1.     WHG Technology Standards

2.    Wyndham Rewards Guest Loyalty Program

3.    Fees

4.    Approved and Exclusive Vendors

1.            WHG’s Technology Standards

The high cost and poor performance of WHG’s technology standards outweigh the benefits Owners receive from this technology.  Owners need reliable and cost-effective property management systems (“PMS”) that book reservations, perform check-in and check-out functions, manage rates and inventory, collect certain information about each guest, automate the record keeping of the hotel, and interface with other electronic systems at the hotel.  Despite WHG’s assertion that the PMS should also relay our guests’ information directly to WHG, we do not believe this to be the case.  Each guest is the guest of the individual Owner and the individual Owner’s property.  Therefore, the guest’s information should be held in confidence by the Owner and should not be accessible by WHG.

The PMS solutions that WHG requires its Owners to use do not always suit the Owners’ needs.  Additionally, WHG frequently changes the PMS solution it requires the Owners to use, which results in a significant expense to the Owners.  Most recently, WHG is requiring Owners to drop the HSS, MSI, and Brilliant systems in use and replace them with the newer, more expensive, SoftHotel system.  In addition to paying the high costs associated with the PMS, Owners are also required to pay costly monthly maintenance fees and service fees for the satellite-based Internet access service Direcway, when less expensive alternatives exist.

            Issues with WHG’s Technology Standards

·         HSS, MSI, and Brilliant

Most of the Owners are currently using HSS, MSI, and Brilliant, which are the systems that WHG had initially determined to be the best PMS solutions.  While these systems may be slow and have some flaws, cost-effective options do exist to improve the systems.  In fact, many Owners spent $6,000 to $8,000 during the last year to refresh their hardware and software.  Under the March 30, 2007 UFOC WHG cannot require Owners to replace the PMS in their hotels for four years after such hardware and software has been installed.  Similarly, in order to ensure that Owners are able to recoup their investment on the hardware refresh, WHG should not be allowed to require Owners to replace hardware or software until four years after a refresh.  When a system refresh occurs, it should be done in a reasonable manner with acceptable costs.

·         SoftHotel

WHG had announced that it intends to rollout the SoftHotel system by the summer of 2008, and that, at that time, Owners would be required to purchase both the hardware and software for the SoftHotel system from WHG.    SoftHotel is an expensive system that ranges in price from $14,000 to $22,000 for installation, and costs $50 per month, plus $2.50 per room per month, in maintenance and support fees.  Despite these high costs, WHG has reserved the right to increase SoftHotel fees up to 5% per year.  SoftHotel has essentially now been forced on the owners under the umbrella of PCI Compliance.  Any future upgrades to the PMS system must be reasonable and not involve a total replacement of systems.  This continual upgrade and change process works negatively towards the operational aspects of the owners.  Additional educational and  training expenses that WHG has implemented and may implement in the future are a major concern of the franchisee organization.

·         Hughesnet (formerly Direcway)

Owners are also required to obtain from WHG, its affiliate, or its approved supplier, the Hughesnet satellite-based Internet access service, which includes equipment and software for interfacing with the Central Reservation System, the enterprise data warehouse, and the brand information source.  Under the terms of the Satellite Connectivity Services Addendum, which Owners are required to sign, Owners are charged $160 per month for a 36-month term (for a total of $3,840 over three years) for the Hughesnet service.  The monthly service fee covers communication charges, installation, and maintenance and support services.  Despite the monthly service charge that Owners are required to pay for the 36-month term, WHG has no obligation to modify or upgrade any Hughesnet equipment during the service term.  The new technology agreement that is currently being required for Softhotels upgrade does offer a broadband alternative or a satellite upgrade however the costs continue to be a major concern of the owners.  More economical secure avenues to obtain the same end use continue to be available and the franchisees would expect those to be evaluated.           

2.            The Wyndham Rewards Guest Loyalty Program

It is important for us to have loyal guests, and we want to reward our guests who repeatedly stay with us and other fellow WHG franchisees.  Guests may be loyal to a particular hotel location, but, more than likely, guests will be loyal to a brand. 

