Randy Petersen interviewed Jeff Diskin, Senior Vice President of Customer Marketing at Hilton in the April issue of Inside Flyer.

And Diskin had one of the most interesting spins on their points devaluation I’ve ever read. They were “over-indexed.”

Here’s his answer, and it’s really enlightening.

We were and have been, sort of “over indexed” for some period of time in terms of the value of some reward properties, and frankly we weren’t getting credit for that. Because what the research pointed out is what you do with your points is of great interest to you when you’re looking to shop with them. People are looking to shop with them because they are looking to offset the cash outlay with whatever points they’ve accumulated. So everybody is within the same environment which is very difficult for people within the hotel space. What it does is basically focus on the return on spend that members get. And being over indexed in terms of the base level doesn’t give you enough payback because not enough people can understand or know what it is. We are actually recognizing that it’s much more important to have promotional activity in the marketplace to segment divide and conquer and put different initiatives in place for different groups of travelers. Not just by their tier level but also by the type–if they’re resort stayers or meeting planners–versus just having a core proposition which we over indexed. So, it was surprising to learn that, but when you think about it, you would have thought we would have known anyway.

Diskin believes there’s little benefit in having a better value proposition for redemption than competitors.

So what he says they learned is they need to keep customers on the treadmill. Increase the number of points needed for an award and keep them earning points towards those rewards. Like Lucy, Charlie Brown, and the football.

Diskin does at least see the need to offer redemption for better than a basic room, and to continue to reward their highest value top-end elites.

But what he misses is that his program is the least rewarding for top-end elites now. Diamonds don’t get suites as a benefit of the program (as Starwood, Intercontinental, and Hyatt elites do).

But given Diskin’s thoughts on devaluation, adding a new higher tier makes more sense than increasing benefits, you can’t provide a good value product you have to keep your members on a treadmill constantly striving for more.

I also think Diskin misses the mark on free internet for elites. Randy notes that Starwood and Marriott recently added this as a benefit (though Marriott limits the geographic scope, and Hyatt in fact was first to the table with this benefit). And Diskin responds that Hilton already offered this as a choice to elites, and they don’t choose it. Well, of course they don’t. Hilton says you can have upgrades and breakfast, points, or internet. Internet isn’t the most important benefit and members aren’t willing to give up their upgrades (!) for it. Hilton will be foolish to think that the overall package of benefits they offer to members doesn’t matter.

With this interview, Randy has done us a real service. If you can cut through the spin, there are some very telling comments here.