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Hotels are cutting costs and guests are noticing. What can the hospitality industry do to lay worries about guest satisfaction to rest?
Hotel satisfaction is the lowest it has been in seven years, according to a J.D. Power and Associates’ survey of more than 60,000 guests staying at North American hotels. This could spell serious trouble for hotel executives. Guests’ diminished satisfaction may have resulted from cuts made in a poor economy that took properties and service to a level below the expectations of travelers. Fortunately, as the economy slowly recovers and business and leisure travel increase, executives have an opportunity to devise profitable strategies to win new guests looking for better experiences. Strong quarterly returns and high guest satisfaction should not be mutually exclusive.
Though many hotel companies will seek to offer best-in-class service and facilities, few will have enough cash to invest in all aspects of an improvement plan. With limited funds, it is more important than ever that executives accurately determine which ideas will drive guest satisfaction and maximize ROI and which ones will just bleed cash. More specifically, the focus needs to be on profitable increases in guest satisfaction. Therefore, the question for executives becomes, how can we choose the right level of investment in our operations and facilities?
Not surprisingly, this relationship will vary by brand and location. For example, most guests who stay at economy scale hotels likely place a heavy emphasis on price. On the other hand, guests at mid-scale hotels, while price-sensitive, may base their decision upon other factors as well, such as aesthetics, comfort, and additional services. Similarly, within a specific brand, a hotel with a heavier business travel mix may exhibit different service and amenity preferences than a more leisure-focused location. So while improving certain services or facilities at one brand or location might lead to incremental revenue, the same improvements at a different brand or location may have no impact on profits.
Even for experienced hotel executives, accurately determining the most profitable solutions is extremely difficult when relying on instinct and anecdotal observations. There are simply too many variables (e.g. weather, competitor actions, seasonality, etc.) occurring simultaneously to isolate the incremental impact of each specific initiative. The good news for most hotel executives is the large amount of data most companies have about their guests. In order to both minimize risk and capture the full opportunity presented by these challenging decisions, executives should leverage their Big Data to scientifically test their business decisions and confidently determine the true cause-and-effect impact of each action they take.
Key aspects of the guest experience that hotel executives need to consider to drive stronger satisfaction include capital investments, services, and staffing and training programs.
Capital Investment
Capital investments are one way to improve guest satisfaction, but understanding where to allocate these funds is more challenging. A hotel improvement program could be as simple as upgrading TVs, or it could be a more substantial initiative such as a full lobby remodel. Both of these actions might improve guest satisfaction, but in order to accurately calculate ROI, executives must determine the true incremental impact on multiple success metrics beyond satisfaction, such as return visits and RevPAR. In other words, are hotels going to see direct returns on their CapEx, or is there merely a resultant lift in guest satisfaction without a RevPAR increase?
Testing these and other property improvements on a small group of hotels is the only way to understand the profitability of a program. Well-run tests will also allow executives to tailor programs by situation in order to maximize ROI. For example, a lobby remodel program may see different performance levels depending on the original condition of the hotel, the competitive environment, guest profiles in key feeder markets, or any other number of location-specific characteristics. Conducting a controlled test is the only strategy which can definitively measure a direct profit impact from capital investment.
Services
According to a 2011 Concur/Global Business Travel Association study, over 90 percent of business travelers use a laptop and over 80 percent use wireless internet. Not surprisingly, free Wi-Fi access is a service in high demand. In fact, according to the J.D. Power and Associates’ survey, guests who were charged for internet access had an average satisfaction score 10% lower than those who were not charged separately. However, installing and operating Wi-Fi can be a substantial investment, so it’s important to evaluate not only free internet’s impact on guest satisfaction but also whether it drives incremental profits. Looking one level deeper, Wi-Fi is more expensive for hotels if they offer a faster connection. Important considerations like the optimization of bandwidth to drive incremental return visits demonstrate the complexity of the decisions executives face when determining which services to offer in their hotels. Again, testing different initiatives allows executives to target specific properties or guests to maximize the impact of their service offerings. For example, a hotel with a large percentage of business travelers will likely respond differently to a Wi-Fi pricing change than a hotel serving mostly leisure guests.
Staffing Levels and Training Programs
Staff professionalism and efficiency are hallmarks in the hospitality industry, and hotels are focused on providing well-trained staff members. However, determining how much staff is “enough” is a challenging question whose answer varies by brand and specific times of day. As an extreme example, consider staffing the reception desk of an upper upscale hotel brand with 10 employees at all times. Guests would rarely need to wait in line for check-in/check-out and satisfaction levels with front desk activities would likely be very high. Conversely, putting only one employee behind the desk during the busiest periods of the day could lead to poor service that would adversely impact return visits and therefore reduce RevPAR. The key for executives is determining the optimal staffing levels by hotel and time of day that keep labor costs down without causing overall RevPAR decreases. By testing different staffing levels in a controlled experiment and leveraging guest data, executives can isolate the impact on incremental profits and optimize staffing levels successfully.
Only 30% of American travelers are loyal to any specific hotel brand (according to a study by the Atmosphere Research Group), and hotel executives must use any advantage to differentiate themselves from competitors. Knowing which hotel improvements will satisfy guests is very important, second only to understanding which improvements guests will respond to most profitably. Testing potential profit drivers by leveraging Big Data is a smart way for hotel executives to satisfy both their guests and their cash flows once again.
Maryam Wehe is a senior vice president at Applied Predictive Technologies, a predictive analytics software company that is used by several dozen of the world’s largest corporations to apply structured experimental methods and determine the causal relationships between business programs and financial outcomes.
READER COMMENTS
Friday, March 08, 2013 by Nicole Shaaz
Hi, great article. Darren on a separate note its a small world as my hotel just started implementing the tool you mentioned Geteco not too long back. You have a good point and visible satisfaction levels have increased for my hotel when on site feedback and real time management response was implemented with this system. Anyways all the best and cheers to ever increasing guest satisfaction in the hotel industry!!
Wednesday, March 06, 2013 by Darren Youlds
Hi, interesting article. I am from the hotel industry myself and just sharing my 2cents worth, i feel that guests are actually most happiest when management are there to listen and respond to them. Things can and will go wrong at any hotel but it makes a huge impression and difference when management attains these feedback and responds immediately in real time like what the tool that my hotel just implemented called Geteco is able to provide. When customers know you care, satisfaction will rises immensely. Cheers :)
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