Issues with Wyndham Rewards

·         Guests are often not Aware That They are Members of Wyndham Rewards and are not Held Accountable for Their Wyndham Rewards Memberships.  Points are Pro Actively Matched for guest’s with Wyndham Rewards Membership Numbers.

Wyndham Rewards was introduced in 2003, as a replacement to the V.I.P. Club and other Frequency Programs.  It was introduced to all Wyndham Hotel Group brands, allegedly in response to “increasing consumer demand for a points-based loyalty program.”  A guest can join Wyndham Rewards at no cost by visiting the website of a participating hotel brand, enrolling upon check-in at any Wyndham brand hotel, or calling a toll-free 1-800 telephone number.  Additionally, if a guest makes an online reservation, he or she had automatically been enrolled in Wyndham Rewards for several years, unless the guest opted out of membership by un-checking an enrollment box during the reservation confirmation process.  A large number of guests were not even aware that they have a membership in Wyndham Rewards, since, typically, they made their reservations online and do not see the checked-box, or do not even think to un-check the box, which automatically enrolled them in the Wyndham Rewards program. 

After enrollment, the guest receives a membership card that entitles the guest to receive “points” that can be redeemed online for “rewards,” including motel stays, airline tickets, and gift cards, if the guest stays at any Wyndham brand.  Under Wyndham’s current Wyndham Rewards policy, a guest is not held accountable for his or her Wyndham Rewards membership and does not need to present his or her TripRewards membership card upon check-in, in order to receive points under the program.  However, the fine print in the Wyndham Rewards brochures specifies that the guest must present his or her membership information upon check-in in order to receive points.    Since Wyndham Rewards members do not have to present their membership cards or membership numbers upon check-in, in order to receive points, they may not even realize they are receiving points, thus defeating the purpose of the guest loyalty program. 

If a guest notices that he or she has not been awarded points for a qualifying stay, the guest has the ability to contact the Wyndham Rewards Customer Service Center and request that points be assessed to the guest’s Wyndham Rewards account.  The Wyndham Rewards Customer Service Center issues points immediately when such a request is made, without contacting the motel property to verify that the guest actually paid a qualifying rate.  Additionally, if a guest becomes a Wyndham Rewards member after staying at a WHG branded hotel, the guest may request that he or she receives points for his or her stays prior to the time the guest became a Wyndham Rewards member.  Even though a guest’s stay may not qualify the guest to receive points, and even though the guest was not a Wyndham Rewards member at the time of the guest’s stay, the Wyndham Rewards Customer Service Center backdates Wyndham Rewards points, and the Owner is charged a 5% Mandatory Marketing Program Charge, as explained below, for the guest’s stay. 

Pro active matching has made the process simpler for points to be improperly awarded to guests that may not be loyal to Wyndham Rewards or may not be aware of membership in the program.  Further, the Wyndham Rewards point assessment on hotels does not always follow the guidelines set forth in the Wyndham Rewards rules.  Often times guest’s are receiving points for rooms that exceed the maximum point accumulation limits.  Guests are automatically assigned points while the rules of the program are being violated.

·         Wyndham Rewards Creates a Huge Expense for the Owners and Provides Little Benefit in its current format.

Owners are required to display Wyndham Rewards promotional materials at their hotels and are charged a “Mandatory Marketing Program Charge” for their participation in the Wyndham Rewards program.  The Owner is assessed the 5% Mandatory Marketing Program Charge, which is billed on a monthly basis.  In reality, Owners are being charged the Mandatory Marketing Program Charge for almost every Wyndham Rewards member that stays at the Owners’ motel.  WHG claims that this 5% charge is “extremely competitive and consistent with most other industry programs,” and is used for the “administration, promotion, marketing, award fulfillment, and any other ongoing expenses” required to maintain the program.  In fact, this 5% Mandatory Marketing Program Charge creates a huge expense for Owners and provides little, if any, benefit due to the current nature of the enrollment process and pro active matching, except to the extent that such charges benefit Wyndham by putting money in WHG’s Marketing Budget.

