotels might become a target for a loyalty licensing partnership. Lowes has been expanding its presence in Orlando, with rare direct access to Universal Studios theme park.

10. Why Marriott Did the Sonder Deal

Marriott signed a deal on Monday to promote Sonder properties operating in 37 markets across 10 countries upon integration, it told Skift.

Why did Marriott do the deal? A spokesperson told Skift: “Marriott has long believed in providing the right product at the right price point for all trip purposes and generations of travelers.”

“With this agreement, we are excited to continue growing our offerings in urban, apartment-style accommodations — across 37 markets and 10 countries — and increase our 2024 net room growth from 6 to 6.5%. Sonder by Marriott Bonvoy is expected to offer a digital-first operating model appealing to key demographics, including younger travelers.”

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