Marriott's To-Do List for Assimilating Starwood

We admit it - none of us saw this coming.  Speculation about Starwood combinations has been a happy pastime for more than a decade.  In all that time, no one ever thought that a merger with Marriott was a possibility.  The reasons why shape up nicely into a task list for Marriott leadership as they plan their road ahead.

1. Beige vs. Black

Marriott's hotel brands are known for consistency, operational excellence, inoffensive design, and overall welcoming comfort.  For most travelers, the mental image that forms when someone talks about a "hotel" is likely a Marriott lobby, room, and exterior.  

Starwood is known for being hip, trendy, and cool.  Aloft, W, and Element were specifically designed for hipsters, and if you are not in their target audience you know it the moment you step into the hotel.  St. Regis is about Hollywood elite and Fortune 500 board members.  Westin is like a Marriott for people who drink martinis at neighborhood parties. Sheraton... ok, well maybe Sheraton isn't very cool, but the Starwood Preferred Guest points you earn while staying there let you pretend to be cool when you redeem the points in Manhattan.   You can still smoke in Starwood hotels, and some of the guests there still think that makes them look sophisticated.

Beige and black don't really seem to be a fit.  I can't really imagine Bill Marriott hanging out in a W lobby, wearing a Steve Jobs turtleneck and pretending to read "Howl."  How will the new standards manual look for brushed steel check-in desks and exposed ductwork?  The typical Marriott quality inspector will only see the dust clinging to the pipes and electrical lines right above the buffet sneeze guards.  At the same time, "Aloft by Marriott" does not seem to work - kind of sounds like "Target presents the Louis Vuitton collection."  Figuring this out will be perhaps the hardest job for the companies over the next 10 years and may prove to be the reason why this marriage could end badly.

2.  Loyalty?

Marriott Rewards is the dominant program among corporate travelers worldwide.  Solid earnings structure with hotel redemption options worth striving for make it the most common card to carry, rivaled only by Hilton Hhonors.  Starwood Preferred Guest is the favorite of professional services firms everywhere, and its top-tier members are harder to dislodge than any others in the business.  Like Marriott, the perceived value of the points is very high based upon redemption options.  In reality, the economics of SPG favor the company more than Marriott Rewards, but there are likely more active Marriott Rewards members at any point in time than any other program.

Does Marriott merge the two programs?  Which brand do you keep?  Getting the programs on the same platform is critical, if only for the Big Data value to be gained, but you could see them remaining separately-branded offerings.  Marriott purchased Ritz Carlton in 1995, but the staff at Ritz call the program "Ritz Carlton Rewards" 20 years later.  SPG Elite members may want to burn some points before this gets sorted, but it seems unlikely that this gem will go away any time soon - at least in principle.

3.  Timeshare, Anyone?

This might turn out to be the real reason why Marriott made this deal.  Marriott spun out its own Vacations program in 2011 in order to embrace an asset-light business model like that of IHG's Holiday Inn Club Vacations program.  Starwood's similar move earlier this year positions the combined entity to broker access to its hotel guests and loyalty members to two competing vacation ownership programs.  With referral fees and royalties from timeshare sales potentially being 5X higher than hotel room franchise fees, this could make the new, combined company's ancillary revenues its primary profit growth driver over the next 10 years.  

4.  Managed or Franchised?

Marriott has not been in the hotel management business for two decades, preferring high-margin, predictable royalties to shared-risk management contracts.  Starwood has operated as a management company with some franchisees for most of its history.  Will Marriott retain these contracts?  Should we expect to see Host Starwood emerge in the next year?  When times are good, hotel management seems like a really good business to be in.  If the market turns, no one will want to be in the management game.  

5.  IT Platforms - Homemade Vanilla or Hand-crafted Pistachio?

Both Marriott and Starwood have invested $$ billions in their respective technology platforms, from central reservation systems (CRS) )to property management systems (PMS) to loyalty to revenue management.  These home-grown systems are proprietary monsters which were designed to create switching costs for hotel owners - making it painful to change brands over time.  Like all in-house systems, it is likely that documentation is inconsistent, data repositories are diffuse and mysterious, and developers speak completely different, made-up languages.  It is inconceivable to think that Marriott will retain both systems, but will they be able to convince Starwood owners to pay for costly migrations?  Could this be the catalyst that pushes everything into the cloud at last?  IHG's decision to outsource its CRS business is starting to look very wise - whoever buys that company will have a much easier task than that faced by Martha Poulter and Bruce Hoffmeister.  

This messy challenge is not exciting to anyone, unless you are a professional
services firm.  IBM, Accenture, Deloitte - someone is getting a Christmas gift next year for sure.  

Attention IHG & Hilton:

You've just been given a gift.  No matter how Marriott decides to tackle the challenges above, they aren't going to be paying any attention to you for a long, long time.  Figure out how to take advantage of this while you can.