Hotels Can Maximize the Value of Unsold Rooms

The empty hotel room is a fact of life. On a given night, that might not seem like a significant problem. But when considered over time, a different picture emerges. According to some estimates, 15,000 hotel rooms remain unsold each night in New York City alone, equating to over 5 million empty rooms each year and lost revenues of more than $1 billion. While the scope may be less in other parts of the country, the situation remains a challenge across the industry.

Taking a creative approach to the problem, some experts advocate monetizing rooms via trade. This cash-saving strategy offers the potential to fortify brand, rate, and profitability, says Sean Hennessey, chief executive officer of Lodging Advisors in New York. Hotels can greatly benefit from the effective use of barter, particularly since it benefits cash flow.

“Many customers who use opaque and other third-party, last-minute channels are rate sensitive and their travel is discretionary,” he says. “Barter represents a great way to attract customers with the profile that many upscale hotels crave: frequent travelers with less price sensitivity.”

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Hennessey believes the hotel industry is ready to shift from simply monetizing unsold room inventory to maximizing its value. High-end hotels in particular are looking for ways to maximize the long-term value of their customers, he notes. Investing resources to attract affluent guests makes sense because they represent repeat business that’s higher rated with a higher spend, versus the discount customer who’s less loyal to a property.

“Monetizing unsold hotel room inventory is the largest available asset for management and ownership at many properties to drive additional profitability, demand, and brand awareness,” he says. “The perishable nature of hotel rooms makes them well suited to being monetized, so it should be considered in every case.”

Unlike the practice of dumping inventory into online travel agencies, monetizing unsold rooms may enhance a property’s market mix by reaching higher-revenue-producing, long-term customers, says Jody Merl, president of New Jersey-based Innovative Travel Marketing.

“Savvy hotel executives are using the value of their room inventory to augment their buying power; they monetize their unsold rooms as currency to fund marketing programs and campaigns, and in the process, they differentiate their brand and, therefore, increase profit from desirable guests,” she says, adding that barter is one of the most innovative financial tools available and a mainstay in the corporate world, beyond the hotel industry.

“Unsold hotel rooms can be exchanged to fund valuable marketing tools such as consumer advertising,” she says. “Plus, the hotel benefits from the end users who ultimately bring new business, drive revenue, and increase occupancy for the hotel company.”
In addition, trading rooms can bring expanded marketing budgets to reach travelers for leisure, corporate, and group business. Trade may be used to fund promotions, video production, merchandise, client incentives, and even accommodations for sales calls, ultimately enhancing revenue and preserving cash.

“Barter will become a mandatory course in hotel marketing, and it will become much more prevalent because cash is king,” she says. Merl predicts that independent lifestyle/boutique hotels will increasingly use the strategy of monetizing unsold rooms to gain market share from the big brands and chains.

Hennessey agrees. “I anticipate that hoteliers will focus on maximizing the long-term value of customer relationships, rather than simply ensuring that some value is generated by unsold rooms,” he says. “Barter is likely to be a key part of this strategy.”

2 COMMENTS

  1. I read the article with much interest for several reasons. As a result of 30+ plus years in the industry I have enjoyed the recognition from several organizations including recognition as “Trader of the Year”…many years back from a large trade organization called BX. Not to be confused with The Hotelier of the Year I received last year from the BLLA (that’s btw is an example of a shameless plug).

    I appreciate & recognize the perishability of our industry’s main product. I lecture on the topic when invited to do so, reminding operators and owners that our inventory is, in fact, our currency. However, the challenge that exists is the sales and marketing departments ability to embrace barter. Not that they don’t nod and seem to agree that it’s a “good thing”. Problem? Most of the people that populate the sales and marketing disciplines just aren’t well schooled in the process or the person charged with approving that the approach never sold a night. Not that I don’t respect and admire my friends and colleagues that are GM’s, Managing Directors & Executive officers. But let’s face it…74%+ of you come from administration (front desk, reservations, revenue management, housekeeping). I consider my brother’s & sister’s in executive management that came up through Sales & Marketing part of our exclusive fraternity/sorority.

    Just two years ago I was developed a new musical themed property for a client in Brooklyn. He told me he needed specific DJ & music equipment, and the cost was a concern to him. I asked for the brand names. I took those names and reached out to the requisite marketing people at the companies and was able to acquire over $25K worth of equipment by bartering room nights. I must admit that being in New York was a benefit as there was a need. I also lucked out by talking to veteran marketing professionals that had a better grasp of “hard” versus “soft” dollars. Ironically enough the property owner, a 30 something was “amazed” at the concept. So ultimately where the idea had merit many individuals get lost out of the gate in grasping the economics behind it. Don’t ask how many times I had to explain the tax ramifications behind barter 🙂

    A tenuous road in barter also has much to do with the geographical location of the property. Major (tier 1 & 2) market properties can find their barter partners reach frustration that can cause the process to backfire. The barter partner attempts to use their accumulated trade only to find out that the demand at the property doesn’t allow the availability when the partner wants to redeem their barter nights.

    I’m often amazed at many hotel marketers (like Hotel Advisors) that get so wrapped up in the OTA markets and selling electronically that they lose sight of other markets. Of course, I’ve also noticed that those same groups have less seasoned Hoteliers on their staffs and more often than not rely of employees that have little conception of relationship marketing. I don’t point fingers it’s more an issue of “miles.” Just look at ASTA’s membership now compared to 15-20 years ago. Two-thirds of the agencies are gone, and the void filled with the powerhouses.

    In the Luxury Boutique side…and I mean truly Boutique. Not Best Western’s newest joke,Vibe. Indigo, et. al. & the bastardization of the marketplace by chains looking to capitalize on consumer perception…we place emphasis on relationship marketing and it’s that concept and practice that built the Boutique Hotel Industry. Just ask a few friend and acquaintances of mine; Ian Schrager, Bob Burns,

    I spoke recently at a Hotel Investment conference where some of the hotelier wannabes were incredulous when they heard me explain the importance of “hand selling” inventory to high end travel agents. Funny enough many didn’t even believe that travel agencies represented a market they needed to cater to. Of course, if you’re in Grand Rapids on the highway I suppose they had a point. When I was charged with selling the Villas at The Resort at Pelican Hill with an ADR of $2,250 per night, however, it was a different story.

    I proffer all of this to remind people of the choices that exist with our perishable inventory. Imagine, a DOSM in NYC approaching a SLOW mid-week. Get your team on the phone and start calling those top NYC agents…and if the reader at this point doesn’t believe they’re out there, well then stop reading, this does not apply to your property or skill set. Contact the top agents….top bookers. Perhaps the one in Long Island would love to train it into the city for a couple of pampered days. Or the downtown agent that commutes to NJ and would be thrilled to cut their commute off for a day or two and “live large” in the city as they pick up a couple extra hours of sleep…or depending, play.

    Simply…barter is great but let’s take the blinders all the way off. How can you spend that “currency” and have an excellent return?

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