Prepared by:

FRC Research Corporation

July 9, 2013

Prepared for:

IHG REWARDS CARD AND CLUB SEGMENTATION RESEARCH

- Research Proposal -

Chase Credit Card Services

Intercontinental Hotel Group (IHG) is comprised of nine brands spanning 4,600 hotels in nearly 100 countries. The different brands represent a broad range of marketing strategies, from five-star properties catering to upscale guests to those targeted to budget-minded business travelers and value-oriented leisure travelers.

IHG maintains a Rewards Club program which allows its members to accrue points or miles through IHG hotel stays as well as various dining, travel and retail partners. IHG also offers a Rewards Select Visa card (issued by Chase) which allows its card holders additional opportunities to accrue points or miles through a broader array of purchase activities.

While the IHG program is one of the largest rewards programs in the world, its members tend to be less active than members of some other hotel loyalty programs -- and the “take rate” of the IHG Rewards credit card among Rewards Club members is below that for cards issued by other hotel chains (such as Marriott) among its loyalty club members.

BACKGROUND

The objective of this research is to gather the information necessary to help formulate programs designed to improve the performance of the IHG consumer loyalty effort across BOTH key vehicles of the program – the IHG Rewards Club AND the IHG Rewards Credit Card.

This will be done by gaining a better understanding of the attitudes, behaviors and characteristics of IHG Rewards Club members and IHG Rewards credit card holders. Responses of all consumers will help provide the framework for understanding the role that the IHG programs have to their members. A key objective is to identify and examine different groups of consumers within these broad market targets – groups that each have their own unique set of needs, wants and behaviors – that could provide the opportunity to both develop and target efforts where they might have the greatest effect – opportunities that might not otherwise present themselves within a broader investigation .

OBJECTIVES

A consumer segmentation analysis is recommended as the highest potential approach to achieve the objectives – using some newer multi-faceted segmentation techniques will provide the opportunity to identify and combine consumers based on their behavior AND the attitudes and characteristics that drive that behavior – simultaneously.

Consumers’ hotel and credit card choices may vary considerably, and any segmentation approach must be broad enough to accommodate several different models of consumer behavior. In order to accurately represent the range of consumer decision processes, the research must be able to classify consumers into groups that not only represent who they are and how they feel, but also what they DO in order to provide the most useful information. We feel that different consumers follow different paths when deciding on a hotel or credit card, and the analytic approach that we ultimately utilize must accommodate ALL of those different paths.

Whatever approach is ultimately used must be structured so that:• Some segments could be defined based on business vs. leisure criteria• Some might be based on loyalty to a particular hotel brand• Others might be price-driven• Still others might be based on particular need states

APPROACH

Online interviews will be conducted with 2,000 consumers – ALL will be members of the IHG Rewards Club – half WILL have the IHG Rewards Credit Card, half will not. (Potential respondents’ contact information will be derived from client samples).

There is a need to base size read results among consumers based on their number of stays at IHG hotels. Among the 1000 it is estimated that 700 or more will have stayed 1-4 times, 100 will have stayed 5-15 times and 150-200 will have stayed 15 or more times -- it may therefore be necessary to “augment” for additional consumers in the 5–15 group.

The overall sample size recommendation is based on the need to look at results based on various demographic, behavioral and attitudinal identifiers AND to provide the vitality to conduct a robust consumer segmentation.

Read 4 groups – 3 – 14 times, 15 plus times (rewards but no card)

BASE ON THREE PLUS – need to tab 3 – 14 and 15+Chase has a fee base product and a fee free product….sample tbd….(number of stays not important)

SAMPLE

Based on initial estimates of the amount of information we need to collect, we expect that the interview will last approximately 30 minutes and will include the following question areas. List is preliminary and NOT in order…

Prioritization of factors in hotel selection IHG hotels’ place in their consideration set Membership in other hotel loyalty programs Stated importance ratings of hotel loyalty programs Perceptions of IHG and other hotel loyalty programs (satisfaction,

likelihood would stay in the future, imagery, need states) Importance of factors in credit card selection General purpose credit cards owned Stated importance ratings of general purpose credit cards Perceptions of IHG credit card and other hotel credit cards owned

