Beyond Rooms and Rates: How Revenue Management Can Drive Customer Loyalty
By Paul van Meerendonk Director of Advisory Services, IDeaS Revenue Solutions | December 2012
A number of recent discussions I have engaged in with industry thought leaders have centered around the increasing convergence of the different disciplines within the hotel industry and highlighted the importance of revenue managers embracing, rather than resisting, this trend. Just a few years ago, roles within the hotel industry were very distinct; making it obvious who was responsible for what. Sales teams were tasked with generating demand, while revenue management ensured the right bookings were accepted at the right time and operations were in charge of keeping guests happy and, as a result, generating loyal customers and repeat business.
But now there is also talk in the industry about revenue managers roles in branding and marketing and their increasing cooperation with sales teams. The growing impact of a hotel's online reputation is also beginning to be realized within the industry, which is increasing the need for closer collaboration between all major departments within a hotel. The most advanced companies, led by the casino industry, are on a steady path towards total customer lifetime optimization and the detailed data analysis that supports this.
While many in the industry view this convergence as a negative "disruption" to business-as-usual, it presents significant opportunities for the revenue management community, which should be leveraged. This important trend offers revenue managers a key role in providing structured, objective and fact-based guidance about the revenue opportunities of a hotel. One of the key areas where revenue managers can make an impact is through their ability to drive loyalty through better revenue management.
The importance of loyalty in the hotel sector can't be underestimated in the current competitive environment, in which hoteliers operate. Every operator understands that it is cheaper to attract repeat business – than it is to bring in new business. And it stands to reason that a satisfied guest is much more likely to come back if they leave a happy customer. But an increasing body of research is also pointing to the many additional benefits of creating loyal customers, including allowing a hotel to price more aggressively as well as enjoy higher ancillary spend from returning customers.
A recent report from Cornell's Center for Hospitality Research, titled "Making Customer Satisfaction Pay: Connecting Survey Data to Financial Outcomes in the Hotel Industry" found that of the 24 per cent of guests who said they were satisfied and would definitely return, 19 per cent actually did within a year. The study also found a correlation between satisfaction and ancillary spend. Customers who rated their experience as delightful increased their ancillary spending during subsequent visits by an average of US$10
This study illustrates the tangible flow-on benefits of one customer's loyalty, from that particular individual. But what is also interesting is the effect that a happy customer can have on other prospective guests. A recent research paper presented by Cornell University's Chris Anderson highlights the importance of revenue managers accounting for online reviews and ratings as part of their pricing and yield strategies.
The study analyzed booking data from nine U.S. cities, looking at the last 25 hotels a consumer looked at before booking at one of those properties. It took into account a number of different attributes of the properties, including price, star ranking, location and user reviews. The study found that an increase in a hotel's review score of one point (e.g., from 3.8 to 4.8 out of 5.0) increased the odds of a particular property being booked by 14.2%. A secondary finding, possibly more relevant for revenue managers, is that positive user reviews on websites allowed a hotel to price more aggressively. The study found that hotels could increase their rate by up to 11.2% without decreasing the probability of purchase, resulting in a 1.42% increase in RevPAR.