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Many Ingredients Deliver a Complicated Cocktail for Points Redemption.
by David Small
Marriott Bonvoy® needs a mixologist for this complex libation. Mix one part Nostradamus, one part Euclid the mathematician and two parts John Maynard Keyes, the renowned economist. Shaken, not stirred, of course. And you are delivered an aperitif struggling to define the nuances and complexity of presentation and result. Welcome to 2022 and beyond: Marriott Bonvoy® Dynamic Pricing for points redemption.
Marriott communicated on October 26, 2021 a number of program changes to the Bonvoy® loyalty hotel program. The title of the release to Marriott’s official Facebook group was “Elite Status Extension and More.” They buried the lede. The post shared many Bonvoy® benefits, but the one nugget left for last was “More Redemption Flexibility.” What does this actually mean?
David Flueck, the Marriott Senior Vice President of Global Loyalty, summarized the key points (no pun intended) concerning “More Redemption Flexibility”:
- Moving away from the Bonvoy® points redemption charts could open up more redemption rooms.
- The change to Dynamic Pricing related to points redemption will commence for most properties in 2023 (“the 97%”), or over 7,000 hotels in the Marriott system.
- (“The 3%”) will institute more redemption flexibility beginning in March 2022. My personal estimation is the 3% will consist of approximately 245 properties.
- Marriott added, “97% of hotels and resorts will still have a minimum and maximum number of points for redemption rates that will more closely align to how they’re categorized today.” Marriott further elaborated, “If you’re traveling somewhere with a lot of availability, you can expect to use fewer Marriott Bonvoy® Points. And if the destination you love is busier during your preferred dates, the redemption amount may increase.”
What does all this mean? Nobody really knows except Marriott and the hotel owners/managers. We will update our Marriott Bonvoy Guide as soon as we know.
Marriott Bonvoy® Dynamic Pricing – What could it mean?
Marriott is creating a closer symbiotic relationship between point redemptions and cash rates. The more the cash price/high occupancy is recognized in the points redemption equation, the more money Marriott pays to the property and/or the redemption is more controlled in favor of the hotel. The owners will be incentivized to open up more redemption rooms when the caps on points redemption are lifted.
Book the 97% hotel between now and the end of 2022 for calendar year 2022 stays, and notice little to no fluctuation in either redemption direction. The 97% of hotels will most likely not include the most redeemed Marriott properties, as well as most St. Regis and Ritz-Carlton brand properties.
Book the New York Marriott Marquis, the Aruba Marriott Resort, or the London Marriott Hotel County Hall after February 2022, and you will may notice rate fluctuations beyond the redemption chart highest band. Those properties – as speculative examples of the approximately 245 hotels — probably reside in the 3% seeing more immediate impacts from Dynamic Pricing for points redemption.
What is the silver lining for the 3%? The rest of us not redeeming the 3% can evaluate points impacts as they occur post February 2022.
As an example, I faux-reserved the London Marriott Hotel County Hall for June 2022. Four nights redeemed at 385,000 points. The cash price based on points for that period is $2,924. This represents a very respectable redemption valued at $.0076 per point. If we review this same redemption after the end of February 2022, we may be able to judge how the 3% will be impacted by Dynamic Pricing. Starting March 2022, Hotel categories (1-8) and Redemption Rates classified as Off-Peak, Peak, or Standard will be replaced with Flexible Point Redemption Rates. Opening the window for the 3% may offer a peak at the the 97% of properties that may be more impacted by “redemption flexibility” in 2023.
Using the “window” analysis may offer a predictor of what will happen with points redemption correlated to cash price. How do you assign a value? One travel expert cites a value of $.0063 per point – $.0083 per point. Many Bonvoy® members shared examples of 1.2 cents-2.5 cents per point, when the stars aligned and they were upgraded into a $2,000 per night suite.
I will use a range of $.007 per point for illustrative purposes in my self-created “window predictive analysis.”
A single night in June 2022 for the Marriott County Hall during a four day period in June is currently redeemed as a category eight peak night at 100,000 points. Using the current cash rate of $757 at $.007 per point, the possible Dynamic Pricing redemption for that evening could be 108,000 points – only an 8% increase based on rate. Book early to “control” the cash rate that influences Dynamic Pricing for points redemption.
But wait. Marriott stated, “97% of hotels and resorts will still have a minimum and maximum number of points for redemption rates that will more closely align to how they’re categorized today.” Does that mean Marriott will control the top end redemptions and cap the correlation to cash? We will not know until we see baselines and many examples of points redemptions for the 3% in 2022.
One formula– made up by me — that may influence the control of redemptions is:
Payment to property based on rate as related to high or low occupancy – Positive influence on balance sheet by reducing points liability – Subjective and quantitative impact to member retention/lifetime value of the customer = An extremely complex financial impact to the traveler, the hotel owner, and Marriott.
Let’s break down that formula.
Marriott pays hotel properties for points redemption. That is an expenditure cost for Marriott. Members who have postulated that Marriott is going to take the money and run with Dynamic Pricing have the concept backwards. Marriott is incentivized to offer lower redemption rates to economize their payments for redemptions to the properties.
