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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.

Comments (35)

  • Algor says:

    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.

    It goes further, Hilton for example has any room sold for cash available on points (LRA – last room availability). Ofc the premium rooms can be extremely pricy while cash rates are high, ex. WA Maldives on some random date:

    -3 Bedroom Grand Beach Villa with Pool is $24k or 8.3M HH points.

    I can’t see their private Island anymore, IIRC it was 22M + HH points per night 🙂

    • Rob says:

      With ‘premium rewards’, the hotel does NOT make it available. Hilton simply buys it for cash and gives it to you, hence the crazy points price.

      • Algor says:

        It is quite accurate statement but there is devil hidden in the details…

        I have the rare occupational knowledge when it comes to Hilton, obviously can’t be more specific on the open forum.

        As you run the website you have the contact details anyway 🙂

  • John says:

    I find your conclusions spurious.

    People do not redeem at random IHG hotels. They do not redeem at random dates, either. You reference aggregate numbers for the entire US (ADR, occupancy) which are of little meaning for redemptions.

    People are more likely to redeem (i) on weekends, (ii) around holidays, (iii) during the major vacation periods (spring break etc.).

    Furthermore, they are not redeeming at random hotels, either. Hardly anyone is gonna redeem at an HIX or HI in an industrial area over July 4 weekend (e.g., look at the low rates at IHG properties near Columbus, Indiana during those dates). Few are gonna redeem in major financial districts, either. Instead, they’re gonna book resorts, hotels near the beach, hotels in major shopping/dining/nightlife/entertainment districts.
    Think the Las Vegas Strip, Lake Tahoe, Miami Beach, Santa Monica, West Hollywood…. (E.g., look at the elevated rates at HIX South Lake Tahoe over July 4 weekend.)

    There is a lot of pent-up demand for visiting such places for play during off-times. AA is reporting a level of domestic bookings on par with 2019 already. And we know most US businesses heavily restrict corporate travel until Q3 at least. This is strong leisure demand we’re seeing.

    Your conclusions that the scenarios in which IHG stands to pay the property the ADR for a redemption may be of much more concern than you envision.

    tl;dr Leisure travel didn’t happen for a year. People are sitting on points. They want to spend them. And their spend is gonna be heavily concentrated around certain dates and heavily focused on prime holiday locations. It could very well be a considerable risk that many redemptions are for properties that end up being fully booked.

    • memesweeper says:

      “They want to spend them. And their spend is gonna be heavily concentrated around certain dates and heavily focused on prime holiday locations. “ — have to say I agree, and this shouldn’t be surprise to IHG.

      Marriott’s pricing, whilst not fully dynamic, reflects this. The prime vacation locations are at higher categories than business focussed properties which command a similar cash rate.

      IHG going fully dynamic means, when you start collecting points, you’ll have no idea what’s required for your desired redemption. Whilst there may not be an across-the-board devaluation, this is going to make the scheme much less attractive as it is harder to understand.

  • James says:

    Apologies for the completely off-topic question here.

    Does anyone know what the referral bonus amount for an AMEX Business Gold is please? Many thanks.

    • Colin JE says:

      Depends on what card you are holding, rather than the card the other person applies for, James. If you hold a Business Gold successful referrals earn 9k. As another example, as a BA Premium card holder I would get 12k Avios. Hope that helps. You can refer someone to any card. They just need to click through to the card they want, after using your link.

  • Matarredonda says:

    Interesting point about booking each night seperate
    Have just done such an exercise for a 5 night stay in Colchester and total points cost worked out the same as a block booking.
    Only way I could save points is by changing between hotels in the same town which is not worth doing in my opinion.
    However I accept this might not always be the case so always worth doing a check as different Hotels, even in the same town will have a different occupancy profile.

    • Rob says:

      That’s not the point Tony. By booking each night separately, you can rebook – say – the 2nd night if it suddenly drops in price tomorrow.

      • memesweeper says:

        By a happy accident I’ve always done daily bookings for redemptions anyway — unless needing to lock in a 5-4-4 or similar (ie not with IHG). This was just in case I needed to flex up/down a day.

        • Genghis says:

          +1. And I double book reservations on a daily basis so can then sub in free night certificates at a later date and not risk not having a night booked.

      • Lev441 says:

        By doing this, do you still get to stay in the same room the whole time or in theory could the hotel move you (say, if you were upgraded for the beginning part of your stay, but they needed the upgraded room for the end of the stay)?

        • Crafty says:

          The hotel will sort this for you. So what IHG has done will cost them money, in more administration time linking up bookings.

          • memesweeper says:

            it will cost their franchise holders, in piecing together bookings — and potentially create a churn of booking/cancelling/booking as people jump on lower rates…

        • Lady London says:

          you advise the hotel shortly before your stay or at checkin.

          Changing your room is an expense for the hotel and most of the time they will gladly avoid that extra expense.

          This is why you may get lucky if you make the level of room of your first night a decent and possibly higher one….ahem

          You can’t demand, and it will serve you well if you smile at the hotel whatever happens (or doesn’t. But quietly you can hope.

  • Doug M says:

    “This is to stop brand owners ripping off franchisees with spurious additional charges.“
    Smiled at this as I thought of ‘Resort Fees’ and how little a problem the franchisee hotel operators have with spurious additional charges for their guests.

    • Lady London says:

      @DougM I thought that too when I saw that… about airlines.

      • Doug M says:

        I’d argue the opposite. Whilst I accept this is not true of YQ which is almost entirely about charging for reward tickets, most airlines unbundle things to charge for them separately, and you can choose not to pre-book a seat or take luggage.
        With resort charges they’re not always upfront about them, they’re not optional, and often amount to $35+ a day for two bottles of water or something ridiculous along those lines. They’re now also charged under a different name (destination charge?) in completely non-resort hotels that don’t even pretend to offer something for that additional charge.

  • Russ says:

    Brutal. Not a good look from IHG. Wonder if this will impact point breaks.

    • Crafty says:

      Yes, it’s very poor. I will immediately switch focus to accumulating Marriott points as top priority with Hilton as secondary. I wonder whether the IHG team has modelled behavioural response properly.

      • memesweeper says:

        “I wonder whether the IHG team has modelled behavioural response properly.“

        This change suggests they didn’t even think about it. Looks like someone just came up with an idea to reduce the number of expensive payments to participating hotels.

    • Lady London says:

      *What* points breaks. IIRC they had as good as disappeared even before Covid.

  • Crafty says:

    The comment on the US laws is interesting. Do you think this is the reason behind the strangely worded email from Radisson this week, stating they are effectively splitting their reward scheme in two (one for the Americas and the other for ROW)? This would I suppose allow them to run the latter for profit?

    • Rob says:

      No, it is down to the Chinese communist party having access to all of the Radisson Rewards guest data.

  • Ian M says:

    Blimey

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