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What happened with IHG Rewards pricing? Some hard facts (Part 1)

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On 1st April, there were noticeable changes made to IHG Rewards redemption pricing.

Some hotels shot up to crazy levels of pricing. People were posting examples of Holiday Inn Express hotels at 70,000 points and InterContinental hotels at 120,000 points.

It wasn’t clear at first what was happening or if it was an IT screw up. After all, nothing had been sent to IHG Rewards members.

IHG Rewards devaluation

IHG eventually issued a statement:

We rolled out our Dynamic Pricing models to our hotels around the world last year which enabled the amount of points required for IHG Rewards members to redeem a Reward Night to flex up and down, just like cash rates.

Previously, Reward Night point amounts were static throughout the year. This model allows point amounts to decrease when demand is lower, providing greater value to our members.

Conversely, redemption amounts may also increase based on demand  and other factors and can update as often as daily. Reward Nights are not defined by categories or with minimum and maximum point amounts.

Under our new model, the number of points required for Reward Nights will vary with demand and seasonality.”

What is IHG saying here?

Let’s pick out the key points from this statement:

  • all reward pricing categories are scrapped
  • unlike Hilton, which has a similar dynamic pricing model, there are no longer pricing caps – theoretically there is no limit to how expensive a reward night can be
  • pricing will change daily in some cases, meaning that you literally have no idea what a redemption will cost when you come to book
  • pricing is based on demand and seasonality – but not, weirdly, on the actual cash price of the room as I will show

What does this mean in practice?

The reason this is a two-part article is that I have run a very detailed analysis of reward pricing in London. You find this in part 2 which is here.

The results are very interesting. However, the slightly surprising result is that IHG Rewards points have not necessarily been devalued.

IHG Rewards devaluation

Why has IHG done this?

No idea. As far as I can see, there is no major benefit to IHG (because average pricing hasn’t changed) but there is a substantial disadvantage to members.

Economics students will know that price stability is a key part of a sensibly functioning economy.

Whilst modest inflation is beneficial – because it inflates away debt which acts as a drag to personal and business spending – price stability is important. You need to be confident when you take a job that the money will cover your expenses. A business needs to know that its input costs will be static after it has committed to sell a finished product. Saving for a product is difficult when the price changes constantly.

By, literally, changing reward prices daily, IHG Rewards is creating a system that makes no sense for members. Why should you focus on earning points for a particular redemption when you have no confidence in what it will cost when you come to book?

This isn’t driven by how IHG Rewards works …..

For readers who are not familiar with how hotel reward schemes work, you only need to know four things:

  • Unlike frequent flyer schemes, hotel loyalty schemes are not allowed – by US law – to make a profit. They must run at break-even. This is because most branded hotels are franchised. US franchise law says that – apart from the franchise fee (% of room rate) – all other money handed over to the brand owner for ‘services’ such as points issuance must not generate a profit. This is to stop brand owners ripping off franchisees with spurious additional charges.
  • Hotels are usually obliged to make at least 5% of their room inventory each day available for reward nights. Some schemes go a lot further – Hyatt tells its hotels that they must make standard rooms available for points for as long as they have standard rooms left to sell for cash.
  • On low and standard occupancy days hotels are paid a flat fee, which can be as low as $25, for a redemption. This is meant to cover direct costs to the hotel, eg cleaning and laundry, but not generate a profit.
  • If a hotel is full (95%+ occupancy) on a particular night, the loyalty programme pays the FULL rate for the night to the hotel, not the $25+ flat fee. This ensures that the hotel does not lose out on nights when it could have sold all of its rooms.

If you look at this in the context of running a loyalty programme, the ‘old’ system made sense.

  • Hotels were placed into categories
  • The points required for that category could be based on the $ payment to the hotel for a reward night.

Super simple.

The only problem is when hotels start hitting 95%+ occupancy and the programme has to pay the hotel the full rate. This is when the scheme economics can start to wobble as more and more reward nights end up costing it ‘full’ price.

However …. is this really a risk at the moment?

