Interview: Four Seasons CEO on Building a New Kind of Loyalty

Editor’s Note: Skift is running a series of interviews with hospitality CEOs talking about the Future of the Guest Experience and the evolving expectations and demands of hotel guests. Check out all the interviews as they come out here. This continues our series of CEO interviews, the previous series was on the Future of Booking, with online travel CEOs.

With fewer than 100 properties, Four Seasons as a hotel brand regularly punches above its weight in the crowded hospitality field. It is bulking up though, with 70 openings planned over the next six years. Over the last weekend in October, it opened its largest property, which is the only independent hotel on the Walt Disney World grounds in Orlando, and a new property in Moscow, Russia, which was built on the site of a landmark Soviet property.

CEO J. Allen Smith stepped into his role in September 2013. As hotel CEOs go, he was rather unexpected. Unlike his predecessor, as well as his counterparts at many other hotel brands, he did not spend decades in hospitality. Rather, he was plucked from the chief executive role at Prudential Real Estate Investors, where he had developed a deep knowledge of the real estate and development side of the hotel business. That has come in handy as Four Seasons rethinks the model for getting properties financed, developed, and built.

Skift met with Smith at the company’s new Orlando property. An edited version of the interview is below:

Skift: After the terrible 2008-2009 years, a lot of companies reassessed, reevaluated, looked at their priorities. I’m wondering what you feel the current state is now and how hospitality brands are thinking about the guest and in their experiences.

Smith: Well, obviously, I can opine on how Four Seasons is thinking about it most authoritatively. There are probably a couple themes that Four Seasons is focused on.

One is this notion of customization, which frankly is something that I think many people would associate Four Seasons with doing very well heretofore, in terms of understanding our guests, catering to their very specific needs, and that sort of thing.

What is apparent from the way technology continues to develop and penetrate our lives in all realms of consumer activity, is that the consumer is expecting that you know ever more about them and their preferences. That’s part of why I say that part of our challenge, and part of the challenge that much of the industry is dealing with right now in different ways, is how we transition from a high-touch relatively low-tech business to one that is high-touch enabled by high-tech.

In our case, part of what gives us a great deal of confidence in our ability to do that effectively, is that notwithstanding all the focus on technology, at the end of the day, the delivery of those services is still through people. We have a service delivery mechanism, if you will, through these extraordinary people who work in Four Seasons that some would say is unmatched. I think as we continue to progress and we make that transition, our capacity to both anticipate and respond to our guests’ very specific and customized needs will be even greater.

Skift: In knowing your customers and delivering what they’re expecting in terms of, “You should know me,” are there any concerns of balancing privacy and knowing too much?

Smith: I think you raise an excellent point. That’s where this can’t be rote. It can’t be mechanical. There is an element of judgement that goes into the use of this sort of information, just like there is today. There’s a fine line, as you point out, between understanding your guests and making them feel like there’s a surveillance system watching them at all times. There’s a sort of transparency that’s important that the guest feels, that they understand what’s going on. On some level a form of — whether it’s explicit or implicit — consent to what we know about them.

There are some guests who are very forthcoming with their preferences, their personal characteristics. They want us to know a lot about them. There are other people who are far more reserved, and they’re not comfortable with that. I think our challenge is to be able to discern that difference and respond to each individual as they want to be engaged. I think it speaks to this other theme around that we’re seeing, the notion of empowerment.

People want more control over their experience. Some of that does come from the way in which technology is creating an ability for people to be very specific about what they want and how they engage with things. There’s an app for everything now, right? I think that sense of empowerment and choice that the consumer has about how they engage with us is also a really important feature.

It’s interesting to me because it’s not just how they engage with us. It’s also how they use the space that they occupy. The spaces we design — and I think you’re seeing this more broadly through the industry — they’re becoming more flexible. They’re becoming more multi-purpose. Giving them more optionality about how they interact with the space and use it. Those are some of the other things that are important.

I think a big part of what feeds the loyalty we have from guests is that sense of personal relationship they have with our people. That’s why I go back to one of the real underpinnings of our business that I’m very focused on making sure we continue to nurture and cultivate is this whole idea of the culture and the people of the company, which is unique, distinctive, and critical to our success going forward.

Skift: As you grow, and you’re in the middle of a big growth burst right now, having both people who are unique enough who can deliver and build those relationships, those will be harder to deliver as you grow. As you get bigger in scale, how do you make sure you’re still able to deliver that personalization, those special experiences, and build those relationships?

Smith: It’s a good question. It’s one I frankly get asked often, both internally and externally. From a very practical perspective, we don’t think about our pipeline of growth in terms of properties without thinking about our pipeline of talent to support that growth.