As stated above, many guests do not even realize they are Wyndham Rewards members, and, accordingly, accumulate a large number of points that will never be redeemed.  Many of these points will expire after several months of inactivity.  Despite the fact that these points will never be redeemed, the Owners still have to pay the 5% Mandatory Marketing Program Charge for each Wyndham Rewards member’s stay.  This defeats the entire purpose of Wyndham Rewards, as a guest loyalty program, because loyalty will not be bred in guests that do not even know the program exists or that they are actually being rewarded for their stays at WHG branded hotels.  Wyndham Rewards has not increased Owners’ revenues, but has only increased the amount of fees and charges that Owners are required to pay to WHG.

Proposed Solutions to Issues with Wyndham Rewards

            The main purpose of the Wyndham Rewards program is to create guest loyalty, but how can guests be loyal if they do not even know they are being rewarded for their stays at our hotels?  We, as Owners, are confident that the majority of our guests are not aware of their membership in the Wyndham Rewards program.  To prove this, we are ready and willing to poll each of our guests, as they check-in to our properties, to determine if the guest indeed knows that he or she is a Wyndham Rewards member and to find out if the Wyndham Rewards program actually influenced the guest’s decision to stay at the respective hotel.  If, in fact, guests prove to be unaware of their membership in Wyndham Rewards, steps must be taken to increase awareness among guests of the Wyndham Rewards program.

The purpose of the Wyndham Rewards program is to award guests with spendable points which are supposed to create guest loyalty.  We as WHG owners have paid substantially for the points awarded to our guests.  Whether the guest has signed up for the program or even knows they have points is not the issue as the bottom line is that we as owners have paid WHG for them.  Given this reality, it makes sense that all WHG franchisees should make sure that every guest fully understands the benefits of the program and that our staff encourages each guest to redeem their points.  We would suggest that we go so far as to inform each guest of their enrollment status at check in or even checkout and also discuss with them the number of points they have and how they can use them to their benefit.  The members’ point totals could also be clearly stated on their folio in create further awareness and utilization of the points.  Since we are paying for points for the guests then why shouldn’t the guest claim their rewards?  This is exactly what the program was designed to do. The program’s goal should be to reward the guest and create guest loyalty.  The franchisees will loose if the guests do not redeem their points and WHG will become less accountable towards the value of these points. 

·         Make Guests Aware of the Wyndham Rewards Program

In order to fulfill the purpose of Wyndham Rewards and increase guest loyalty to WHG brands, guests must be made aware of the program.  Accordingly, guests should be required to take affirmative steps to sign up for the Wyndham Rewards program.  Rather than WHG “checking the box” for guests who make online reservations or WHG sending out mass flyers with automatic membership, the guests should be required to check the box themselves or take the initiative to apply for membership.  Additionally, guests should be required to present their Wyndham Rewards membership cards or membership numbers upon check-in, if they are going to receive points for their hotel stays.  That way, guests will know they are being rewarded for staying at our hotels, which will further increase guest loyalty to the brands.  Without this requirement, points may be awarded to guests, but never redeemed, all at the Owners’ expense.  To make it fair for the Owners, WHG should be required to review all inactive Wyndham Rewards accounts—i.e., accounts with points that have not been awarded or redeemed in the last 12 months—and issue credits to Owners who have been assessed Mandatory Marketing Program Charges for these accounts.

·         Hold the Wyndham Rewards Customer Service Center Accountable to the Owners

When a guest contacts the Wyndham Rewards Customer Service Center regarding missing points, the Customer Service Center should be required to contact the hotel property directly with details and contact information on the guest to verify that the guest actually stayed at the motel and paid a qualifying rate.  Without this check on the Wyndham Rewards system, guests may be receiving points when they are not entitled to receive those points and WHG may be requiring Owners to pay Mandatory Marketing Program Charges when those charges are not justified.  Additionally, a guest with missing points should only have 30 days after his or her stay to contact the Wyndham Rewards Customer Service Center, report the stay, and receive points.  A guest should also be required to be a Wyndham Rewards member at the time of the stay before being allowed to receive points.  This will eliminate any back-dating of points for non-member stays. 

