Owner & Franchise Integration Update | December 2016
The completion of Marriott’s acquisition of Starwood brings exciting new opportunities to associates, guests, owners and franchisees across the combined portfolio. As a first step, we accomplished the bridging of loyalty programs for guests on Day One, illustrating our intent to move quickly to realize the benefits of this acquisition for all stakeholders. Since that time, work has begun in a number of areas in order to allow properties to begin realizing benefits from the integration.
As mentioned in our Begin the Journey communication following the official closing, one of Marriott’s key business objectives for the integration is to ensure a strong value proposition for you, our hotel owners and franchisees. This value proposition is based on both financial and ease-of-business benefits, and includes five key components: revenue synergies, cost synergies, support, engagement, and simplification.
We anticipate economic benefits through revenue enhancements and cost reductions. Specifically, we believe we can grow top-line revenue for properties regardless of what legacy system they originated from – Marriott or Starwood – and want to highlight some of these opportunities below.
Industry Leader in Number of Properties and Loyalty Members
Our guests now have unprecedented choice, with more than 5,700 properties and more than 1.1 million rooms in over 110 counties, creating a powerful platform for building loyalty, and introducing new guests to all of our brands.
Together, Marriott Rewards, The Ritz-Carlton Rewards and Starwood Preferred Guest (SPG) have more than 85 million members. Within minutes of the merger closing, members were able to link their accounts on members.marriott.com in order to have their status matched and enable the transfer and redemption of points across all three loyalty programs. The first transfer and redemption reservation occurred just 15 minutes after closing the transaction, and over 3.3 billion points were transferred between the programs in the first month. The primary goal of this effort was to create awareness and favorable sentiment for the loyalty benefits available to members. We saw strong results, with 3.8 billion PR impressions globally during the first few weeks following legal close. Additionally, our efforts garnered news coverage from top media sources as well as influential travel bloggers who praised Marriott for offering these unprecedented benefits on the first day the merger closed.
The launch of account linking generated positive results; however, we believe an even greater opportunity exists. Only 16 percent of our combined 85 million members belonged to both the Rewards and SPG programs prior to the merger, and this puts us in a tremendous position to capture incremental business across the portfolio. We anticipate continued positive results as we move forward, and believe the combined company will capture a greater share of wallet from both Rewards and SPG members long-term due to the increased distribution and breadth of our brands.
Comprehensive Channel Strategy that Boosts Hotels’ Long-term Profitability
Marriott launched its Global Distribution Strategy to build and maintain a booking channel portfolio that drives revenue and reduces costs for hotel owners and franchisees. This strategy calls for Marriott to: (1) differentiate our direct channels, (2) create powerful reasons for guests to join our loyalty programs and book direct, and (3) evolve relationships with third-party distribution channels so they support the growth of Marriott’s direct channels, as well as new customer acquisition.
As part of this strategy, we can now leverage the increased size of our combined loyalty programs to drive business to our lowest-cost direct channels. Our strategy is already delivering strong results:
- Marriott is among the global hotel brands with the highest share of bookings coming from direct channels and from loyalty program members. Direct channels are Marriott’s lowest cost channels.
- We believe Marriott has negotiated the lowest average cost of sale through intermediaries. Over the next few months, we will be migrating Starwood’s distribution agreements to Marriott’s terms with OTAs, TMCs and GDS, significantly reducing the cost of sale for bookings to owners and franchisees of former Starwood-branded hotels. We will provide notification as we roll out the new terms to hotels.
- The first agreement to be migrated will be Expedia, and work is already underway by Revenue Managers at former Starwood-branded hotels to begin the process of conforming to the technical/business requirements for this migration, which will take place in phases. It is anticipated that the complete portfolio of former Starwood-branded hotels will be able to realize the benefits of the new Expedia agreement beginning in Q1 2017. Additionally, the migration to Marriott’s Booking.com agreement will be completed in late March.
Sales Efforts to Drive Business Across the Combined Portfolio
The MAR<->HOT Lead Referral Program, which launched at legal close, was designed for leads sent from Marriott to the former Starwood-branded portfolio and vice versa. Sales teams are instructed to use this lead referral program only after all attempts to place business in the Marriott- or former Starwood-branded hotels they represent have been exhausted. Additionally, immediately after closing, we reached out to our largest B2B customers to share the news of the merger. At that time, we began cross-selling across our 30 brands. For group business, we’ve seen over 1,000 lead referrals through the end of October between the Marriott and former Starwood portfolios.
Opportunities Exist for Near-Term Cost Synergies
Several key areas have been identified as near-term opportunities for 2017: (1) drive preferred procurement, (2) leverage above-property services to achieve economies of scale and rationalize above-property programs and services, and (3) review vendor contracts and move to the most favorable arrangements. This is just the beginning of the journey and we anticipate additional opportunities for cost synergies to be realized over the longer term, such as through the harmonizing of systems and programs – like our reservations and loyalty platforms. These synergies will take some time to achieve, but we will keep you updated through the process.
As we move forward with the integration, one of the first mandatory priorities for former Starwood hotels that are managed by Marriott is to establish a strong global finance operating model. Over the next year, we will be migrating the former Starwood operations using SAP and HFM platforms to Marriott’s suite of financial systems and accelerate the expansion of finance shared services through Marriott’s partnership with Accenture Hospitality Services (AHS), thereby allowing the Finance organization to effectively build synergies, realize further service and cost efficiencies, and deliver value to stakeholders.
Global Quality Changes to Launch in 2017
In addition to implementing programs in order to achieve cost synergies, we will also be implementing changes to further our simplification goal. This will include introducing one global quality framework across our newly-consolidated portfolio of hotels, as this will ensure the brand health and a consistent guest experience. Over 2017 and 2018, we will be integrating the Marriott and former Starwood quality programs. This will include: (1) moving all former Starwood brands to guestVoice in January 2017, (2) migrating and consolidating all former Starwood and Marriott brand standards on to Marriott’s global standards database on MGS in Q2 2017, (3) implementing the Brand Standards Audit program at former Starwood-branded hotels beginning in Q3 2017, and (4) transitioning all former Starwood-branded hotels to Marriott’s accountability program.
Next Steps
This is the first in a series of updates intended to keep you informed of the programs and services that Marriott International intends to implement next year. We will provide regular updates as we identify additional areas of opportunity to achieve cost synergies and simplify programs at the hotel level. In addition, we will be sending targeted communications to accounts impacted by specific integration activities. We do not intend for the programs and above-property services launching in 2017 to lead to incremental costs; rather, they should generate opportunities to gain efficiencies and economy of scale. We appreciate your support as we begin implementing the first set of programs and services in former Starwood-branded hotels. Should you have any questions or feedback, please reach out to us at ownerfranchiseservices@marriott.com.
