Nov. 20, 2006 You Can Get to Know Your Guest: An Interview With Hilton Hotels’ Jim VonDerheide Bob Thompson Jim, I know you’ve got quite an extensive background in what we now call customer relationship management. Could you tell us a little bit about that background and what it is you’re currently doing at Hilton? Jim VonDerheide My career pretty much started as a database marketer. I think as technology progressed over the years, database marketing sort of evolved into response marketing in the 800-number era and then into interactive marketing in the web-based era.
I think as those channels start to integrate, we have a relationship that needs to span across the entire set of interactions we have with our customers. I’ve kind of been standing strategically in between marketing and technology, trying to make sure that those interactions make more and more sense in terms of a continuity market. Bob Thompson What are your responsibilities at Hilton today? Jim VonDerheide My responsibilities revolve around the interactions that take place with our guests, irrespective of what channel those interactions are taking place in.
So, if there is something that we’ve known about a customer or that a customer has asked us to remember about their preferences or their choices, I’m responsible for making sure that we act on those correctly and get them delivered in the correct experience. Bob Thompson How long has this position been in place there? Jim VonDerheide It’s been in place for about three years. We originally started some of our efforts in, I think, what would be a typical approach of a matrix operation that pulled in an operations person, a marketing person and a technology person to determine how we could be more integrated in the way we dealt with our guests.
And at that point, actually, it was just recognition of our guests. Bob Thompson And today, where does your job report into? Is it in the marketing function or IT or somewhere else? Jim VonDerheide It’s in an area that we refer to more as an integrated services area. You know, as a franchising organization with a corporate office, what we do is we try to create services that can be better delivered from a national organization than it can at any of our local hotels. Bob Thompson Let’s talk a little bit about Hilton and the business environment you’re in.
I noticed from the Hilton web site that Hilton’s actually a collection of a number of different brands. Jim VonDerheide That’s correct. Bob Thompson As I read it, 2700 or so hotels worldwide and nearly 450,000 rooms that are under the Hilton brand, brands like—in addition to Hilton—Doubletree, Embassy Suites, Hampton Inn, Homewood Suites and Hilton Garden Inn. So in that type of environment, have you drawn any conclusions about what really determines whether a customer’s going to be loyal to Hilton or to that specific brand? Choice Jim VonDerheide I think it ends up being, again, a guest’s choice.
We have guests that we know are loyal to one of our brands or to a few of our brands. We have a high percentage of our guests who are loyal to the family of brands and will choose to stay with us, irrespective of which one of the brands it is. And what we try to do is cater to each one of those choices that a guest makes. Obviously, it’s to our advantage if we can get guests to be multi-branded, but we certainly understand that there are certain customer promises that, for example, an Embassy Suites would make that will not be replicated in any of our other brands.
Similarly, there are customer promises made by the Hilton brand that won’t be replicated in any of the other brands. So, you know, our job is to really make sure that that expectation is understood in terms of what the brand promise is and to also make sure that the family brand promises, irrespective of what brand you’re staying at, what Hilton brings to its family. Bob Thompson What is that exactly? Let’s talk about Hilton as the macro brand. What’s the promise that you’re attempting to make to the customers? Jim VonDerheide
The customer promise from the family of brands really is hospitality. We consider ourselves to be synonymous, worldwide, with hospitality, and we try to bring hospitality to light in every one of our brands. So that is making your journey more of a pleasant experience. Bob Thompson When you get down to a specific brand, if you’re talking about Hampton Inn, that’s more of a budget brand, if I remember right. Embassy Suites is the suites brand. So with each one of these, you would then try to bring out something that’s specific for the segment it’s going after.
Jim VonDerheide That’s correct. The Embassy Suites has a full-service breakfast, a prepared-to-order breakfast. Hampton has an individual breakfast but not individually prepared. Bob Thompson But let me go back to my earlier question. What is it, specifically, that drives loyalty to that brand? What is it that you try to do or to manage to cause customers to really have this positive feeling about Hilton or about one of these brands? Jim VonDerheide I think it’s similar to most organizations. It’s fulfilling that customer promise.
