Further steps in CRM strategy

Blackstone acquired Hilton for a 32% price premium over the market capitalization
price.
The new owner has declared the clear intention to invest into the Hilton properties
and
brands with the goal of opening 2000 new hotels in the next five years (2008-2013).
This represents a projected
increase of almost 40% compared to the 2935 Hilton hotels at the end of 2007.
To accomplish this tremendous growth, the Hilton management should continue to
invest into its CRM initiative and
harvest its achievements (increased ADR, RevPAR). It seems to be the only way to
keep a competitive advantage over the other players in the hospitality industry.
If Hilton just falls into complacency while throwing a lot of new capacity into the
market, it will suffer in both KPIs (ADR and RevPAR).
Plus, a hastily expansion might ruin the brands reputation. If there is a Hilton
hotel around every corner in the US,
throwing out heavily discounted fares to fill it, the level of the clientele will
suffer. Hence, instead of stimulating new low-level demand,
Hilton needs to deploy its CRM to poach high-level customers from its competitors.

So the question whether Hilton should further invest in CRM or simply maintain the
status quo can easily be responded:
Given the ambitious expansion plans announced for the next five years,
Hilton must further invest in CRM to cement its pioneering role in the highly
competitive lodging industry.
To fill the newly created capacity, CRM need to seek out the right customers (even
from the competition),
develop a long-term mutually beneficial relationship and build exit barriers for
the gained customers to switch back to the opponents.
After six years of running the customer really matters initiative, its principles
(foster relationship with customer,
reconfigure companies activities around the customer, increase customer
satisfaction (Picolli et al. 2003)) have become Hilton�s DNA.
Hence, to find out what else can be done with CRM to strengthen it and what can be
invested, we first check if its directly attributable
in- and outcome is in an equilibrium. When looking at this from a purely monetary
investment returns point of view, one can simply compare the height of the
investments versus the height of extra generated income for 2007. For simplicity,
we assume the income it generates only comes from the program fee the
franchisees have to pay to Hilton annually, which is 5% of their gross revenue. The
initial investment of OnQ amounted to $195 million by 2007,
with an estimated annual maintenance cost of the infrastructure of $60 million. In
addition to that the CRM system cost $650.000 initially,
with a yearly $1 million annual maintenance cost.
On the other hand, if we assume the revenue growth rate stayed the same in 2007
compared to 2006 and the number of franchised properties
stayed the same compared to the owned and managed properties, the generated income
from the franchisees fee amounts to $508 million.
Without even including indirectly generated income (like increased cross-selling),
this by far exceeds the initial and yearly investments in CRM.
With an annual IT budget of 240Mil (incl. CRM), this is sufficient to cover, apart
from marketing and brand quality assurance,
the expenses for all information technology. Therefore, by looking at the short-
term monetary benefits alone, the CRM system has been very successful and
should certainly be maintained at the very least. Further investments in the
system are needed the maintain growth.
Not investing means the competition will slowly gain ground, and Hilton will lose
its unique edge.