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DOING THE MATH on 1/31/07's RE-CATEGORIZATION

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Old Feb 1, 07, 10:17 am
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DOING THE MATH on 1/31/07's RE-CATEGORIZATION

Well, I held my nose and voted starwood top program *** for 2006 ***. 2007 will likely be another story.

I had to remind myself not to look at 2007's changes and vote "true" 2006. So be it.

Now, for 2007...let me review already, in 30 days, starwood has so severely damaged their affinity program I am awestruck at the math. Please, math "majors" out there sharpen your pencil and tell me I have mis-calcuated:

a) effective loss of Continental as an airline partner. After all, who in their right mind would convert starpoints 2:1 to Onepass ? (ie 2 starpts = 1 onespass mile) ? Just as conversions to United, I suspect, went to nil in 2006 when that ratio went 2:1 (from 1:1), now we've lost a second major US carrier from viable conversions. The math here is a sickening 100% increase in starpoint to airline mile change. Ominous trend. Is starwood going to toss all airline conversion out like HHONORS did in 2006 ? If they allow EVEN ONE MORE major domestic US airline to go to 2:1, effectively they might as well. moving on...

b) creation of a new CAT 7 is a de facto devaluation of the starpoint, not to mention this (one day to be) infamous addition of a new CAT gives starwood more overhead now to bump up hotels for future years...I expect 2008 to be a true bloodbath, as if this year's new re-catagorization wasn't. In a surreal reflection, adding this CAT 7 may someday prove to actually release some of the pressure of upward migration, as one can guess CAT 7s won't get many award stayers this year...so if they desire award stayers to fill in the weaknesses (if any) of seasonal demand or perhaps slack paid travel, et al, guess they can slide back down the scale also for 2008 ? IOW - the award conversion rates for CAT 7 are so onerous that I can't believe many will do them ("many" is a relative term I realize). So CAT 7 properties had better hope for continued strong global economies. I assume the fat cat CEOs making the bizzillions in stock option profits are the people who pay $4-$6K a night for an overwater bungalow in Bora Bora, no ? So much for award stayers at CAT 7s.

AND MOST OBVIOUSLY:
c) massive devaluation of the underlying value of the 2006 starpoint we all worked so diligently to accumlate, via last night's re-catagorization (ie most properties went up one CAT level or more) that far, far exceeds rates of inflation, and, I suspect, because of the inherent flaw of having only six categories (ok, now seven), also far far exceeds THE PERCENTAGE of INCREASE of the avg room rate (which we're told is the benchmark that starwood uses to determine CAT changes and positioning).


STARWOOD FLUNKED THE SMELL TEST
========================
*** Starwood, its the PERCENTAGE INCREASE issue that we're all having problems with, not your right to enjoy the fruits of an improving economy and resultant higher ROI on your affinity (ok, starpoint profit center) program.


DO THE MATH
=========
Let's agree anecdotally that AVG room rates/nt might have risen 15-20% in 2006 due to a strengthening travel and business climate (good for starwood I say, FWIW)...BUT a corresponding bump from a CAT 4 to a CAT 5 means as much as an incredible 60% increase in required starpoints to secure the now CAT 5 property for a FREE NIGHT - WEEKDAY (16K/nt versus 10K/nt, as determined by this math: ((16K-10K)/10K)).

To make one even sicker, let's analyze the CAT 5 to CAT 6 property: 12K (CAT 5) now requires 20K (CAT 6). I compute this as a stupifying 66% increase, based on 8(K)/12(K).


FLAWED PROGRAM ITSELF ?
==================
Fundamentally, I conclude starwood has a flawed program in the sense that they only had six categories to work with and a formula that allowed for mandatory migration upward to a NEW CAT based on AVG room rates which did not mathematically correspond equally to award level requirements. Whew - that was a mouthfull Put another way - starwood's formula for setting CAT levels, as I understand it, is based on room rate increases that contractually required starwood to raise the CAT level for a property, but that doesn't take into account real-world inflation, which we consumers rely on as a "smell test" for value, or consider these onerous increases of 60% and up are simply not justifiable from a consumer's perspective.


HOW TO MITIGATE THE DAMAGE ?
================================================== =

Dunno - I'm lost this time for recommendations.

So, starwood had their "perfect storm" and I don't think they came through very well. One would have expected some "positive news" to be released simultaneously w/ the bad, but it is eeriely quiet on the spg.com web page


For the record: William, I feel for you having to be the "public frontrunner" for starwood on this major fiasco, not unlike Tony Snow at a bad press conference. Stay tough, but perhaps ask yourself, from our perspective, how you would feel if your "bank" of starpoints just underwent a 60-66% devaluation (for mid-CAT level properties (resorts) which I prefer and target). Unless I blew the math, this is what just happened.

