When to Add More Rooms to Your Hotel Property

When does it make sense for a hotel operator to grow the property's room division?

By James Downey Professor, Program Coordinator MBA Hospitality & Event Management, Lynn University | September 09, 2018

Unfortunately, one of the most common methods used by lodging owners and operators for justifying the expansion of its rooms division is one which the lodging industry has continued to use for years -- the level of its annual occupancy (AO) over a sustained and measurable period of time. For example, a hotel with an AO of at least 85 percent over two years might rationalize a room expansion project since this level is well above the national annual occupancy average of 63 percent. The hotel might additionally justify the expansion since they operated at or near 100 percent occupancy over this two-year period. Lodging owners and operators who rely solely on this premise to initiate expansions of their rooms divisions will, more often than not, meet with less than successful results.

Luckily, there are some less-than-obvious -- but more-reliable – room-expansion growth categories which may ease the decision-making process when it comes time to considering room division expansion.

Hotel Room Demand Growth

Most hotels generate their room night demand from three major market segments: (1) Commercial and Business Travelers; (2) Conference and Convention Attendees; and (3) Tourist and Transient Travelers.

While each of these three market segments can grow and decline at different rates, it is the largest market segment – commercial and business travel -- from which hotels continue to derive a significant share of their accommodations business.  These travelers tend to stay by themselves, often for no more than two days per week at a time annually.  They also are the most demanding market segment since they frequent a hotel more often than the other two segments and usually have negotiated a contract with the hotel to guarantee rates and preferences.

Five factors have the greatest effect on this segment of the hotel business:

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Social Media: Getting Personal

There Social media platforms have revolutionized the hotel industry. Popular sites such as Facebook, Twitter, Pinterest, Instagram, Snapchat, YouTube and Tumblr now account for 2.3 billion active users, and this phenomenon has forever transformed how businesses interact with consumers. Given that social media allows for two-way communication between businesses and consumers, the emphasis of any marketing strategy must be to positively and personally engage the customer, and there are innumerable ways to accomplish that goal. One popular strategy is to encourage hotel guests to create their own personal content - typically videos and photos -which can be shared via their personal social media networks, reaching a sizeable audience. In addition, geo-locational tags and brand hashtags can be embedded in such posts which allow them to be found via metadata searches, substantially enlarging their scope. Influencer marketing is another prevalent social media strategy. Some hotels are paying popular social media stars and bloggers to endorse their brand on social media platforms. These kinds of endorsements generally elicit a strong response because the influencers are perceived as being trustworthy by their followers, and because an influencer's followers are likely to share similar psychographic and demographic traits. Travel review sites have also become vitally important in reputation management. Travelers consistently use social media to express pleasure or frustration about their guest experiences, so it is essential that every review be attended to personally. Assuming the responsibility to address and correct customer service concerns quickly is a way to mitigate complaints and to build brand loyalty. Plus, whether reviews are favorable or unfavorable, they are a vital source of information to managers about a hotel's operational performance.  The February Hotel Business Review will document what some hotels are doing to effectively incorporate social media strategies into their businesses.