  • Even in the US, hotel occupancy is only back to 80% of 2019 levels
  • Average daily rate is also only at 80% of 2019 levels

This means that

  • The reward programme is seeing a far lower % of reward nights triggering ‘full’ payment to the hotel because the hotel is at 95% occupancy
  • Even when the ‘full’ payment is triggered, it will be at a lower level than it would have been because average daily rates are down

With fewer reward nights triggering ‘full’ payment due to a hotel reaching the 95% occupancy level, it should be possible to make the loyalty programme simpler, not more confusing.

IHG Rewards devaluation

How IHG Rewards member behaviour will change

Here is an example of how this will impact the behaviour of IHG Rewards members.

Going forward, you need to book your IHG Rewards redemption nights as single nights, even if you are staying for a week.

This is because, with pricing changing as often as daily – and with the number of points needed not being closely correlated with the room rate – you can expect to see extreme fluctuations.

If one night drops in points price, you need to have flexibility to cancel that particular night and rebook it. You don’t want to have to cancel the rest of your stay, because you are stuffed if other nights have gone up in points price or, worse, are no longer available at all.

Onto our London analysis

To help you put all this in context, I carried out a detailed analysis of London reward pricing for a random date in July.

Click here to read Part 2 and see what has really changed with IHG Rewards redemptions.

IHG One Rewards update – February 2024:

Get bonus points: IHG One Rewards is not running a global promotion at the moment, but some members were sent targeted offers for their stays in February and March

New to IHG One Rewards?  Read our overview of IHG One Rewards here and our article on points expiry rules here. Our article on ‘What are IHG One Rewards points worth?’ is here.

Buy points: If you need additional IHG One Rewards points, you can buy them here.

IHG One Rewards is offering an 80% bonus when you buy points by 7th March 2024. Click here to buy.

Want to earn more hotel points?  Click here to see our complete list of promotions from IHG and the other major hotel chains or use the ‘Hotel Offers’ link in the menu bar at the top of the page.

Comments (35)

This article is closed to new comments. Feel free to ask your question in the HfP forums.

  • Ian M says:

    So the worst hotel loyalty scheme just got a whole lot worse!

  • Dace says:

    Ok, so this looks like the end of my relationship with IHG. Too much faff and uncertainty around knowing what you’re going to get.

  • ChrisC says:

    I see in this and the other thread peiple saying they are giving up on IHG but why?

    Surely you stay in an IHG hotel whether it’s a HI, Kimpton or IC because they are good hotels near to where you want to be for a good price and suit your needs?

    If you are only stayign somewhere to earn points then that’s an issue for you not IHG.

    Surely those are the reasons to stay in a hotel and not because in months or years time you might get a ‘free’ room somewhere else?

    I stay in the HI and CP in Manchester and the de Witt in Amsterdam becaause they offer good rates when I want to stay and are close to the people and places I want to see when I visit.

    • Roy says:

      Next you’ll be saying the only reason you should get a credit card is if you want to borrow money 😀

    • Rob says:

      Totally true for the leisure market.

      For the business travel market, where you rock up at 7pm, grab a pint in the bar, go to bed, wake at 7am, check out at 8am, there is less need to be too bothered about the hotel itself and more reason to be persuaded by the rewards on offer.

    • Dubious says:

      ya but when there are competitiors that also have hotels that meet one’s need with good prices the loyalty scheme is a factor that will influence one’s ultimate decision.

    • Aston100 says:

      Not only this, but IHG seem to have more hotels around the country than any of the other international chains.
      More often than not, I’ll be in need of a clean, comfortable hotel close to work or family for a night or two. Not bothered about creature comforts. IHG have a reasonable priced property nearby.
      Only premier Inn seem to have a better presence (wouldn’t go near a travel lodge) but obviously no comparable loyalty scheme.

  • john says:

    “pricing is based on demand and seasonality – but not, weirdly, on the actual cash price of the room as I will show”

    So as the cash price is largely linked to demand, and reward pricing isn’t as you say linked to the cash price, does this mean the ‘demand’ that is quoted is actually the demand for redemptions rather than the demand for rooms?

    • Rob says:

      Why would that matter? A hotel makes 5% of rooms available and IHG pays the same for each of them. When they’re gone, they’re gone unless the hotel decides to release more.

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