In our case, that is fulfilling the things that are what I would consider the cost of entry: a clean room, secure room, good bed, functional alarm clock, working shower, hot water, etc. So it’s the physical property that’s a requirement. I believe some of the things we’ve added into that with our loyalty program, Hilton HHonors—some of the things we offer—are the baseline necessities to be in the major hotel industry: points and miles. Where we’re at currently in our experience management is really moving towards choice and control.
What we’re trying to do is make sure that the things we’re investing in for our guests are the things that they want. So the example in a full-service property: If it’s a very frequent guest who, historically, we would deliver a fruit basket to, if we find out they don’t like fruit, we probably ought to be delivering a cheese plate. So it’s literally giving the customer the opportunity to tell us what their experience should be and to layer in investment at the correct level for that type of guest. Bob Thompson Let’s talk a little bit about CRM, specifically, customer relationship management.
Could you give us a brief definition of what it means at Hilton and talk about the evolution of CRM at Hilton, specifically? Where did it start and what’s been happening? Jim VonDerheide I guess from a definitional standpoint, we have the four keywords. It was first: identifying guests, knowing who they were, interacting with those guests and then differentiating. Those were the keys that we were trying to find for identification, interaction and differentiation. We spent the first year and a half making sure that the technology could identify and recognize returning guests.
Bob Thompson And this is back in what timeframe? Jim VonDerheide This was around the year 2000-2001. If I backed up a little bit, I would say that, in the evolution of technology in marketing—or evolution in CRM or CEM—I believe the folks who are in that industry are change agents. So we definitely recognized that early on and put together a matrix organization that was considered to be one of the key integrating factors within the Hilton corporation. ‘ Our average HHonors guest carries 3. 6 cards. We recognize that. We’d just like to be the one they choose first. It happened almost coincidentally with our acquisition of the Promus properties [in 1999], and we had a distinct requirement to integrate multiple and various brands and business models. CRM was seen—the customer was seen—as a major part of that integration. So we backed up and said we needed a technology base and procedural protocol base that would allow us to deal with customers who were coming together from multiple Promus brand sets into one consistent family of brands. Technology played a major role in that from the standpoint of identifying who those customers were so that we could recognize them in a way and get to know them.
Bob Thompson Let’s dig into that just for a second here, if you don’t mind. How do you recognize a hotel guest? Jim VonDerheide I’m going to talk technology first, and then we’ll talk about how we actually had the protocol to deal with it. The technology. The simplest and historic was asking people to opt in so that they joined the HHonors Program. Once that happened, the incentive of points and miles trained folks to give us their HHonors number. That was the easiest recognition. We set out on a mission to say they shouldn’t have to do that.
We should be able to recognize, especially, someone who’s had 20 stays with us, without having to go to that level. Bob Thompson There are some people out there who, like me, don’t like managing all these frequent-flier programs. I mean, I fly a lot, but I don’t fly enough. So even though I probably shouldn’t, many times, I just ignore it. I just don’t want to be bothered. Do you find the same true in the hotel business, where people might be in the HHonors program or not, but they prefer not to give you their number and you have to deal with it some other way? Jim VonDerheide Yes, I think there’s a high volume of folks like that.
I know that I don’t remember very many of my frequent-traveler numbers. I try to get them into a profile, so I don’t have to. But I think we have a high volume of people, and that was part of what we went through with CRM. There’s a high volume of our guests who, for whatever reason, choose to not join the HHonors Program, whether it’s managing too many numbers or too many accounts or not wanting to have to bother with it. But we still believe if they’re staying with us frequently, we should be able to recognize them as a returning guest and give them specialized and different treatment.
Bob Thompson You do that if they’re not HHonors? Jim VonDerheide Yes, correct. We have certain matching algorithms. We try to make sure that we’re putting together multiple purchases for individuals. And those records sort of transfer around the touch-points, the same way that our HHonors records do. The experience Bob Thompson You’ve mentioned customer experience a couple of times here already, and I wondered if you could just comment briefly on what is the new news, from your point of view, on customer experience management—the big buzzword around the industry?
