Going back to your point about guest data, wouldn’t most hotel CEOs say they already know their customers pretty well?
Yes, but they’re wrong, they don’t know very much about their customers. For instance, I’m a member of everybody’s rewards program, but none of them know much about me, other than I stayed 12 times in one of their various hotels. They don’t know where I go. They don’t know what kind of food I like. And they don’t know why I travel.
This leads to marketing programs that are horribly inefficient and irritating to consumers. Now Google can see all my online behavior. For example, every day I check out Wine.com, because I get an email from them with the day’s offers. Now Google knows that and can say, “OK, you stay at Marriott properties and you’re a Pinot Noir fan. We should put a bottle in your room.”
But Google has a huge advantage because it’s the default search engine for most people. How do hotels compete with that?
Oracle had an objective when it bought MICROS. Between its POS and PMS systems, MICROS has data on a huge number of transactions and people. The data may be worth more than the transaction service. While it was operating and distributing databases with a computer and a hard drive in every location, it was hard to aggregate that data, but as you migrate to cloud-based systems and you take the costs of the hardware and the software out of all these units, not only do you improve the economics of the platform, but the data now gets scooped up.
There’s a company based in New York called Avero that developed a business intelligence system for restaurants. It sits on top of the POS, the MICROS system if you will, and captures every restaurant transaction. It knows what your food costs are, how different dishes are performing, and which waiters are turning over their tables quicker. Avero is currently in 10,000 restaurants and is on track to be in 30,000. Once it hits that mark, the company will be better able to use predictive analytics to determine consumer behavior and know what restaurants should stock up on from week to week. There’s a great example of a company in New York City that makes croissants and is selling them for three bucks. The cost is about $2.40 and if the company only sells 70 percent of what it makes, then it loses money. So being able to forecast the number of croissants a company like this is going to sell is hugely important.
Of course, a company like Duetto that we’ve invested in and is driven by data scientists, uses predictive analytics also—in this case to help hoteliers make smarter, faster pricing decisions, particularly longer ahead into the booking window. Duetto has assembled a big dataset and is constantly acquiring new sources of data and applying them wherever it can. For hotel companies it isn’t just about getting access to this kind of data, but about changing processes, culture, reporting structures and other things to actually be able to translate that information into changes in behavior at the property level.
You’ve long been at the forefront of hotel revenue management. How did that happen?
When I was with Marriott, Bob Crandall, who was running American Airlines, invited me down to Dallas to see his yield management team, which consisted of a room full of people in front of the computers changing airline fares. I thought, why can’t we apply that to hotels? So I came back to Marriott, put a team together, and we designed the first yield management system for hotels. And in 1983, the first year we rolled it out, we got a 14 percent increase in average daily rate across the U.S. We soon realized, though, that our model was flawed. It was based on the assumption that cutting prices even a little bit would increase demand. While this is true in the airline industry, it isn’t for the hotel business. Ten dollars, one way or the other in the room rate is not going to determine whether I go to Chicago. The elasticity of demand is much lower on hotels than flights. As long as demand was growing, our system was perfect. But when demand dropped, our system led to some really bad decision-making when it came to room pricing.
How can we best avoid expensive mistakes like this in the lodging space?
I have a friend who thinks that mobile key technology is an important innovation. I don’t happen to agree. I think all those systems are going to all end up in a dumpster right where all the check-in kiosks went. The problem with mobile key is that it takes away valuable interaction opportunities with guests. When guests come into a hotel, they don’t want to go straight to their rooms and use their phones to open the door. Guests want some sucking up. Hearing their names makes them feel good. Especially along with a sincere, “nice to have you back.”
A lot of that comes down to recruiting the best people into the industry. Can you tell me about what you’ve done on that front?
I think it’s critically important that as an industry, we get into classrooms and talk to people about our business and our industry. If young people can understand the opportunities, they’ll understand the keys to success. My wife and I founded the Pillsbury Institute for Hospitality Entrepreneurship at Cornell because I like to think that everybody is an entrepreneur. At the very least, you’re the entrepreneur of your own career. Even if you’re working at a hotel front desk, you’re an entrepreneur. You can run the front desk like it’s your own, and you can think about it that way. You can approach every position as though you owned it.
Cornell is in your hometown right?
Yeah, I grew up there but I try to stay away from Cornell in the wintertime. My personal philosophy is I don’t go where the temperature is less than my age.
That’s going to be tough in 10 years.
I’m optimistic. You know, just because nobody else has lived forever doesn’t mean I won’t.
