Game Changer: How All-channel Consumers Are Shifting the Sands for Hotels
By Anand Medepalli Vice President of Industry Strategy, JDA Software | October 13, 2013
Those were the good old days when hotels had all the technology in the form of global distribution systems (GDS) and consumers had telephones and booking agents. Business was transacted by way of a customer talking to someone at the hotel reservation desk or to a travel agent before making a choice from a set of limited options promised as the best ones. The customer realized the brilliance or folly of their decision only after staying at the hotel, and if they didn't like the hotel, chances were they had limited opportunity to understand the alternatives. With the GDS, hoteliers had access to all the information they needed to sell their rooms while the customers barely had any at their disposal to make informed decisions.
Times have changed. Today, digitally-active consumers wield the power with instant access to technology and information; in many cases more than the hotel itself. The newest crop of consumers, also known as the millennials, has grown up with technology their entire lives. They are connected 24x7 and are significantly adept at virtual communication. With a few keystrokes they can find out everything they need to know about a product or service, even extending into their social networks to get reviews and recommendations in real time. To meet the demands of the all-channel consumers, hotel operators are moving at breakneck pace to adopt innovative technologies to deliver a seamless guest experience that starts before check-in and then continues throughout the guest's journey – whether online or through another branded property. The question is, is that enough?
With information traveling at the speed of light, one bad review can reach thousands, if not millions within minutes, putting a hotel's business model, profitability and future business at risk. Hoteliers are fast realizing that it is not just about acquiring customers, but is increasingly about retaining them and building loyalty across all channels. They realize that they have to manage a customer's entire journey, starting from searching for a hotel room to checking in to in-hotel service to post check out. While many hotels are investing in innovative technologies to address these new set of rules and conditions, they must look to assess their business model – from sales all the way to operations planning to get ahead of these disruptions and deliver higher service levels. While this may seem like a simple notion, adopting such an end-to-end view of their business means disrupting their traditional business model. How can hoteliers turn these disruptions into business opportunities to further engage and continually delight their customers?
Clearly this is a loaded question and does not have one simple answer. It is clear though that hotels have to do more for each customer and provide them with a customized experience. This has direct impact on the bottom line and the cost of doing this cannot just be recovered through raised prices or efficient revenue management. Hoteliers need to do more to make their operations more efficient and profitable while managing costs smartly. Booking costs, in-hotel service costs, cost of promotions, inventory costs, dry and wet supplies costs, staffing costs and even post-check out costs such as tracking the customer needs on an on-going basis, all add up and if not managed well could mean the difference between success and failure. Revenue management is serving the hotels well, but in this new world, it should be increasingly clear that there needs to be a shift towards profit management.
They need not look very far for inspiration – the retail industry is going through similar consumer-driven shifts. For decades they have been employing smart supply chain planning and execution principles to enhance operational excellence and control costs. In recent years, many retailers have adopted revenue management principles to manage their pricing and promotions. Can hotels take a page from their playbook by embracing retail's supply chain practices to improve efficiencies and manage costs?
So what is supply chain management? Whereas revenue management is all about predicting demand and balancing that with available supply through optimal pricing and inventory control, supply chain management enables the flow of products, services and information between a supplier and consumer by aligning supply with expected demand with the objective of managing costs and improving operational efficiency. For example, if it is known that 100,000 iPads are needed in Texas by December timeframe, Apple will ensure that all elements of its supply chain, from manufacturing in China, to the distribution centers and warehouses en route, to transportation to delivering the iPads in relevant retail stores, is efficiently managed at minimal costs. Since Apple deals with physical goods and not with perishable assets such as hotel rooms, we cannot literally take all the principles and apply them en masse to the hospitality industry. However, a few best practices can be leveraged to help hoteliers maximize profitability.