Last edited by ILUVCITIBANK; Feb 1, 07 at 11:58 am
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Old Feb 1, 07, 10:36 am
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Citi,

You're missing one major flaw in your argument. *wood (and any other company with a loyalty program) doesn't really care about us. The purpose of the program is to increase profits. If lower categories cost them too much money, they will (have) change the program. If they don't see an increase in revenue from the changes, they will make more.

Quite simply, the more money *wood makes, the worse they'll treat us. When profits fall, we become important to them again and the program will improve.
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Old Feb 1, 07, 10:43 am
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Originally Posted by ILUVCITIBANK View Post
Well, I held my nose and voted starwood top program *** for 2006 ***. 2007 will likely be another story.

I had to remind myself not to look at 2007's changes and vote "true" 2006. So be it.

Now, for 2007...let me review already, in 30 days, starwood has so severely damaged their affinity program I am awestruck at the math. Please, math "majors" out there sharpen your pencil and tell me I have mis-calcuated:

a) effective loss of Continental as an airline partner. After all, who in their right mind would convert starpoints 2:1 to Onepass ? (ie 2 starpts = 1 onespass mile) ? Just as conversions to United, I suspect, went to nil in 2006 when that ratio went 2:1 (from 1:1), now we've lost a second major US carrier from viable conversions. The math here is a sickening 100% increase in starpoint to airline mile change. Ominous trend. Is starwood going to toss all airline conversion out like HHONORS did in 2006 ? If they allow EVEN ONE MORE major domestic US airline to go to 2:1, effectively they might as well. moving on...

b) creation of a new CAT 7 is a de facto devaluation of the starpoint, not to mention this (one day to be) infamous addition of a new CAT gives starwood more overhead now to bump up hotels for future years...I expect 2008 to be a true bloodbath, as if this year's new re-catagorization wasn't. In a surreal reflection, adding this CAT 7 may someday prove to actually release some of the pressure of upward migration, as one can guess CAT 7s won't get many award stayers this year...so if they desire award stayers to fill in the weaknesses (if any) of seasonal demand or perhaps slack paid travel, et al, guess they can slide back down the scale also for 2008 ? IOW - the award conversion rates for CAT 7 are so onerous that I can't believe many will do them ("many" is a relative term I realize). So CAT 7 properties had better hope for continued strong global economies. I assume the fat cat CEOs making the bizzillions in stock option profits are the people who pay $4-$6K a night for an overwater bungalow in Bora Bora, no ? So much for award stayers at CAT 7s.

AND MOST OBVIOUSLY:
c) massive devaluation of the underlying value of the 2006 starpoint we all worked so diligently to accumlate, via last night's re-catagorization (ie most properties went up one CAT level or more) that far, far exceeds rates of inflation, and, I suspect, because of the inherent flaw of having only six categories (ok, now seven), also far far exceeds THE PERCENTAGE of INCREASE of the avg room rate (which we're told is the benchmark that starwood uses to determine CAT changes and positioning).


STARWOOD FLUNKED THE SMELL TEST
========================
*** Starwood, its the PERCENTAGE INCREASE issue that we're all having problems with, not your right to enjoy the fruits of an improving economy and resultant higher ROI on your affinity (ok, starpoint profit center) program.


DO THE MATH
=========
Let's agree anecdotally that AVG room rates/nt might have risen 15-20% in 2006 due to a strengthening travel and business climate (good for starwood I say, FWIW)...BUT a corresponding bump from a CAT 4 to a CAT 5 means as much as an incredible 60% increase in required starpoints to secure the now CAT 5 property for a FREE NIGHT - WEEKDAY (16K/nt versus 10K/nt, as determined by this math: ((16K-10K)/10K)).

To make one even sicker, let's analyze the CAT 5 to CAT 6 property: 12K (CAT 5) now requires 20K (CAT 6). I compute this as a stupifying 66% increase, based on 8(K)/12(K).


FLAWED PROGRAM ITSELF ?
Fundamentally, I conclude starwood has a flawed program in the sense that they only had six categories to work with and a formula that allowed for mandatory migration upward to a NEW CAT based on AVG room rates which did not mathematically correspond equally to award level requirements. Whew - that was a mouthfull Put another way - starwood's formula for setting CAT levels, as I understand it, is based on room rate increases that contractually required starwood to raise the CAT level for a property, but that doesn't take into account real-world inflation, which we consumers rely on as a "smell test" for value, or consider these onerous increases of 60% and up are simply not justifiable from a consumer's perspective.