The Customer Service Center needs to have quality assurances in place that will catch duplicate entries of Wyndham Rewards membership numbers on a single day.  As some Owners have experienced, they will be assessed multiple Mandatory Marketing Program Charges under the same Wyndham Rewards membership name and number on a single day.  This should not be happening, unless the Wyndham Rewards member has booked multiple motel rooms, which is often not the case when such multiple assessments are made.  In other situations, Owners will be charged a Mandatory Marketing Program Charge when the Wyndham Rewards membership number does not match up with the guest’s name.  The Customer Service Center needs to have the ability to cross-check this information so that Mandatory Marketing Program Charges are not being wrongly assessed.

·         Ending Pro Active Matching

Pro active matching is a process that WHG has been utilizing to automatically

assign points to guests that are members of the Wyndham Rewards program.  These points are assigned to the guest whether or not they have knowledge of membership  in the program or not.  This further destroys the program as it is counter-productive to the success of the program.  Wyndham Rewards points should never be automatically assigned and then charged to the hotels as this will never increase brand stay frequency.  It further creates a situation where fees are generated from point accumulation and then as points are expired the fees are kept by Wydham and allegedly allocated to the Marketing Budget.  The Marketing Budget and the actual values of these points have never been disclosed to the owners.  Also Wyndham Rewards should consider not expiring any points as these points had been paid by franchisees through their program fees.

·         Decrease the Cost of Wyndham Rewards for the Owners

One of the major problems with Wyndham Rewards is the cost of the program for Owner.  In order for the Wyndham Rewards program to be beneficial for Owners, the qualifying rate needs to only be applied to rates that are discounted less that 15% of rack—i.e., less than a 15% discount on night stays.  With a higher qualifying rate, Owners can pay the Mandatory Marketing Program Charge and still earn profit from the Wyndham Rewards members’ stays.

Owners should also be entitled to the accounting records of the Wyndham Rewards program, which include the total number of room nights that are redeemed, total balance of unused points, total costs of the program, and total revenue generated by the program.  We should have the ability to evaluate the effectiveness of the Wyndham Rewards program since we fund the program through payment of the Mandatory Marketing Program Charges and since it is a marketing initiative.  Wyndham Rewards should not simply be a revenue generator for Wyndham.

Overall, these changes to the Wyndham Rewards program will result in a heightened guest awareness of the Wyndham Rewards program, a decreased number of unredeemed guest points, an increased number of guest rewards, and increased profitability for the Owners.  This will create the desired guest loyalty to the WHG brands and fulfill the purposes of the Wyndham Rewards program.

3.            Fees

A.    Guest Services Assessments and Processing Fees

We acknowledge that top-notch guest services are necessary for the success of the individual Owners and the WHG franchise system.  We, as Owners, strive to satisfy our guests and pride ourselves on ensuring that each of our guests has a positive experience while staying with us.  When guests have complaints, we do our best to address and resolve them, since we know that happy guests will likely return to our motels and stay with us again in the future.  Our responsiveness to guest complaints not only strengthens brand loyalty, but also increases our (and WHG’s) bottom-line revenues.

Issues with Guest Services Assessments and Processing Fees

·         Guest Services Assessments and Processing Fees are Extremely Costly for Owners

WHG has recently implemented the “Guest Services Assessment,” which is a fee imposed on franchisees that experience guest complaints.  This is how the Guest Services Assessment works:  Whenever WHG receives a guest complaint about an Owner or the Owner’s motel, WHG notifies the Owner of the guest complaint.  The Owner is then responsible for resolving the complaint to the guest’s satisfaction.  If the Owner does not respond to the complaint within three (3) business days after receiving notice of the complaint from WHG, WHG charges the Owner a “Guest Services Assessment” of $160.00,[1] plus the costs WHG incurs to settle the matter with the guest.  Even if the Owner responds to the guest complaint within specified period, WHG may still charge the Guest Services Assessment, plus its costs, if the guest is not satisfied with the Owner’s response. 

·         Guest Complaints are Frequently Unreasonable or Invalid

While WHG contends that the Guest Services Assessment and the Processing Fee “are not intended as penalties or liquidated damages,” this is exactly what they are.  Owners should be held responsible for guest complaints, but only if the complaints are reasonable and valid.  In order for such a penalty to be imposed on a franchisee, the guest complaint should fairly be deemed the franchisee’s fault.  Currently, franchisees are held responsible for complaints, regardless of their source and regardless of their validity. 

