Hilton Case Study

1. What is Hilton's core business model? What is the definition of a customer in a franchising
model?
Over the years, Hilton has moved from a traditional hotel company to more of a consultant. This
shift in business model was driven aggressively by owners, Blackstone Inc. Out of 4,080 Hilton
properties, less than 4 percent are directly owned or leased by the company itself. Instead, the
company will merely manage it for a share of the profits or it is completely operated by a
franchisee.
This model takes away real estate fluctuation concerns from the Hilton management. Problems
such as property values and capital investment into building development and maintenance are
no longer a concern. And keep the business growing despite global economic turmoil. Instead,
the focus is on developing the brand quality of customer service. Franchise fees keep up the
revenue and consultant privileges ensure that a keen eye can be kept on compliance to hotel
standards. The downside of this arrangement is that during good times for business, the company
will make less than the franchisee. This is not a major concern for the company at the moment.
This model is popular among the hotel industry.
A customer in a franchise model represents a very important role. A customer forms the crux of
the model with responsibility of customer being shared by both the property owner and the
franchise. Building a customer base forms the base for building a brand image and is the main
source of revenue. A customer needs to be taken care of by the franchise to ensure a comfortable
experience by providing high quality service and the property owner by providing the best
resources to achieve this quality service.
2. Does the combination of OnQ and CRM represent a VRIN resource for Hilton? Why/why not?
The combination of OnQ and CRM does not represent a VRIN resource for Hilton.

valuable -- Yes, the combination of OnQ and CRM represent a resource that is valuable
as this framework is being used to leverage revenues, and this was showing positive effects on
customer base and brand image.

rare No. Hilton had not been the first to make its foray into deep personalization of guest
experiences, an area that the Ritz Carlton had pioneered in the luxury segment and Wyndham
International had introduced to the upper upscale segment. Nevertheless Hilton was the only

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Hilton Case Study

company that has the same technology platform and distribution footprint throughout all the
brands. Hilton had been the first major multibrand operator to roll out a strong, integrated
customer relationship management effort that was tightly integrated with its frequent guest
program and was delivered chain-wide.

inimitable No. Since they had a distributed footprint in all their brands, they were able to
collect data that was very wide in scope and included customers of every kind. This could be
imitated in the future, but being the pioneer for such an implementation gives Hilton a
competitive edge over their rivals.

nonsubstitutable neither the CRM or the OnG individually could produce the same kind
of benefits and results for Hilton. Also other frequent guest programs could be used to build
relationships with their high-value customers to achieve similar results.
3. Evaluate the performance of the CRM application after 2002 along the following dimensions:
a) ROI for the Hilton Brand (use the call-center data for this)
Hilton deployed the OnQ in the year 2002, since then, as per the call center data, there has been a
significant increase in the volume of calls to Hiltons call center and also the net revenue per call
though not completely linearly. Hilton invested a total of $1.65 mil in implementation of the
CRM application and generated a total revenue of $1.81mil (no. of calls* revenue generated per
call) as per call center data. Even with a $1mil expenditure on maintenance every year, Hilton
made a significant profits in terms of ROI. We can also note that even though conversion rates
would fluctuate, the revenue generated per call over the years has only steadily increased.
b) Qualitative benefits for the Hilton brand
One of the benefits that OnQ system delivers to Hilton is customer satisfaction. Customer
satisfaction is the most important element in achieving a successful brand image, so OnQ can
help Hilton to get that by highlighting the problems or inconvenience that the customer faced.
Also, it also establishes the value of a customer to Hilton based on personal history and on
predictive modeling of the business the person is likely to do. The other benefit of the OnQ
program is that it will help make customers feel more important. Hilton aimed at making the
overall experience better for its customers. They believed that customer service started much
before the customer arrives for check-in. By having a comprehensive technology, Hilton hoped

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Hilton Case Study

to recognize the guests and increase the efficiency of reservation and increase quality of service.
This increased the customers loyalty to the Hilton brand.
c) Qualitative benefits for the property owners (how would you identify these?)
The CRM technology was designed to support the property-level operations of each hotel in the
Hilton family, regardless of size and segment, and to enable the firms Customers Really Matter
initiative at each customer touch point. This made the property owners happy as an increase in
service quality in any of the property in the Hilton family meant, returning customers and
customer loyalty. Also since the billing reflects risk sharing based on owner profitability and not
on transactional reimbursement, property owners can improve their profits as the technology
targets to reduce costs and a drive profitability. Hilton took the responsibility to maintain the
property level hardware which included charges for distribution systems, marketing, brand
quality assurance, and information technology and in turn charged the franchise owners only a
royalty and a single program fee of about 5% of gross revenue each. This also pushed property
owners to build a Hilton family hotels because of the strength of the brand image. The owners
also were happy with simplicity of the single program fee.
4. It has been 5 years since the CRM system was implemented. Should Hilton/Blackstone invest
further in CRM or simply maintain status quo?
In the hospitality industry, customer service plays a very critical role. If we choose to ignore the
customer preferences and needs, we will end up losing customers. OnQ helped Hilton many such
needs of the Customer. OnQ CRM technology will help prioritize customers. I would
recommend the Hilton to maintain the technology without further investments other than in
updating the existing technology. Any further investment would not ensure an increase in the
revenue for the company. CRM is not recommended for a company which wants to be famous
overnight or for a company that aims at earning a quick buck. CRM is a process that is
implemented with long term goal in mind. It may be a slow process but will ensure high success
in the future if implemented correctly. In the lodging industry CRM cannot be implemented as an
alternative but an imperative. A hospitality brand is differentiated in the industry if it exceeds
customer expectations and reassures them that their concerns and feedback will be acted upon
and their needs be satisfied in their next visit. CRM involves building a strong, direct relation to
customers and its returns are not curtailed at increasing revenue. Profits/Savings can be in terms

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Hilton Case Study

of time taken to manage customers and their transactions. Lead generation in terms of publicity,
customer loyalty and brand image can also be a form of additional revenue.

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