Finding Your Upsell Sweet Spot Maximizing Both Guest Satisfaction and Revenue
Maximizing Both Guest Satisfaction and Revenue
By Klaus Kohlmayr Chief Evangelist, IDeaS Revenue Solutions | March 23, 2014
Despite occupancy rates that have returned to pre-recession levels in many parts of the world, it is still not clear what 2014 will hold for the hotel market in regards to RevPAR and ADR. In fact, even industry experts are at odds on those projections. This apparent ambiguity suggests that, in order to achieve a full recovery, hoteliers need to maintain their focus on optimizing revenue, and not be content merely with achieving heads in beds.
One factor that is holding back ADR is that hotel revenue managers and operators are being challenged by considerable segment compression, resulting in very little upward pricing power. Some believe commoditization has created a "pricing ceiling" in some key markets, leading to an inability of hoteliers to push ADR that their properties' inherent value deserves. In truth, the pricing ceiling is a myth; most guests are willing to pay for enhanced value, but only when the value proposition is made clear and often only if they are encouraged.
Too many hotels continue to give away premium room tiers discounted or for free (as added value), undermining their ability to differentiate their product and achieve optimized rates. While complimentary upgrades for loyal guests are a fundamental part of the hotel business, the all-too-common refusal or lack of interest to upsell higher room tiers is a tremendous missed opportunity to generate additional revenues at a significant profit margin. Just as importantly, failure to upsell is creating a lesser stay experience for a segment of guests who would clearly benefit from a room product more matched to their needs.
When booking online, most travelers seek out hotels in convenient locations and end up reserving base room levels. It's predictable, except for only the most special of occasions – but this is not always out of lack of interest, means, or need. Instead, consumers simply have a hard time seeing the value of paying more at the point of booking. They want the reservation process to be as brisk and painless as possible, and comparing the relative merits of different room types is seen as an unnecessary extra step in the process.
More to the point, complimentary upgrades have become so commonplace that even a guest who would otherwise book the higher room type online opts to hold out for the free or deeply discounted upgrade at time of check-in-in much the same way that a frequent flyer member on an airline may wait for the free upgrade at the gate. In many categories, the hotel industry follows the lead of the airlines, but in this case, a bad precedent may have been set. Rather than giving away higher rooms, hoteliers need to make a more concerted effort to sell the underutilized premium room types at the point of check-in. The solution is not discounting – it's offering the right guests the right room product at the right time. Imagine if 5% of guests spent 20% to 30% more for every night – it would do wonders for average rates and the hotel's bottom line.
Now imagine generating those extra revenues and making the guests feel like they got a fantastic deal. That is the power of effective upselling.