Has it added something to how you think about customer relationships at Hilton, or is it more of a validation of what you’ve been doing already? Jim VonDerheide I guess I would view it as a new word for what we were doing, because I think our goal within the relationship with CRM was always to get to a better experience. You know, hospitality is about the experience, and, especially for our returning guests, what we want to do is make sure they’re getting the experience they deserve. Our approach to getting that experience for the guests was to start to move towards choice and control.
So our movement from identification or recognition into interaction. We realized through research that a lot of what we were doing was treatment that guests just didn’t care about. Bob Thompson Can you give a quick example of that? What was something that you thought made sense but they didn’t particularly care about it? Jim VonDerheide Some of the amenities that we deliver. Some of the things that we were potentially removing from the front desk, like cookies that we thought was just an overhead that people really didn’t appreciate. Bob Thompson Yeah, I like those cookies.
I just stayed at Doubletree back East a few weeks ago, and you know what? It was kind of nice to have that little cookie waiting for me. Jim VonDerheide It’s amazing how often we hear that. And in the diet-conscious world, we started thinking maybe that wasn’t such a great idea. But research told us otherwise, so I think what we realized is for those folks who are diet-conscious and would rather not have cookies, especially, in the room, those are a little bit bigger temptation. Maybe we should offer something else as an alternative. So a healthy snack, instead of a cookie.
Again, it’s choice and control, so we’re trying to use that recognition and the interaction we have with guests that we interact with to allow them to choose what they’d like to receive. We started that process, really, in the HHonors program, because those are the people we can most readily recognize, in offering a choice in the way they receive their bonuses. If there was something besides the bottles of water or being upgraded, they can choose more points. So if you’re a consultant who doesn’t get to your room till 11 and then leaves again at 6 the next morning, you’re probably not drinking that water.
Why not take points? Bob Thompson Right. Jim VonDerheide If all you need is a bed, why get a suite? Being upgraded to a suite doesn’t mean as much to some. It means a lot to others. So, rather than just upgrade everyone who is at a certain tier, we decided to offer a choice of which you would receive. Bob Thompson Now, if you go back some five or six years ago, when this effort kicked off—and I know it’s not like it started from ground zero then—what were the senior executives at that time expecting from what I call customer management or CRM, CEM, customer direct marketing, whatever the buzzword is?
It was about managing customers and delivering what they wanted in building this loyal relationship, right? Jim VonDerheide Right. Bob Thompson What did executives expect in terms of business benefits to make that kind of a push? Jim VonDerheide I think we started off the cycle, really, in a desire to be able to recognize the folks that we should be more hospitable to and to operationally correct some of the things that we knew were errors. Bob Thompson To accomplish what, though? Jim VonDerheide
Well, we had a high volume of HHonors guests that weren’t getting credits for their stays, so we spent a lot of their time and our time correcting that. We had a high volume of guests that weren’t getting the customer promise that they were given. It was much more specific: If you’re a Diamond member, you’re going to get this. It wasn’t a choice. It was, “You deserve this; you’re going to get it. ” Bob Thompson So you had some operational breakdowns, then, on just delivering what you said you would deliver. Jim VonDerheide
Just getting the data or the information or intelligence out to the point and applying the correct protocol to deliver that. We had some inconsistencies in what we knew about a customer between our phone reservation system, our Internet reservation system and the hotel reservation system. A lot of it was to simplify the reservation process for the guest and for us so that they knew they were going to get what they were used to getting. Bob Thompson But if I’m the chief financial officer and I say, “OK, that sounds great. I’m sorry to hear that we haven’t been delivering this promise, but you want how much money? And what do I get for that? Can you say a little bit about—just purely from a business standpoint, Jim—what kind of investment are we talking about? Did someone have to make a business case that says, “Look, if we clean up these problems, we’re going to get some upside, more retention or whatever it might be”? Jim VonDerheide Again, we started the process with the operational saving. If you’re taking a five- or seven-minute phone call from a very important guest about a stay they didn’t get, you can get all the information to post the stay. We knew if we could decrease that by 10 percent, 20 percent, that there were affiliated savings with that.