Proposed Solutions to Issues with Guest Services Assessments and Processing Fees

·         Guest Services Assessments and Processing Fees Should be Eliminated Entirely, or at Least Reduced, so That Owners can Remain Profitable

Ideally, the Owners would like to see the Guest Services Assessments and Processing Fees eliminated entirely.  If an Owner has an abnormally high number of guest complaints, WHG should work with, and not against, the Owner to pinpoint the source of the complaints and resolve the underlying issues, so that guest complaints do not repeatedly occur.  WHG needs to do a better job of supporting its Owners and assisting them in becoming successful operators, rather than issuing monetary penalties against them for every problematic situation that arises.

·         Guest Complaints Must be Screened for Validity and Reasonableness Before Guest Services Assessments and Processing Fees are Issued

There also needs to be a better system in place for determining which guest complaints are valid and which guest complaints are not.  Currently, there is no screening process in place and guest complaints are simply issued to Owners without WHG first reviewing the reasonableness of the complaints.  As previously stated, the Owners are willing to take responsibility for reasonable guest complaints that are actually the Owners’ faults.  However, the Owners are not willing to take responsibility for guest complaints that are wholly unreasonable.  Unfortunately, while Owners try to be apologetic and reasonable in dealing with guest complaints, there are times when the complaints are the products of individual guests and not of the Owners or their motels.  As all of us in the hospitality industry know, some guests will never be satisfied.  As a result, it is unfair for WHG to charge a Guest Services Assessment if the complaint is not resolved to the guest’s satisfaction.  (In the past, this is how Guest Services Assessments were issued.  Owners were only penalized if they failed to respond to the guest’s complaint, and were not penalized simply because the guest was not satisfied with the attempted resolution of his or her complaint.)  Guest Services Assessments should not be issued in WHG’s sole discretion, but rather, the Owners should have some say in determining whether guest complaints are valid.

·         Owners Should Know how WHG is Using the Guest Services Assessments and Processing Fees That Owners Pay

            Finally, if Owners are going to be charged Guest Services Assessments and Processing Fees, Owners should have a right to know how WHG is using these fees.  Owners have been told by WHG that such fees are being used to fund the Customer Service Center.  If this is actually the case, how are these funds specifically allocated?  If, in fact, these fees are not being used to benefit WHG franchise system, but rather, are being used to increase WHG’s own bottom-line profitability, the fees must be done away with entirely.

B.    Quality Assurance Reporting and Fees

The Quality Assurance (“QA”) process was originally created to maintain quality standards throughout the WHG franchise system.  Under the QA process, QA inspectors randomly inspect every WHG property twice per year, in an attempt to ensure that WHG quality standards are being met.  Inspections may occur at any time during normal business hours, without advance notice to the Owner.  QA inspectors do not specifically inspect specific brands, but rather, inspect all Wyndham hotel properties.  After a QA inspection, Owners are given QA reports, which contain results from the inspection, as well as the Medalia guest surveys.

If an Owner’s hotel fails a QA inspection, the Owner refuses to cooperate with the QA inspector, or the Owner refuses to comply with WHG’s published inspection System Standards, the Owner is liable to WHG for any Re-inspection Fee specified in the System Standards Manuals plus the reasonable travel, lodging, and meal costs the QA inspector incurs for a re-inspection.  WHG also conducts paper and electronic customer satisfaction surveys of the franchisee’s guests and includes the results in the franchisee’s final QA survey.

WHG also reserves the right to require Owners to make minor renovations to their properties, upon notice to the Owners. 

Proposed Solutions to the Quality Assurance Reporting and Fees Issue

·         QA Inspectors Need to Have Identifiable Standards for The QA Inspections

            QA inspectors lack adequate training and uniformity in their inspections, which is evident in the fact that different QA inspectors often demonstrate different standards and levels of tolerance.  For example, Owners have been told by some QA inspectors that they do not understand why a particular default has been noted by a previous inspector.  WHG needs to have QA inspectors specific to each brand, whose sole functions are to inspect those branded properties.  Additionally, objective quality standards need to be in place for the WHG franchise system so hotel properties know what to expect during an inspection and can strive to meet those known and defined standards.  It is not reasonable or fair for Owners and their hotel properties to simply be subject to the whims of the QA inspectors.  While most of the QA inspectors have demonstrated honesty and integrity in their inspections, unfortunately, some QA inspectors have demonstrated poor attitudes and have failed motels without significant reasons for doing so.

