Coalition Loyalty — The Hospitality Edition

The 1859 management group had a loyalty problem — or more specifically they knew they had a problem rewarding loyalty. It wasn’t that guests didn’t like their hotels — quite the opposite. Their luxury and historical properties throughout Texas, Kentucky and Colorado were all very popular and extremely well-reviewed, often much better than the assorted chain hotels around them.

But they didn’t have a rewards program of any kind and not because they lacked awareness of the concept but because they didn’t know how to offer one that was meaningful to guests and economically viable for them.

“We absolutely knew we needed one,” Josh Henegar, the corporate revenue director for 1859 hotels, told PYMNTS in a recent interview. “The discussion had been recurring and ongoing for years. We even tried to launch one on our own.”

But those efforts weren’t really successful, Henegar said, largely because with a relatively small number of properties they just weren’t big enough to build a rewards program that was, well, rewarding.

“The problem is with only a few dozen hotels we didn’t have a broad enough offering to really sign people up. Unless they were on a somewhat unusual travel path or someone was trying to stay with us, there was no way to incentivize repeat stays,” Henegar noted. “There is no natural connection between the Brown Hotel in Louisville and the Y.O. Ranch in Kerrville, Texas. Each destination is a different experience; each property is a different experience.”

The problem, 1859 noted, is that in its tier of the market — three-star and up properties — it is doing a lot of competing with some very large and well-branded chains, all of which absolutely had working loyalty programs to incentivize repeat stays.

“We knew we needed something but were really struggling with how to do that in a manner that was reasonably cost-effective and also serve any useful purpose in either retaining loyal customers who love our properties and also introducing new people to the hotels.”

And this is a problem that Henegar and 1859 are far from unique in experiencing. It’s a pretty common problem for independent and small hotel chains that don’t have vast networks available to support their loyalty and rewards programs.

“So, why not create something like SPG [Starwood Preferred Guest] but for independent hotels?”

That was the animating question Jeff Low, Stash Hotel Rewards CEO, asked himself about a millisecond before the “a-ha” moment happened and the idea for his business was born.

After leaving his last job in the Bay Area, Low found himself pondering the edge that large chain hotels have in the race to book consumers — particularly the especially valuable business travelers of the world — after a literal trip to the woodshed.

“I went into literally the shed behind my house because my wife had given me exactly two weeks to either figure something out for a business or go get a new job,” Low told PYMNTS in a recent interview.

And since Low’s last gig before his shed musings had been at Expedia building the site’s reward program — a first of its kind activity for an online travel agent — travel rewards were the most natural place for his mind to go. He came to two conclusions. Big chain hotels had two main advantages: one outdated, one not.

“That cookie-cutter approach you see with chain hotels — that very standardized approach — is by design. Before the Internet, you didn’t know where you were staying, so you wanted to look for something where you knew what you were getting. Hilton, Marriott, Holiday Inn all provided that guarantee of consistency,” Low explained.

Always online mobile consumers take out much of that advantage. Customers today are very able to learn about hotels ahead of time and read a plethora of reviews online or on social media. In the face of that, generic hotels look, well, generic, and at odds with what many customers, even those on professional trips, are looking for in a stay.

But big chains have a second big advantage that their independent counterparts don’t: scale and the ability to incorporate the advantages of scale into their points-based rewards systems. Specifically, allowing guests to convert stays at (perhaps not so interesting) places into stays in different (usually desirable) locations. Low described it as the “Up In The Air” effect — named for the 2009 film.

“Even though travelers may recognize an independent hotel as a better guest experience and more interesting, they want to earn their points because with their points they can someday be a hero to their family and take the family to Hawaii,” Low noted. “It’s not really a choice between the Lennox [an independent Boston area hotel] and Marriott; it’s a choice between the Lennox and going to Hawaii with your kids.”

And so Jeff Low emerged from the woodshed with an idea for what his natural next step was and set about compiling a team of ex-Zillow and Microsoft developers and engineers that would give a group of otherwise unaffiliated independent hotels access to a points-based system that allows users to book into about 70 different hotels (and counting) nationwide.

“We allow users to earn the same currency at all these places and allow them to spend them across the network to get a night,” Low noted.

“It’s been good for us,” 1859’s Henegar noted. “It has allowed us to compete in a predominantly chained and branded market. We are no longer the only hotel company in the market at our level without a working program.”

Signing on to the Stash program for consumers is fairly simple. Low notes most customers do so while they are staying at an affiliated property. For its partners, the bar is a little higher than just filling out a form; they must meet the program’s quality specifications.

“The hotels are upscale luxury — only three stars or higher. We focus on character and quality. And our quality that isn’t a white glove inspection periodically and checking how fast the room service is; it is looking at social media reviews and TripAdvisor ratings. We find that guides customer much more. A person who stayed three years ago is much less relevant than the 30 people who have stayed over the last three months.”

Stash has expanded its rewards offering this week with a launch that Low says has been envisioned since the company’s inception: the release of the Stash Hotel Rewards Visa with Synchrony Financial. Cards and the ability to rack up additional card points through spend is a key inducement for many travelers, particularly high-volume travelers. Those travel rewards include 3x points at Stash partner hotels, 2x points on gas and dining and (most surprisingly) 2x points on any hotel stay, whether or not it is in the Stash network.

“We decided to look beyond the myopic view of the world where customers only exist when they stay in our network and instead think about what the customers want,” Low said. “And this idea came from our hotel partners actually. We were bouncing ideas off of them, and they wanted this idea. Of all the things we talked about, this is what they found different and exciting.”

The program also comes without blackout dates and without foreign transaction fees, an important concern as the firm looks to go global.

Loyalty and rewards programs are hard everywhere in retail, but in the hospitality space, they have the additional difficulty of being essentially mandatory as the biggest players have developed systems so advanced that there are entire subcultures based around using their points as a form of currency. We’ve covered in the past what happens when points programs get a little out of hand.

But they can also be a powerful tool when used right, and Stash thinks it might have the right combination of products to help even small and medium hotels do just that.