So we started off from an operational savings, as opposed to an investment. We funded it by savings we could create by being more efficient. That probably took us through the first and part of the second year. The second year was more strategically moving towards the return of investment, and our focus became much more the share of wallet that we receive from frequent guests. Our research told us that, depending upon tier or frequency vesting that we had with a guest, we were receiving anywhere from 40 to 60 percent of their wallet, their travel wallet.
So we set on a mission to put in place tracking that would allow us to know what that baseline was so that we’d know if we were improving it. And we have been able to increase that to the 65- to 84-percent level— Bob Thompson Wow! Jim VonDerheide —of common audiences. So share of wallet is the measurement we chose to utilize. There’s some factors within that that are retention-based, that are activation-based. So a new guest, we try to activate quicker. An existing guest, we try to retain longer and get additional stays from. But it’s not directed as, “We want more stays. It’s, “We want to do the right thing so that we are their first choice in travel,” still realizing that they may call us and we’re sold out where they want to go. Our average HHonors guest carries 3. 6 cards. We recognize that. We’d just like to be the one they choose first. Bob Thompson And how many of your guests do you have in your HHonors program? Jim VonDerheide There’s about 7. 5 million active guests. Actually, I think it’s up around 14 million in total enrollees. Bob Thompson Looking at it more in the last year or two, let’s say you’ve got a new CEO.
And that CEO comes in and says, “I don’t quite get what it is that we’re doing here with this customer management project. And I’m not a technology guy and, frankly, I’m not even in the hotel business. So give me an example that I can understand about how this customer management stuff that you’ve been doing today makes the experience that this hotel guest receives, such that it’s going to be better for our business. ” Walk me through a specific case study, if you will. Pick one of your higher value guests, if you’d like.
How does it actually work now that’s so attractive to them and to us? Jim VonDerheide The easiest is to take any given segment, so let’s pile Gold and Diamonds in our HHonors program together, and let’s say that, on average, they’re giving us—and I’ll fabricate some numbers here—10 stays a year. And each one of those stays is worth $400. So, average two-night stay, etc. So 10 stays, research and satisfaction surveys, various reinforced research (so not one-channel research) tells me that that group of individuals, on average, travels 15 times a year with a hotel stay.
That means there’s five stays out there that I’m not getting from a group of people that probably represents a million travelers. What’s the value of the 5 million stays I’m not getting if it’s $400 bucks a stay? That’s a lot of money that we leave on the table. We know we’re not going to get 100 percent of that, but if we can move the needle a percent, 2, 3, 4, 5, 10 percent, we’ve made a huge impact on our bottom line. So it becomes an application of marketing dollars to the relationship, as opposed to cold marketing. Share of wallet Bob Thompson
With and without customer management techniques that you’ve been using—without it, you would get very little of this additional opportunity. And with it, you get some percentage? Can you hazard a guess? Jim VonDerheide Yes, that goes back to the share of wallet discussion we had before. We know we’ve moved the needle from the 40-to-60 percent, depending upon tier, up to the 60-to-80 for the— Bob Thompson That sounds very, very significant to me. Has that been a part of the growth and success of the Hilton brand, in general, this moving, increasing, the share of wallet?
Jim VonDerheide We believe it has been. Yes. And it’s been the strength of the organization, both in the customer loyalty, in terms of the average number of stays per multiple “stayer”—all the metrics that a retention expert would look at—and in terms of the development that we’re doing: new rooms; people that are buying us as a brand. Bob Thompson I’d like to shift gears just a little bit in the few minutes that we have left and talk about some of the challenges you’ve had. You’ve been involved with this program for how long now? Jim VonDerheide
About five years. Bob Thompson About five years? So what’s the most difficult challenge you’ve had to overcome, and how did you do it? Jim VonDerheide As a change agent, I think the most difficult thing to do is have folks settle on the common strategy or the common vision, realizing that it’s only a part of the vision of the corporation. We’re a financially driven company—the discussion we just had, obviously. But it’s not always a financial reality, and it’s not always that the change we’re within necessarily reflects in someone’s paycheck or bonus.
So one of the most complicated things within that change is chicken and egg: Do you make the change to protocol first and then justify it with the back-end tracking, or do you prove what you think you’re going to be able to do in the model and then implement across the board? Best example of the complexity-of-the-people part of the equation is some 300,000 employees at the front desk, interacting with 7 million guests, in some cases, two or three times a week. How do I make sure they know what that guest knows? I can communicate with the guest, but how do I get an office person to know what that guests knows?