We’re able to look out over the next five years and know with some level of certainty, when we’re going to be delivering properties, where we’re going to be delivering properties or hotels, and what are the unique characteristics we need of people leading those specific properties. We then match that up against our pipeline of talent and try to be very honest with ourselves about where we have gaps. More often than not, the gaps are not driven by the technical knowledge of running hotels. That’s something that we obviously have tremendous depth in and are exceptional in.

The gaps are often around language skills. If we’re going to open a new hotel in Tokyo, for example, we would like to have a Japanese-speaking general manager. We’re working on several properties in Brazil. Having a Portuguese-speaking general manager is important to us. Again, that goes to the importance of the localness of the experience we’re providing and the guests we serve.

The good news is we have enough advance knowledge of our need for people with these characteristics, we’re either able to cultivate them internally or know that within a certain time frame, we need to go to the market, bring such a person in, acculturate them to Four Seasons and then get them prepared for that assignment.

It’s those two things, the growth in the hotel assets and the growth of the talent go hand-in-hand, and they can’t be thought of independent of one another.

Skift: For a brand that has such a close relationship with their guests and the guest experience is put on such a high level, you don’t have a loyalty program, which is different than, I think, everybody?

Smith: It is.

Skift: Why not, and what other hotels get from loyalty programs, how do you get that as well?

Smith: Yeah, it’s a really good question. When I talk about our transition from high-touch low-tech to high-touch enabled by high-tech, that’s a dimension of that. Our focus, and we are very focused on it in terms of a “program,” is on recognition. Loyalty is associated with, if I demonstrate my loyalty by staying with you, I accumulate points and get free things.

Our view of our guests and certainly our feedback from our guests is they’re far less concerned about accumulating points to be redeemed for rewards as they are being in a position where they’re recognized and we understand their preferences and can serve them in that highly personalized way they’ve come to expect.

You will hear, over the course of the near term, our talking about programs related to recognition that we will be undertaking, but again, as I said, it is focused on the distinction between recognition and rewards. One is recognizing you, understanding your distinct preferences and desires and being able to accommodate those, as opposed to a points-based program. I actually think it’s very compatible with what our guests are actually looking for.

Skift: Does that mean that you’re thinking of rolling something out that is a rethink of loyalty programs, or is that just saying that you are going to focus on that?

Smith: I anticipate our rolling out a program that is focused on recognition. Look, there are clearly brands with very effective loyalty programs. They work for them. I think what we’re focused on is developing a program that is clearly compatible and reflective of what Four Seasons represents and how Four Seasons engages with its customers and what Four Seasons customers value the most. Consistently in our engagement with our guests and talking to them, it’s those elements of recognition that they’re looking for as opposed to points that translate into free nights.

Skift: A lot of hotels, even luxury products have sub-brands so there’s multiple entry points to introduce new guests or new customers to the product. Without having that, what’s your best pipeline of new guests?

Smith: The modern luxury traveler, as we think of it, is not this homogeneous body that all have the same characteristics regardless of where they originate from. I think for many people, Four Seasons is an aspirational brand. Given its position in many markets around the world, it’s where they seek to stay.

If you think about China, one of the things that clearly will be profound, I think, over the coming decade, is the influence of the outbound traveler from China. Obviously, we’re very focused on developing our portfolio of properties in China, but the outbound traveler may be even more profound for companies like ours. That affluent Chinese traveler is one that obviously we’re trying to make sure that they have a sense of identity of our brand, based on how they perceive us on the mainland.

Capturing that guest, though, is going to require that we do things very differently than what we do for some of our other customers and part because of the scale of the opportunity. In terms of having Mandarin-based services that we provide or Mandarin-based concierge services or whatever the case may be. Making sure that we have the services and the form of engagement with that customer base that leads them to stay with us is something that we have to be very focused on, and we are.

The Millennial that a lot of people focus on, there’s a tremendous amount of wealth in that group. Part of what we’re trying to make sure is that we provide the environment, the physical product that people find appealing, the services that they find appealing, the food and beverage experiences that they find sort of dynamic. Not just a hotel service but these experiences that are appealing both locally and to the hotel guest, so it’s sort of a scene. There is this kind of mix of qualities that we have to be able to provide that make it an appealing place to stay.

One of the things that’s striking to me is that luxury segment is becoming very crowded. People ask me all the time, “Who do we compete with?” While there are some major brands we compete with, the truth is we compete with anyone in the luxury segment in any market we’re located in. As you heard today, we’re in over 90 markets in over 35 countries, so that’s a lot of people we compete with.

Many of those qualities we have to continue to deliver on. The service promise that we deliver resonates with all kinds of people and is something that we continue to be very focused on.

