The Power of Personalization: Where Are We Now with Customer-Choice Pricing?
By Paul van Meerendonk Director of Advisory Services, IDeaS Revenue Solutions | November 10, 2019
Last year, I wrote about the developing trend of customer-choice pricing in the hotel industry. With the promise of both guest satisfaction and profit improvements, the notion of instituting a personal, choice-driven approach to the sales process had become a hot industry topic. So, where are we now?
Let's first take a look at the hospitality and travel industry in general. For my work, I travel a lot-visiting clients around the world who are looking for ways to improve the way they manage their pricing and inventory-supporting hotels with everything from changes in technology to addressing the people and processes involved in the art and science of revenue management.
Naturally, when I travel, I also need to eat. Eating is a big thing globally-not just out of the necessity to nourish (and, well, basically to stay alive), but also for its social aspect and ability to reflect the cultural habits and trends of countries and regions.
In Europe, restaurants tend to have strong cultural ties. Great restaurants are plentiful, and there are a lot to choose from. They serve up local dishes in the way the restaurant wants them to be served. Personalization here often works by chatting with the waiter or the chef (either of whom could very well be the owner of the restaurant). Many relish the opportunity to provide diners with something new or different to suit their tastes.
Now, in the US this is a little different. There is an abundance of choice right from the start. Choose your protein, choose you sauce, choose your side, choose your drink…I dare say even choose your plate. This of course gives great freedom and suits many tastes. However, sometimes there is so much choice I am left either not knowing what to choose or just defaulting to the same familiar dish I always eat. In Asia, there is also a lot of choice, but culture there tends to dictate you share all dishes. Therefore you can overcome overwhelming choice by sharing the burden (or benefit) across your fellow dinner guests.
What makes all this possible? In restaurants there is direct interaction between the diner and the kitchen. Kitchens can adapt to what clients want without too much difficulty. Choice is easy, and the concept of "menus" offering different options is, of course, well known. This is personalization at its best.
Apart from eating, I also need to fly in airplanes a lot. Where the choice used to be just economy, business or first class-now there is an abundance of choices. Not only additional classes but meals included or excluded, entertainment options, luggage fees, priority boarding premiums, lounge access, and the list goes on and on. How is this possible in the airline industry? At time of booking, there is not often the direct interaction that happens in the restaurant example above.
What allows airlines to do this is direct bookings. The rise of budget airlines and their focus on direct bookings allowed them high levels of flexibility in terms of what they can put in front of potential clients at the time of booking. Even the traditional airlines were able to do this because most of their bookings were either also direct or through the airline-focused global distribution system (GDS). This has allowed the airlines to control their interaction with customers through technology.
So, what does personalization look like for the hotel industry? Can we do the same as restaurants and airlines?
Resorts Are Fertile Ground
Resort business models can provide some insights, offering unique opportunities to test and refine all the different permutations of personalization. Many resorts have already achieved some degree of personalized pricing, and they are doing this at very granular levels thanks to some revenue science and strategy.
For starters, resorts often have many room types and drive a longer length of stay. They also tend to have very well-defined patterns by day of week and season. Many resorts also rely on occupancy-based pricing to drive revenues, and packages or amenity add-ons can be a large revenue stream as well. All of this means greater opportunity to maximize revenue, and when you start to strategically yield business based on these factors, you get very personal very quickly.
Let's use an example of Resort X, a destination resort with ample meetings & events space located an hour from a major international airport. In this case we have a resort that drives both strong leisure weekend business and strong mid-week group business. Resort X has 15 room types, charges an additional rate for third- and fourth-person occupancy and historically captures a three-plus night length of stay from their guests. In terms of number of pricing decisions for a given year, we're talking about 15 room types multiplied by 365 days in the year times three occupancy price points times seven length-of-stay price points, which works out to 114,975 pricing decisions in the year-for just BAR! This is not even taking into account fluctuations in pricing as demand shifts or additional rate plans yet.
Looking at this optimized pricing at the room-type level by length of stay results in very personalized price points. Think about the difference in price points if you had a family of four looking for a junior suite for a Thursday to Sunday stay pattern versus a single business traveler looking for an executive king for a Tuesday to Wednesday stay pattern. Even if these two guests were looking for the same room type, we'd see very personalized price points for each of them. Layer this level of pricing optimization on top of the diverse set of products, rate plans and chargeable amenities a resort offers, and all of a sudden we have something for everyone.
Hotel Guest Personalization – A Tough Nut
The potential for personalization in our industry is vast, so why aren't all hotel types doing this across the board? For starters, distribution is a minefield, and the sheer number of channels hotels have to deal with is enormous. "Hang on!" I hear you say. "What about the central reservation systems of the big hotel chains?" Well, yes you would be right in thinking this should allow hotels to directly interact with their guests. I say "should," as in reality there are a lot of challenges with this.
If you are a hotel and wanted to tackle complete personalization at time of booking, you could hitch yourself to one of the big hotel chains, and this may expand your options. However, few of the major chains have mastered personalization to the levels required-mainly due to technology challenges. Central reservations systems often lack the capabilities needed to truly address personalization (IHG is one of the few making headway in this area with their new central reservation platform).
Not only that, but there are only very few hotels if any, that rely solely on a single booking channel. Most hotels will also work with the OTAs, through the GDS, with wholesalers, or with other channels. The need to maintain pricing parity in addition to trying to balance these various technologies prevent hotels from truly taking advantage of the possibilities of personalization.
And this is where we tend to get stuck as an industry. The benefits of personalization are obvious. The analytical capabilities needed to churn the vast amounts of data and apply sophisticated revenue science are also there in the advanced revenue management systems now available. However, getting the data from the various sources, processing it and then pushing it back out is difficult if the distribution systems cannot or do not handle the data at the required levels to make this happen. Each channel will pursue its own strategy, and you will see flurries of success on certain channels (own-brand websites for example) only to be let down by other channels that can only apply a discount and not personalize.
Now if all hotels were facing the same challenges, then we could take our leisurely time as an industry to try and resolve this between us. This has indeed been the norm for some time and is one of the reasons it has taken so long for hospitality to adopt innovation. However, now there are some new kids on the block.
Airbnb left the hotel industry to its own devices and went after the short-term rental market instead. Applying a simple technology-based concept to this untapped area of the market allowed it to build such a dominant presence that it is now able to move fast into personalization by offering customers a myriad of different accommodation types and features. Rest assured, other dominant online players are also ready to pounce, with Google slowly but surely adding features and improving personalization options when it comes to finding and booking travel.
Customers are expecting more than ever. They will not wait around for hotels to figure out how to personalize their travel. They will look to new channels or alternative accommodation types to give them the choices they seek. There are two ways we need to address personalization as an industry:
- Double-down on service and offer guests personalization and choice when they are onsite and in front of hotel employees.
- Increase efforts in technology change and adoption across hotels. I would argue the first option can only be done with the support of the second. Guests already expect you to know everything about them when they are in front of you at check-in. No longer can we ask, "Is this your first time staying with us?"
Technological change is a must. Ultimately it is in the interest of the hotels, the channels and the guests to ensure we work together to resolve the current and future challenges that could limit the ability to satisfy customers across their buying journey and guest experience. After all, whether you prefer European, American or Asian cuisine, do we not all want to be able to choose our dessert?
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