Bob Thompson Right, and these front-office people are not people that you can directly control, as I understand it. Jim VonDerheide Well, at least half of them aren’t our employees. Franchise approach Bob Thompson You have a franchise-type approach in part of your business, at least. Jim VonDerheide That’s correct. Bob Thompson And even if you didn’t, if you, personally, were concerned about that, how do you work throughout this big organization that you’re a part of to make sure that those things happen? Jim VonDerheide It’s probably a three-prong approach that we’ve had to take.
And I’d have to say it’s a three-prong approach at every level that we interact in our properties. It starts at the general manager level, in terms of training, in terms of protocol. So training, protocol and incentives. We work with our management companies, with our franchisees and with our owners to understand that it is an important part; that we are an annuity business; we are a repeat business; and that part of getting the repeat part of the business is indicated in some of the tracking we have in place in terms of satisfaction surveys; and that incenting on the success of the satisfaction surveys is a ise thing to do as part of the business that they’ve decided to be part of. So we’ve gradually modified the incentive programs that we recommend for general managers and front office staff at the more direct interaction level. We’ve also put reward programs in place that recognize improvement in use of tools and use of protocols and improvement in scores. Bob Thompson Can you give us a quick glimpse at what some of your goals are for the next year or two? Jim VonDerheide I can probably do that.
I think that the biggest one is furthering the differentiation that we deliver, so it comes back to choice and control. Bob Thompson Differentiation from your key competitors, like Marriott, for example. Jim VonDerheide Differentiation of the experience that’s delivered, of the service that’s delivered. Bob Thompson Oh. Jim VonDerheide Again, we try to look at it as the whole package. As simplistic as it sounds: the differentiation or the choice of, “Do I check in over the web? Do I check in at a kiosk? Or do I check in at the front desk? Bob Thompson I see. So you’re talking more about turning over the controls to the guests. Let them decide what they want that experience to look like. Jim VonDerheide That’s correct. And that varies, depending upon how frequent a guest is and the type of investment we can make to retain or to improve the business we get from that guest. So it’s further differentiation. It really is a focus on share of wallet that allows us to better invest in the guests we have, rather than going out and continually acquiring new guests. Bob Thompson
Are you finding that the online world and online marketing and interactions is becoming a bigger and bigger factor over time? Jim VonDerheide I’m sorry, could you say that again? Bob Thompson I’m referring to the online world—the web world, where guests want to interact, choose to interact via the web versus calling on the phone or whatever. And I’m asking, “Is online interaction becoming more and more important over time? ” Jim VonDerheide It’s becoming more and more important. I heard a futurist at one point say it’s an “and/or” world that we’re moving into.
This isn’t online replacing phone. I think it’s an additive. We know that the value of our guest skyrockets based upon the number of various channels that they make a reservation through. Bob Thompson So the more the better. Jim VonDerheide The more the better. I think what it does is definitely simplify the kinds of things we can ask or know about a guest. Our strategy is not to imply what a guest wants or imply what a guest is choosing, but rather, to let them select it. I’ve lived the database-marketing guessing what somebody wanted. Amazon chose me Dr.
Seuss books, because the first time I ever went to them, I bought a friend of mine a baby book for a new baby. And now it looks like I want baby books. I don’t want to live through that environment because, maybe, our guests asked for a rollaway once because they were visiting with a friend who wanted to stay with them. That doesn’t mean they always want a rollaway. Bob Thompson You’ve learned a lot over the last five, six years. What’s the single best advice that you would give someone else that might be embarking upon a CRM journey like this? Jim VonDerheide
I’m going to assume that anybody who’s going to embark on this has competitors. I guess what I’d say is: You really have to know it’s going to go on forever. Marketing, I think, and technology are forcing changes in the way we do business, the way we interact with customers. So we really have to go into it knowing that it is ongoing and it will build an evolutionary process. It will cause organizational changes. It will cause protocol training changes. So go into it setting up tracking that allows you to take new actions for the things that you’re learning.