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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Sales & Marketing: Selling Experiences

There are innumerable strategies that Hotel Sales and Marketing Directors employ to find, engage and entice guests to their property, and those strategies are constantly evolving. A breakthrough technology, pioneering platform, or even a simple algorithm update can cause new trends to emerge and upend the best laid plans. Sales and marketing departments must remain agile so they can adapt to the ever changing digital landscape. As an example, the popularity of virtual reality is on the rise, as 360 interactive technologies become more mainstream. Chatbots and artificial intelligence are also poised to become the next big things, as they take guest personalization to a whole new level. But one sales and marketing trend that is currently resulting in major benefits for hotels is experiential marketing - the effort to deliver an experience to potential guests. Mainly this is accomplished through the creative use of video and images, and by utilizing what has become known as User Generated Content. By sharing actual personal content (videos and pictures) from satisfied guests who have experienced the delights of a property, prospective guests can more easily imagine themselves having the same experience. Similarly, Hotel Generated Content is equally important. Hotels are more than beds and effective video presentations can tell a compelling story - a story about what makes the hotel appealing and unique. A video walk-through of rooms is essential, as are video tours in different areas of a hotel. The goal is to highlight what makes the property exceptional, but also to show real people having real fun - an experience that prospective guests can have too. The June Hotel Business Review will report on some of these issues and strategies, and examine how some sales and marketing professionals are integrating them into their operations.