Skift: Since Four Seasons is primarily a management company as opposed to owning a ton of real estate, you have the guests on one hand, and you have the owners on one hand. How do you go about convincing the owners, who although they do like investing and things like that, that what you provide to the guests doesn’t come cheap? How do you balance the relationship between what’s best for the guest and making sure the owners are happy with the returns?

Smith: One of the things that I’ve talked to our team about extensively is that for us to generate what I characterize as long-term sustainable growth, and by that I mean growth that we exercise some level of control over, notwithstanding market cycles and that sort of thing, is that we have to deliver exceptional value to our guests, and we have to deliver exceptional value to our hotel owners. It’s not either/or. We don’t get to choose. We have to serve both simultaneously.

For our hotel owners, one of the things that’s critical that we do is put ourselves in their shoes. Understand what their unique issues are. Understand that they are investing immense amounts of capital in these physical assets and that they are taking a tremendous amount of risk in doing so. They count on us to help manage a big part of the risk associated with those investments, namely the risk associated with operating these properties in the best way possible.

Among the attributes our shareholders were looking for when they went to the market to find the new CEO was someone who understood that dynamic. Clearly, that was much of my background prior to coming to Four Seasons – that of an owner. We are very focused on recognizing that each of our owners has different motivations. Understanding those motivations so we can effectively serve those needs of theirs is extremely important.

We’ve got a very wide range of ownership groups. We have ownership groups that are private equity funds that are invested in these assets and trying to generate a 20% IRR [Internal Rate of Return] on their investment.

We have other groups that are generational owners. They own great assets in gateway cities. If you were to ask them, they would tell you, “I never intend to sell this.” It doesn’t mean that they don’t care about the return on investment, but they have a far different horizon in which to think about it.

Our challenge is to understand that very wide range of motivations and to support them in accomplishing those goals without compromising what our brand stands for. Frankly, it’s an area of great opportunity for us, and I think we’re making a lot of progress in that area.

Skift: You talked about moving to high-tech enabled. I think most consumers are demanding this level of personalization and that all the gadgets work, and things like that. How do you balance the high-tech enabled stuff and the personal relationships? Talk me through a bit how the high-tech can actually enable the better interaction with guests.

Smith: It’s a good point. Underpinning all of this is a high level of training to make sure that people are using it in the right way, hiring the right people. As [Four Seasons founder] Issy Sharp always said, “We hire for attitude, and we train for the skills we need.” The technology is not a substitute for that.

The key is that it will allow us to more efficiently gather information about our guests and more rapidly put it in the hands of people that can use it effectively. It still requires that people use judgement and understand the sensitivity with which you have to treat this information. You can’t sit there with your iPhone in front of you and say, “Oh. Hello Mr. Smith. It’s such a pleasure to see you.”

Skift: “And your wife, Carol.”

Smith: “Your wife, Carol.”

Skift: “How’s your dog?”

Smith: Exactly. “I see you have a dog.” Then they say, “Wait a minute. How do you know I have a dog? I never told you.” I think the sheer gathering of information is not a panacea for anything. What is absolutely imperative is that there is an evolution in how we continue to train people in serving our guests, where part of that training is the responsible use of this sort of personal information.

I guess the reason why I’m confident in our ability to do it is that frankly, we have a lot of information on our guests today, but it’s not necessarily all gathered in the most efficient way possible. It’s not seamlessly produced through integrated systems and that sort of thing. It’s a relatively labor-intensive process. Really, all we’re talking about doing is taking much of what we do today and better automating it.

Again, that responsibility to treat it with care doesn’t go away. It’s part of what we do today, and it will be part of what we do in the future. I think the training around this becomes absolutely imperative. Our organization excels at that sort of thing, so that’s why I say I’m quite confident that continuing to give our team the tools to serve our guests better will be something that we’ll be able to do.

Skift: You’ve worked with Disney closely. Disney knows a lot about the guest experience and how to make them happy. I know it’s early on, but what’s something you’ve learned through working with Disney so far, that’s improved Four Season’s relationship with the guest?

Smith: Honestly, I think it’s a little early days yet, at least from my knowledge. Disney has made huge investments in technology to better serve their guests. We will want to understand that, basically what their experience has been in that. Again, you can talk to someone from Disney about it. The risk being now that it basically has your whole itinerary. You’re recognized.

How that works is going to be something that we’re going to be interested in to see how it evolves. They clearly made a huge commitment to it. I understand why. Their experiences with that are things that clearly we can benefit from but early days for us. Clearly, in terms of our association with Disney, though, is something we think is just a huge opportunity.

As I said, there are very few brands in the hospitality business that I would say we would be comfortable affiliating with because many of them we compete with. Disney is one that has such an extraordinary culture both in terms of who they are, how they serve their guests and that sort of thing, their family orientation, it’s very compatible with Four Seasons, so I think we’ll learn a lot from each other as we move forward.