Marriott is also answering the owners who ran at anemic occupancies – systemwide low in April 2020 at 14% during COVID, according to Wired magazine. Add to that statistic that almost 27% of Marriott properties were closed, also reported by Wired. The owners have not recovered from their losses, and they are seeking financial relief where they can find it. They can no longer afford to redeem a room during high occupancy with a fixed points cap. Enter Dynamic Pricing – no longer bound by caps, the owners can gain more dollars per night based on the redemption correlation to cash rate (based on occupancy).
Add to the payout formula the number of points wiped off the balance sheet. Yes, more points needed for redemption means fewer points liabilities for Marriott. Higher redemption payouts to hotel owners also increases Marriott expenditures – something Marriott has to monitor closely and directly, as well as indirectly as it relates to customer retention.
Who is going to be most impacted by this change? There are a number of groups who may be negatively and positively impacted.
- The aspired 3% properties will no longer be capped by the highest peak band.
- The hotels in the 97% that were roped in by redemption caps during game days, holidays, etc., will pounce on the cash rate correlation. A Courtyard category 5 peak redeemed at 40,000 points on a Final Four game day may climb to ~71,400 based on a $500 night at $.007.
- The sweet spots may be found in 2023. It may be possible to find a sweet spot redemption in 2022 with a 3% hotel, but a lot of digging may be needed. The sweet spots will be easier to uncover for the 97% in 2023, especially during lower occupancy period. Why? That’s what Dynamic Pricing is. One of my favorite Marriott properties, the category 7 Paris Marriott Opera Ambassador Hotel is currently redeemed at 240,000 points for four nights in July 2022. That is $366 per night and delivers a $.006 per point valuation within the current redemption chart. Use Dynamic Pricing guestimate valuation of $.007 per point and possibly redeem at ~209,000 points for the same July 2022 period. A sweet spot with a 13% points savings. Change your dates up; book early; and Dynamic Pricing may save you 25% or more compared to the soon to be abandoned redemption charts.
The highs and the lows and the ultimate valuation will be defined by how literally Marriott enforces “Hotels and resorts will still have a minimum and maximum number of points for redemption rates that will more closely align to how they’re categorized today.”
So, what am I doing with my points? Nothing. I am saving for our next milestone trip, like our 30th anniversary trip in September 2021 that created amazing and loving memories for me and my wife.
There is a mass call to burn points, no matter what, before March 2022. One member conjectured points will be valued in 2023 at $.001. This constitutes a decrease in value from the usually accepted $.007-$.008 per point of up to 80%. Remember the formula where Marriott has to pay more to the hotel for a redemption based on the cash rate (related to occupancy). Marriott does not want to “overpay the owners for points,” and they cannot afford to have a mass exodus of Bonvoy members. The owners and Marriott need higher occupancy enforced by brand loyalty. There is no reason to rush to empty your points war chest on the 97% properties. And points will not be valued at $.001. There will be no “Great Devaluation,” as many Bonvoy members have coined it. There will be a closer relationship between cash and point redemptions that will answer hotel owners’ concerns about flat redemption during high occupancy.
Watch the redemption rates in March 2022 and forward with the 3%. Open that window for a future glance at the 97%. And take Marriott’s words to heart, “In general, the range of Marriott Bonvoy® Points required to redeem a Stay at a Hotel will be the same as they are today.”
Remember, Marriott needs you as much as you need them. You represent – in some cases – a lifetime value (LTV) of $500,000 to the system, based on high annual spend and history with the program since the inception of Starwood Preferred Guest (SPG). It is not just about revenue from sleeping in a room – of which Marriott receives a royalty. Your loyalty activity allows Marriott to receive points payments from the owners for your paid stays (all those points we earn are funded by the properties and paid out to Marriott). Additionally, our Bonvoy affinity credit card purchases, sign up bonuses, free night awards, etc., create the high margin sale of many, many millions and millions of points to American Express and Chase. And we buy points directly from Marriott at ~1.25 cents per point if no bonus is offered. In a similar industry, Forbes reported that the sale of AAdvantage points delivered a 53% cash profit Margin for America Airlines.
No matter who is the top customer, the brands and the owners need you in their hotel rooms. Loyalty programs can represent 50% or more of a hotel chain’s annual revenue, according to a September 2021 The Points Guy interview with Jeff Borman, a former vice president of revenue management at both Marriott and Hilton.
Go have a drink – hopefully at a beautiful Marriott property – and make a toast to the complex concoction that is Dynamic Pricing. You may find it a sweeter refreshment than you imagined.
David Small has a love affair with travel, and he loves to “see the world” through the eyes of his wife and children when they accompany him to destinations in the States and abroad. He is a Marriott Bonvoy enthusiast who enjoys every brand offered – rewarded by the richness of each experience and the people involved at each property.
Small runs a national media company, and he used to manage airline points loyalty programs for Sprint — in partnership with United Airlines, Northwest Airlines, Alaska Airlines, Virgin Atlantic Airlines and Midwest Express Airlines.