HOW TO MITIGATE THE DAMAGE ? Dunno - I'm lost this time for recommendations.

So, starwood had their "perfect storm" and I don't think they came through very well. One would have expected some "positive news" to be released simultaneously w/ the bad, but it is eeriely quiet on the spg.com web page

For the record: William, I feel for you having to be the "public frontrunner" for starwood on this major fiasco, not unlike Tony Snow at a bad press conference. Stay tough, but perhaps ask yourself, from our perspective, how you would feel if your "bank" of starpoints just underwent a 60-66% devaluation (for mid-CAT level properties (resorts) which I prefer and target). Unless I blew the math, this is what just happened.
Well said.
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Old Feb 1, 07, 10:52 am
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Citi:

I too am scratching my head wondering why SPG handled all this so poorly.

I agree with your math, however, you didn't mention 2 other things that are harder to calculate:

- the timing of all this: especially during the Freddies voting
- the increased restrictions on William by his bosses. Example: it's the day after the increase but they still have not given him permission to give us the list as he has done in past years.

I have not looked, but have there been executive changes in Starwood's Marketing division, or as BigBopper alludes, times are good for revenue so who cares about the loyalty program?

Last edited by itsaboutthejourney; Feb 1, 07 at 11:03 am Reason: spelling
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Old Feb 1, 07, 11:08 am
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This is indeed a tremendous devaluation. I can understand the need to revise the program from time to time...but this is really over the top in a bad way. 60% increases are hard to swallow.
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Old Feb 1, 07, 11:10 am
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And for the Cat 3 - 5 jump (yes, there are some of these),

the point requirement went from a 7K to upto 16 K

(16K-7K) / 7 k = ~ 130% increase

This is crazy!
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Old Feb 1, 07, 11:24 am
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because there are massive number of property increase, a way more than last year!!!



Originally Posted by nroscoe View Post
Citi:

I too am scratching my head wondering why SPG handled all this so poorly.

I agree with your math, however, you didn't mention 2 other things that are harder to calculate:

- the timing of all this: especially during the Freddies voting
- the increased restrictions on William by his bosses. Example: it's the day after the increase but they still have not given him permission to give us the list as he has done in past years.

I have not looked, but have there been executive changes in Starwood's Marketing division, or as BigBopper alludes, times are good for revenue so who cares about the loyalty program?
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Old Feb 1, 07, 11:25 am
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Jumping two categories is just too much. They should jump one and then immediately announce in six months they are going up again. I feel sorry for the members who use these points for the once a year family summer vacation for their kids.
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Old Feb 1, 07, 11:34 am
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Points

I just finished reading a financial planning book, that basically said holding points in general is very risky as you are at the mercy of the issuer - in this case Starwood. I have the same problem now with all my aeroplan points too. Many people have told me most banks have a "dividend" type of card where you can 1%-2% back, and that makes the most sense for those of us who earn of points through credit cards. However I believe you can't discount the factor of human emotion, that we think getting something for "free" when we redeem points.
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Old Feb 1, 07, 11:43 am
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Boy am I glad I (1) splurged and unloaded massive amts of SPG points at European resorts last September and (2) did not even attempt to keep SPG Platinum for 2007.

After the 50EPR discount award I booked before midnight last night, I should only have < 20k points in my no status account (probably will be Gold again if the SPG Amex annual spend threshold ever kicks in). But since I am still earning pts from Amex, I will continue to use SPG hotels on awards/pts in "value" places such as Westin Resort in Bali or some 4Pts @ US gateway airports when connecting to/from int'l flights (on weekends if possible for the extra 1k discount ).

Other than that it's adios SPG ...
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Old Feb 1, 07, 11:43 am
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ILUVCITIBANK...wonderfully said. It's the never-ending cycle of programs, start out great, get a good following, then the slide. Happens all the time, unfortunately for us. It forces us to switch our allegiances every couple of years, then the cycle begins yet again.

Cheers,

Adrian
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Old Feb 1, 07, 12:48 pm
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A comparison of increases in award levels only tells half the story.

You also need to compare "points per $" (PPD) earned between various years as well.......as it's definitely not as simple as saying....3 PPD'.....because it is definitely possible to earn more PPD on a regular basis......if not quite a bit more (see example below).


After comparing my Starpoints earning levels for 2005 and 2006, I noticed some major differences.

In 2006, I earned many more PPD than in 2005.........to the tune of at least 4x as many PPD as in 2005.

This was primarily due to the increase in various promotions that SPG and various Starwood hotels offered during 2006.....with some running at the same time (just like now).

So.....let's take a look at some figures based on possible SPG activity for the first 2 months of 2007.

