Mr. van Meerendonk

Revenue Management

Beyond Rooms and Rates: How Revenue Management Can Drive Customer Loyalty

By Paul van Meerendonk, Director of Advisory Services, IDeaS Revenue Solutions

A number of recent discussions I have engaged in with industry thought leaders have centered around the increasing convergence of the different disciplines within the hotel industry and highlighted the importance of revenue managers embracing, rather than resisting, this trend. Just a few years ago, roles within the hotel industry were very distinct; making it obvious who was responsible for what. Sales teams were tasked with generating demand, while revenue management ensured the right bookings were accepted at the right time and operations were in charge of keeping guests happy and, as a result, generating loyal customers and repeat business.

But now there is also talk in the industry about revenue managers roles in branding and marketing and their increasing cooperation with sales teams. The growing impact of a hotel's online reputation is also beginning to be realized within the industry, which is increasing the need for closer collaboration between all major departments within a hotel. The most advanced companies, led by the casino industry, are on a steady path towards total customer lifetime optimization and the detailed data analysis that supports this.

While many in the industry view this convergence as a negative "disruption" to business-as-usual, it presents significant opportunities for the revenue management community, which should be leveraged. This important trend offers revenue managers a key role in providing structured, objective and fact-based guidance about the revenue opportunities of a hotel. One of the key areas where revenue managers can make an impact is through their ability to drive loyalty through better revenue management.

The importance of loyalty in the hotel sector can't be underestimated in the current competitive environment, in which hoteliers operate. Every operator understands that it is cheaper to attract repeat business - than it is to bring in new business. And it stands to reason that a satisfied guest is much more likely to come back if they leave a happy customer. But an increasing body of research is also pointing to the many additional benefits of creating loyal customers, including allowing a hotel to price more aggressively as well as enjoy higher ancillary spend from returning customers.

A recent report from Cornell's Center for Hospitality Research, titled "Making Customer Satisfaction Pay: Connecting Survey Data to Financial Outcomes in the Hotel Industry" found that of the 24 per cent of guests who said they were satisfied and would definitely return, 19 per cent actually did within a year. The study also found a correlation between satisfaction and ancillary spend. Customers who rated their experience as delightful increased their ancillary spending during subsequent visits by an average of US$10 . This study illustrates the tangible flow-on benefits of one customer's loyalty, from that particular individual. But what is also interesting is the effect that a happy customer can have on other prospective guests. A recent research paper presented by Cornell University's Chris Anderson highlights the importance of revenue managers accounting for online reviews and ratings as part of their pricing and yield strategies.

The study analyzed booking data from nine U.S. cities, looking at the last 25 hotels a consumer looked at before booking at one of those properties. It took into account a number of different attributes of the properties, including price, star ranking, location and user reviews. The study found that an increase in a hotel's review score of one point (e.g., from 3.8 to 4.8 out of 5.0) increased the odds of a particular property being booked by 14.2%. A secondary finding, possibly more relevant for revenue managers, is that positive user reviews on websites allowed a hotel to price more aggressively. The study found that hotels could increase their rate by up to 11.2% without decreasing the probability of purchase, resulting in a 1.42% increase in RevPAR.

As Chris Anderson indicates: "What is clear is that we see strong quantitative impacts of review scores at the point of purchase with better reviews leading to increased pricing power, which are then translated to significant aggregate performance (i.e. impacts on RevPAR) indicating that better review scores are not just impacting the transient online booker, but also translating to pricing power with groups, corporate and other segments."

Understand Who the Most Valuable Guests Are

Clearly, fostering satisfaction and loyalty within current guests is crucial to a hotel's future revenue. It not only brings in repeat business, but improves future spending - and helps bring in repeat business from those customers - as well as those reading their reviews. But how do hoteliers use revenue management to increase loyalty and decide who to target to bring in the biggest value over a guest's lifetime? Not all business is good business. Hotels can easily fall into the habit of selling out rooms to lower rated business and then losing higher business - and customers who may be more likely to stay again in the future. So it is important for hoteliers to first understand who their most valuable customers are. To do this it is vital that a holistic view of their guests' lifetime value is obtained, not just their room rate spend. Data from all transaction systems should be integrated to provide a true picture of a guest's preferred activities and their overall value to also include ancillary value, such as food service to the day spa usage, guest rooms to gift shop purchases, and so on.

To really inspire long term loyalty amongst guests, hoteliers must not only identify who their most valuable guests are, but also put strategies in place to make these guests feel not just welcome, but wanted by the hotel. Having Executive or VIP check in counters for hotel guest club members, coupled with free Wi-Fi for return guests or offerings - including items such as champagne, chocolates or flowers, complimentary spa treatments, golf rounds, water in room, mini-bar in the room - all combine to show a guest that their patronage is recognized and appreciated by the hotel.

According to Sloan Dean, VP of Sales & Marketing with Interstate Hotels & Resorts, "Ultimately, revenue management's job is to assign better pricing and room types to guests or accounts with superior volume, longer stay patterns and/or a great propensity to spend ancillary revenues. If revenue management is doing their job, then along with a hotel's marketing and guest service departments, they are lifting the most profitable consumers to the top of the hotel team's focus. Importantly, any improved treatment of your top guests through the entire guest booking and stay processes will ultimately improve and drive customer loyalty."

Working with the Marketing Department

The idea of integrating decisions from the revenue management and marketing departments has been around for years. Most hotels have organized weekly or monthly meetings to bring both sides to the table. However, with competition in the hotel sector at an all-time high and the ability to retain guests being harder than ever before, weekly meetings are not enough. Revenue managers and marketers need real time access to the right information so that they can create campaigns that not only attract guests but help foster customer loyalty.

Revenue managers should work with marketing departments to target promotional campaigns, based on forecasted demand by market segment and property. This will help ensure demand is generated when and where it is needed. Integrating marketing data with your revenue management data means that both departments have the information they need to make the right decisions about pricing and promotions placement.

Those who are leading the way in the hotel industry recognize that revenue management is not just about price setting - it is also about recognizing who the most valuable guests are and deciding the best price to offer them, and when. Next, it is about using analysis to determine the best promotions to attract them and develop a lifetime of loyalty. This approach relies on having credible and accurate guest information, predictive analytics and strong integration between customer intelligence and revenue optimization systems.

The landscape of the hotel industry is changing, as roles and responsibilities across various departments converge. Hoteliers can either decide to embrace this change, and build a revenue management culture that provides fact-based guidance to maximize the revenue opportunities of a hotel, including fostering a loyal following of customers. Or they can stick to traditional well-defined roles and watch as their competition embraces the new era of revenue management and takes potential - and loyal - customers along with them.

As Director of Advisory Services for IDeaS Revenue Solutions, Paul van Meerendonk leads a global team of revenue management advisors focused on hotel revenue optimization projects. Mr. van Meerendonk is responsible for global development, management and operations of the Advisory Services team. He oversees the hiring, training and management of industry-leading consultants located in London, Beijing, Singapore and Atlanta. Mr. van Meerendonk also represents IDeaS on industry thought-leadership initiatives related to trends and best practices within revenue management, including authoring a number of white papers, conducting public speaking engagements, as well as leading key client webinars with an average audience of over 200 global representatives. Mr. van Meerendonk can be contacted at +44 (0) 118-82-8100 or Extended Bio...

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