Cross Selling: The Innovative Face of Hotel Revenue Management
Are you leveraging the innovative power of this revenue generation tool?
By S. Lakshmi Narasimhan Founder, Ignite Insight LLC | April 07, 2019
Revenue Growth Expectations
Stakeholders and management alike in hotels dream about consistently upward soaring revenue graphs year after year. This is the reason the paranoia about YOY or Year on Year growth is widespread particularly in stakeholders. But revenue graphs do not move at the whim and fancy of owners. They follow demand and supply behavior and if you are in a demand saturated market (something every hotel will confront more than once in their existence), your prices and average daily rates are likely to be driven down thereby contributing to stalling revenues.
So, every kind of effort is made to eke out incremental revenues with the owners breathing down the neck of managements to deliver. Revenue expectations, in particular, unrealistic expectations are the norm than the exception. It germinates from an anxiety to have delivered the best bang for their bucks. So, what do managements do to succeed and make their bosses happy in this expectation trap?
Variety in Revenue Streams
Traditional hotels (who I call as vanilla hotels) lay store by their tried and tested (not always though) major revenue streams of accommodations, restaurants broadly but sometimes also in a nominal manner by Spa, Transportation etc. The extreme dependence on the two champions of revenue - accommodations and restaurants - means any slowing down in demand for these hit revenue achievements pretty badly. This is also the reason why more and more stakeholders are eschewing this traditional business model and choosing a mixed use model with new revenue streams.
But if you are still, unfortunately, in the vanilla hotel boat, you scramble to devise new methods of delivering revenues in your vaunted accommodation and restaurant departments. You leverage the individual revenue producing departments to hook on to each other in a bundle concept. In other words, you cross sell.
What is Cross Selling?
Cross Selling is an ingenious method of using one type of revenue stream as a fulcrum to sell another and related revenue stream. For example, the most common of these cross selling techniques is to create what is known as a package deal in the industry. In the restaurant industry, say, a McDonald's or Burger King or any others, this is the equivalent of the Combo Meal. A combo Meal is one in which different but related menu items are added together, often at an overall discounted bundle price. In the hotel industry, the most prominent of this type of bundle pricing is the Buffet Meal which ties together a soup, salad, entree and dessert into one attractive bundle price.
But Packages in hotels take this bundle pricing one step further by packaging an accommodations offering with, say, a restaurant, spa or any other ancillary service offering. Almost every hotel (depending upon specific target markets though) offers a room rate including breakfast package. This is a typical cross selling technique where a breakfast meal is bundled into a package room rate. While the customer benefits by paying a subsidized price compared to the room and breakfast being offered separately, the hotel has another powerful reason - to keep the customer in the hotel for a breakfast meal.
In fact, traditionally, the breakfast meal is the one that most customers tend to have in the hotel before heading out for either business or leisure. Lunch is rarely had in the hotel while sometimes dinner may be had in the hotel. A similar and common package is the room rate inclusive of a 50% off of the Spa treatments in the hotel. This is again to drum up volume for the Spa business.
Why Cross Selling?
Why should hotels cross sell? To begin with, if you do not cross sell, it is an opportunity lost. When you have the attention of the customer in terms of a hotel room that he or she is looking for, if the hotel did not dangle the carrot with a related revenue stream and that too as an eye popping deal, it is indeed an opportunity lost. Often customers may not even be aware that there is a lovely restaurant in the hotel and moreover they are getting a heavily discounted offer. Packages bundling room rates with breakfast tend to discount the room rate as well. This is a double bonus for the customer.
Why should this cross selling work? The reason most cross selling works is that customers like to feel good about having snared a deal which reduces the total amount of money they have to fork out. Deals are not all made the same. A cross selling offer in order to be successful must be of genuine value and not a trick. Nothing damages the hotel and creates a "never again" sentiment in the customer as a cross selling deal which appears to be providing value but is not. On the other hand, a cross selling bundle which genuinely provide a value service at a lower cost will win over a customer forever.
Overall Guest Spend
Apart from the obvious objective of generating incremental revenues, cross selling is fairly and squarely aiming at a key metric in the hotel industry. This is the Overall Guest Spend. Hotels are not satisfied having sold a guest room to customers. They are consistently looking to get the customer to spend as much as possible while staying with them. Most common services they are targeting are restaurants, spa and even transportation. In fact, in the industry, there is a practice for hotels when guests check in to take a deposit (charged to the credit card of course) of taking not just the room rate for a day but something more than that, say, 20% to 30% higher toward spending in the restaurant and spa where latter is available. This clearly is toward getting the guest to spend more than just the accommodation.
In fact, hotels regularly get creative by selling a return transportation limousine or if they have an electric Tesla, that is a great service to entice the guest. Not only this, guests are offered 20% or even higher on a return trip at the restaurants or even in the room rate. All of these promotions are essentially not just cross selling different services but in fact introducing the guest to everything of value that the hotel has to offer.
Caveats in Cross Selling
While cross selling is an effective way to get the guest to spend on various services, it is a practice which needs some safeguards or is likely to misfire badly. The first and most critical factor which is fraught with danger is not to push the guest too much, in particular if ever there is a perception that there is less value in the services offered than is being touted. This is a death knell to continued relationship with that guest. It is important that the guest is first convinced of the value being offered by the hotel before he is deluged with additional services. This is irrespective of whether the additional services are heavily discounted or not.
The perception that the additional services carry for the guest must never be anything other than value added. There is the danger that the additional services are purely discounted heavily because they do not deliver value added. Nothing irks a guest more than the feeling of being taken for granted. It leaves a bad taste in the mouth. Guests like to feel that they are in charge and hence initially put up a barrier when they feel they have additional services being foisted on them.
Hotels must first deliver knock your socks off amenities and services first after which they will find less opposition to their up selling efforts. An ideal and often used technique is to first ask the guest how they found the hotel services and only after they have said some appreciative words should they push additional offerings.
Another important determination to be made is whether the guest was literally coaxed and cajoled into the additional service and they have made up their minds that this time will be the last time they will patronize this particular hotel. The approach the hotel must take is that they are looking at a third or even fourth sale from the guest not just a one-time effort. Repeat guest patronage is all about returning to a hotel which one found exceptional the first time and thus being in a frame of mind ripe for being up sold.
The last caveat is ensuring that regular communication is maintained with the guest particularly if additional services have been sold to and taken up by them. If all went well, the guest's perception should only have improved after new services. In fact, they should be singing praises at this point for the cross selling to be successful. Remember, the sale is not made even after the money hits the bank. It is consummated when the guest leaves the property raving about their experiences. It is in this frame of mind that a guest who has been wowed is ready to provide repeat patronage.
Revenue Management Re-Defined
Revenue management has in the past decade or more redefined the traditional and archaic reservation function. It took reservation from an administrative and often clerical function and placed it front and center as a business strategy. It has had its challenges during this time but has reinvented itself multiple times proving it sustainability. Cross Selling was one such reinvention phase. Its promise of integration of revenue streams delivering incremental revenues is a powerful factor since the paranoia that owners have of year on year growth is take care of. It puts a smile on stakeholders faces - a dream not just for every hotel revenue manager but the entire management.
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