For this example....assuming that the person is a SPG Platinum Preferred Guest and is enrolled in the Starry Nights promo (3 stays = 3000pts....max of 9K pts) and two generally available promos: PacNorWest (1K,2K,3K for repeat stays at a property...up to 6K pts per property) and the SoCal/LV promos (1,2,3,4...up to 10K pts for 4 stays)

Let's not forget the possible 'extra' points: 500 pt Plat. Amenity and 500 'help desk' bonus per stay.

For this example, let's assume that the person has 9 stays between Jan 6th and Feb 28th at the following hotels:

Westin Bonaventure
Sheraton LA Downtown x2
Westin Horton Plaza
Sheraton Seattle x2
Westin Portland
Four Pts LAX
Westin SFO

A maximum of 24,000 promo points and 9000 'extra' pts + whatever SPG points are earned via room rates/charges can be earned for the 9 stays.

If the average rate per night is $200.......that means a minimum of $1800 (+tax) if each stay is only 1 night.....resulting in at least 5,400 additional Starpoints

Total: 38,400 Starpoints....or well over 18 PPD.

For someone who has a SPG CC......the total amount earned is slightly more.

IMO, that's not bad at all......especially when compared to the previously mentioned published benefit of 3 PPD for SPG elites.

Remember....if one can now earn more PPD than in previous years, then any negative effects due to the increase in award levels can be greatly reduced or even totally equalled.........if not possibly allowing the person to actually come out ahead as compared to previous years when points were "harder to come by".

It seems to me that Starwood might simply be trying to put more of an emphasis on those who actually earn points via hotel stays by giving them multiple ways to increase their points earning opportunities per stay........as opposed to those who earn via "other methods" such as CC purchases.

As far as why SPG might not want a list of category changes published.......has anyone ever thought that perhaps they want to put as little focus on these changes as possible?

I mean.....most people I know don't track hotel award categories.....so, SPG probably wanted to make these changes with the least amount of direct attention as possible...... so that as few people as possible realize that actual changes were made....let alone which hotels moved up in category.

The various posts/threads at FT proved that nothing good can be gained by SPG by drawing even more attention to the changes.

A.J.
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Old Feb 1, 07, 12:57 pm
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Interesting to compare the point spreads for “standard” rewards between lowest and highest categories in each program now:

Marriott – 7,500 to 35,000 (4.66 to 1)
Hilton – 7,5000 to 40,000 (5.3 to 1)
SPG – 3,000 to 30,000 (10 to 1)

Base earning of points without status or credit cards is 10, 15 and 2
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Old Feb 1, 07, 1:02 pm
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Originally Posted by Bulldog King View Post

The various posts/threads at FT proved that nothing good can be gained by SPG by drawing even more attention to the changes.

A.J.
Exactly. That's why we should draw attention to it.
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Old Feb 1, 07, 6:09 pm
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If you do the math you will have to leave SPG!

I did my math as well and decided that it's time to leave Starwood for good. Here is how they compare against some other major hotel chains if you base your calculations on a base member account and think about using points during a high season time (which is what I always do):

I now have to spend 12.500 US$ to get 25.000 SPG points (2 for 1$ or 3 for Plat member) for one free night in Hawaii at the Princeville Resort as a base member and if compare this to the other hotel chains Starwood is the biggest looser.

If I spend 12.500 US$ with IC Hotels group I earn 125.000 points (10 for 1$, or 15 for Plat member) which is worth 4x as many nights at an equally nice luxury hotel around the world (think Bora Bora, Bali etc).

If I spend 12.500 US$ with Hilton I earn 187.000 points (15 for 1$ or 17.5 as a Gold) enough for almost 5 free nights at one of their best hotels around the world.

If I spend 12.500 US$ with Hyatt I earn 62.500 points (5 for 1$ or 5.75 as a Plat) which is enough for 3.5 free nights at one of their top hotels (PH Sydney, Tokyo etc) even considering their recent program devaluation.

Are they thinking that we are stupid? Why in the world would anyone ever stay at an SPG hotel again if they have a choice?? This was a very bad move, SPG, very bad move

I know that you might say Hilton awards are harder to get. That's true but then again I get almost 5x as many nights out of the same spending. And with Hyatt e.g. it's not as hard to get an award room.

In the end everyone of you has to make their own decision, but for me it makes absolutely no sense to stay at SPG hotels ever again. Maybe that's what they wanted seeing that I'm dropping to base level this month anyway but I'd urge you to do your own maths and think in which program you get the best value. And if more people stop staying at SPG properties they might reconsider their bad move and make the program better soon. The only reason for them to change it thoug is if they don't get the same revenue from us, their loyal customers.
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