Benchmarking ADR Against Guest Satisfaction: a Metric for Improved Performance
By Daniel Chao General Manager, Novotel Nanjing East and Novotel Nanjing Central | April 05, 2015
Online guest satisfaction scores, such as those found on travel sites and online booking sites contain more valuable information than we realize. They're not just a summary or description of guests' opinions of our hotel, or even of their experience in our hotel. They are an encapsulated expression of the market's valuation of our hotel compared to our competitors. As such they provide accurate insights into exactly what we can charge for our services – the market price for our product. By cross referencing our scores against our competitors and comparing them to ADR we can determine the ADR we can and should achieve.
Measuring guest satisfaction has never been more important, or easier. Thanks to sites like Tripadvisor, Booking.com etc we can collect, study, and action guest feedback more thoroughly and more accurately than ever before. Given the paramount importance of maintaining an excellent online rating it is logical that we spend a significant percentage of our time reading guest comments, responding to as many of them as possible, looking for trends, identifying recurring issues and hopefully correcting them.
But at some point we have to ask ourselves – to what end? Certainly a high guest rating is a business driver. Given a choice between 2 hotels, everything else being equal, a guest will invariably choose a hotel with better reviews and higher satisfaction rating. But how often is everything else equal? Take a look at your comp set. I assume you that you have carefully chosen the hotels in your set. They should be in one respect or another as similar to your hotel as possible. They should be competing for the same business as you on a regular basis. They should generally have equivalent star ratings, comparable F&B facilities, be in your geographic area etc.
And yet there will generally be a number of differences between your hotel and your competitors. One will be a bit more convenient to public transportation, some will be a bit older or newer than your hotel, and some will be a bit closer to an important local attraction. In most cases guests will have many more compelling reasons to choose one hotel or another, rarely does it come down to deciding between a hotel with a 4.4 versus a 4.6 overall satisfaction score. But there is a more fundamental problem. Even if, through improving guest satisfaction scores we are driving business how do we measure our results? I don't know of any way to track whether a guest booked our hotel because of online rating. In some respects we find ourselves back in the "bad old days" of traditional marketing: "I know that 75% of my marketing is useless – I just don't know which 75%". The same could be said for our current efforts to drive guest satisfaction scores. Yes, a higher score is better, but do we really want to go back to a model where we are driving a number just to be doing something?
So, the meaning of our online score is clear – but I wondered if it was possible to give that score value – value in a concrete monetary sense. Is it possible to correlate online satisfaction scores with another measure, a concrete financial measure?
I considered all of the data I had available regarding the hotels in my competitive set – occupancy ratio, public pricing, average daily rate, and Revpar. From these of course, with sufficient historical data we can also calculate MPI, ARI and RGI. I discarded occupancy, as there are too many variables to be able to correlate this with guest satisfaction. Similarly public pricing also seemed less relevant – a hotels public price, although ideally rigorously calculated is at the end of the day an arbitrary decision by the management team. I also discarded Revapr, MPI, ARI and RGI. Revpar is already just a ratio of average rate (ADR) and occupancy, and as mentioned occupancy is not good fit for the model I was trying to develop. As well MPI, ARI and RGI were discarded as they are already derivatives of occupancy and average rate.