·         Medalia Surveys Should not be Used in Scoring the Owners’ QA Reports

            QA reports should not use the Medalia survey results as part of the overall QA scoring system, since Medalia has several flaws.  Medalia is the least-used point of contact with guests, yet it is still used to assess points on the QA report.    Many of the guests that respond to Medalia surveys are guests that are either extremely disappointed or extremely satisfied with their stays.  This skews the QA scoring system because it does not accurately quantify our motels’ performance.  Additionally, Medalia is an ineffective scoring system because guests are grading their experiences subjectively, unlike the QA report that has a set of specific, objective parameters.  In other words, Medalia gauges the perceived value of the guest’s stay and not the actual quality of the facility itself.  In our experience, Owners feel that our scores suffer due to the perception of the motel’s price and/or value.  As rates vary during peak seasons, guests taking the survey may place higher emphasis on the price paid, which, accordingly, results in lower scores.  Guests’ perceptions may also be based on previous lodging experiences at higher-tier motels.  This comparison may make guests perceive our properties as a poor value when, in fact, the rates were based on supply and demand in the market at a particular point in time.  Essentially, Medalia is a survey and should be evaluated by the Owners.  The results from Medalia surveys should not be integrated into the Owners’ QA reports.

·         WHG Must Relieve the Financial Strain on Owners that Results from QA Inspections

WHG should not cut off an Owner’s right to reservations through the WHG websites or other third-party reservation websites pending resolution of QA issues, as it is counter-productive and creates financial strain for Owners.  With decreased finances, it becomes more difficult for Owners to address QA issues.  Similarly, the issuance of Re-inspection Fees has the same result and makes it more difficult for Owners to make the required improvements that will bring them up to QA standards.  Re-inspection fees should not be charged.  Additionally, as fees are already assessed for customer services issues, those issues should not be considered in the QA inspections.  Owners should not be penalized twice for customer service issues.

Finally, there needs to be a cap set on the minor improvements that WHG requires its franchisees to make.  Currently, the Owners feel that standards are being changed with total disregard of the costs of the improvements to the Owners.  Owners should have a say in which improvements should be required of the franchise system at large, rather than being subject to the whims of Wyndham Hotel Group.

C.   Liquidated Damages

Liquidated damages are the fees that the franchisor accesses a location for breach of contractual agreement.  All franchise agreements indicate the period of time that the franchise agreement represents.  Further, they stipulate the amount of damages that will be incurred for exiting the system early either voluntarily or due to default.  These charges are often quite excessive and are in reality in place to supplement a loss of revenue for the franchisor.  In most cases it involves a calculation of revenue loss for a 36 month period or a fixed payment of loss per room.  What is concerning is that WHG has often fined owners the liquidated damage fees while actively pursuing and granting a license to a competing facility.  Essentially, this defeats the purpose of the damages which were meant to reimburse loss of revenues for the franchisor.  There have been several incidences that prove that termination and then replacement with another facility has proven to be more financially lucrative for WHG rather than to continue with existing franchisees.  The owners are very concerned regarding this process.

4.  Approved Vendors and Exclusive Vendors

Approved Vendors and Exclusive vendors involves a process by which the franchisor creates excessive pricing while having the ability to control the number of vendors.  Usually this involves the franchisor receiving some sort of royalty (commisions) to the franchisor for allowing such vendor exclusivity.  Recently, WHG has implemented WynSource which is their internal purchasing system for the owners.  We are very concerned that WHG will be mandating specific items from specific vendors rather than allowing the owners to purchase items that meet a set of specific specifications that the franchisor may implement.  The approved and exclusive vendor process creates a situation where franchisees will no longer have the ability to obtain cost effective pricing as certain vendors will improperly control pricing.  Further, we will not have the ability to obtain competitive bids for specific items and will result in additional expenses for the owners.  WHG should not have the ability to create these fees and profits at the expense of the franchisees.