(satisfaction, likelihood would renew, imagery, need states) Interest in various card “concepts” (current IHG card, cash back card, no

fee card, “premium” card, etc.) Current business and leisure travel behaviors Travel attitudes Beliefs about hotel loyalty programs and credit cards Personality and lifestyle characteristics Travel characteristics Spending on IHG vs. other credit cards Demographic characteristics

QUESTIONNAIRE

ANALYSIS

The analysis of a project of this type is, at its best, an iterative process. The learning in one step will often lead to other new and unplanned analyses. As such, what follows is only a starting point for the analysis.

The analysis will begin with thoughtful cross tabulations of the data – and these cross tabulations will provide much of the ultimate analysis. We expect that we will initially explore responses among the following different groups of consumers. Potential sub-groups could include:

o Demographic segments – e.g. age, gender, income, etc.o Attitudinal/Behavioral Segments that we developo IHG guests by number of stays (Few, Average, Elite)o IHG card members based on dollar spendingo IHG “Loyals” versus otherso Specific hotel Brands usedo Other targets, to be determined

ANALYSIS

As the iterative process of analysis proceeds, every study of this types assumes a direction of its own, using particular analytical tools where and when appropriate. The graphic below indicates the various tools at our disposal and the sequence in which each might be utilized.

Understand consumers’ attitudes & behavior

within category

Driver AnalysisCrosstabs

Identify the drivers of hotel selection

Driver Analysis

Explore the nature of IHG interactions with other

Brands

Perceptual Mapping

Product Sorting and/or Choice

Modeling

Identify IHG’s leveragable strengths and weaknesses vs. competitors

Competitive Leverage Analysis

Identify and prioritize potential targets for current and future

products

Segmentation AnalysisCrosstabs

ANALYSIS – SEGMENTATION APPROACH

Segment IVSegment IV

Importance of CharacteristicsAttitudesBehaviorsPerceptions

etc.

Segment ISegment I

- 1 -

Segment IISegment II

Segment III

Segment III

The entire purpose of a segmentation is to identify groups of consumers that are internally similar to each other, and, as a group, different from others. Ideally, an examination of these groups will identify unique opportunities – opportunities that would be hard do spot in conductinganalyses among more heterogeneous groups. The analytic challenge is to reduce a complex multidimensional data set into a simplified model of consumer behavior.

Segments can be created based on demographics, behavior or attitudes – but the most actionable segmentation often tends to be one that is derived from a combination of these characteristics – as consumer motivations and choices are usually based on a complex combination of factors.

ANALYSIS – SEGMENTATION APPROACH

There are a number of segmentation approaches that will be explored, and the optimum approach will be selected based on a combination of factors, among them simplicity, actionability and differentiation.

• The specific approach will be driven, to a great extent, by the data itself. Preliminary analyses will explore which of the variables and characteristics are the most appropriate drivers of segmentation.

• This data driven approach will be supplemented with a judgment-based identification of those variables that are hypothesized to drive the segments OR that will help target them.

• The specific combination of characteristics that are ultimately selected for inclusion in the actual segmentation will determine the approach that will be used.

There is no single, universal “best” segmentation approach. • There are a host of statistical tools available that can be used to create the

segments (Canonical Interactive Analysis, K-Means Cluster Analysis, Latent Class Analysis, Hierarchical Cluster Analysis, etc.),

• Each of these approaches has its own strengths and weaknesses, advantages and disadvantages – some overstate or understate the impact of some input variables, some require consistency in the kind of data that is being used for the segmentation.

• All are available for use, as appropriate, and multiple approaches might be utilized to identify the single most usable segmentation scheme.

ANALYSIS – SEGMENTATION APPROACH

We have had success with an approach called Latent Class Analysis, and will probably ultimately use this for this data set. This is an outgrowth of earlier approaches, offering many improvements over more traditional segmentation techniques – it tends to do the best job of developing segments based on different types of data simultaneously.

• It is a “modeling” approach rather than a “descriptive” one• It is an iterative process – initial modeling runs can be used to inform

further modeling runs• The analysis makes use of varied types of data simultaneously–

attitudes, behavior, volume, etc. • It allows the use of the actual data upon which the segmentation is

conducted AS WELL AS the use of “co-variates” – criteria that are used as “tie-breakers”. The analysis is conducted to maximize differentiation across these covariate variables to guarantee the actionability of the segmentation.

• One limitation of this approach is that the segment classification is so complex it is difficult to replicate.

ANALYSIS – “DECISION TREE”

• Responses to the process respondents go through when selecting a hotel will be used to develop a decision tree. A prototypical example of the output might be something like that pictured below, describing the sequence in which individual decisions are made….

• While providing important information in its own right, the decision tree that would describe the process that consumers go through overall would represent an average across all consumers. The ability to develop decision trees of this type among the segments will be more likely to identify specific IHG opportunities based on each segment’s own unique decision tree – and the decision tree WITHIN segments will be far more homogenous than the one developed in total.

PriceTier

Destination Location Loyalty

ProgramAmenitiesRate

ANALYSIS – DERIVED IMPORTANCE

Comparing Brands’Likelihood would Stay in the Future(A & B) …

… And The Benefit’s Rating Score For Brand A & B …

. . . Results In A Derived Importance Score That Is:

A More Than B A Higher Than B Positive

A More Than B A Equals B Neutral (Zero)

A More Than B B Higher Than A Negative

• The analysis of derived importance prioritizes the benefits explored based on their likelihood to motivate hotel/card brand selection.

• Each respondent’s propensity to select each brand is compared to their perception of each brand on each benefit. Those benefits where their relative ratings of each brand are similar to their overall propensity to use each brand, have a positive impact on that benefits derived importance.

• A simplified example where two respondents rated two brands on two benefits follows:

ANALYSIS – COMPETITIVE LEVERAGE ANALYSIS

Column #1: Category Benefits – Listed by factor and identified as Truly Important, a Price of Admission/Opportunity or a Hidden Motivator

Column #2: IHG Delivery – Actual top-box score for IHG on category benefits among the total sample

Remaining Columns: IHG Strengths/Weaknesses vs. Competition – IHG delivery scores on each

benefit are standardized by indexing each one against the average top-box score across all benefits. The same is done for each competitor. Then IHG standardized scores are indexed vs. each competitor’s. The resulting scores are then ‘colorized’ to highlight relative strengths and weaknesses.

/ = Areas of competitive strength / = Areas of competitive weakness

The next slide shows an example of a COMPETITIVE LEVERAGE analysis. The explanation below indicates the definitions of the various components of that analysis.

ANALYSIS – COMPETITIVE LEVERAGE ANALYSIS

• In this example, IHG has an important advantage over most hotel brands for “Values me as a customer.” This quality should be leveraged strongly in brand promotion.

• A meaningful weakness exists in “Has benefits I can’t find in other rewards programs” and “Offers rewards I value”. Efforts should be made to upgrade these.

• IHG’s strong and comparable “Has a reasonable annual fee” equity indicates no need to ratchet up efforts in this area.

IHG Rating

Comp #1

Comp #2

Comp #3

Comp #4

Is prestigious 63%

Is not declined when I want to use it

50%

Offers rewards I value 52% Has a reasonable annual fee

58%

Has benefits I can’t find in other rewards programs

38%

Values me as a customer

45%

The cost for this research is $87,000.

A draft questionnaire can delivered within one week of project authorization. Once we receive questionnaire approval and the card member lists, our time line would be as follows:

Questionnaire programming 1 weekInterviewing 1 week

Top line results/analytical work session 3 weeksFinal presentation 1 week

COST AND TIMING

Costs have been requested for a supplementary sample of 1,000 consumers who fly at least once a year and are considered “affluent”, which, for cost estimating purposes, we are defining as having household incomes of $150K or higher.

Question areas would for the most part be the same as those for the other samples, however it would also provide more focus on other Chase hotel partners. A separate segmentation and analysis will be required.

The cost for this additional sample is $37,700. The various phases of the research would progress in tandem with those of the IHG samples, however the analytical phase would lag behind the IGH phase by one to two weeks.

ADDENDUM