What’s the next frontier of Revenue Management for the hotel industry? The answer: Adapting an analytical mindset to drive transactional profit and total Customer Lifetime Value.
To be successful in the future, and to quantify the total Customer Lifetime Value of a guest across all potential revenue streams, hotels can learn a lot by changing their business mindset to think more like consumer goods companies and retailers.
After all, retailers understand that if they are in a city where people are less price-sensitive, they most likely can charge more. Or if they are close to a beachside resort, they can sell different items than in Middle America, such as noodles and boogie boards, and probably at a premium. This is how hotels must think in the future.
Thinking like a merchant also means that hotels should stop thinking about their demand as bookings, and instead, should look at them as occasions. Each potential guest stay should be thought of as an occasion, and each booking as a purchase event. This is the same kind of terminology and segmentation approach that retailers and consumer goods companies use to segment their customers’ occasions.
Every time a consumer even considers booking a room, the hotel should be asking, what’s the occasion? Is it business travel, a convention or meeting, a weekend getaway with a spouse, a golf outing with buddies, or a family vacation at a resort?
While hotels have come light years in Revenue Management, they have not come far enough in determining why their guests are staying there. This is important because once they determine the occasion, they can predict what products might be important to their guests. For example, how about offering champagne for a romantic couple’s getaway, golf balls for the golfers, or discount tickets for the family for the nearby theme park.
Knowing the occasion will also tell the hotelier which room would best suit the guest, at a premium, of course. The busy business traveler might want a room close to the elevator; the weekenders with kids want proximity to the pool and a room on the ground floor; the romantic couple might want a room on the top floor with sweeping views of a city.
Determining the occasion should then influence what a potential customer sees on the hotel web page as they explore room options and prices. Would you like a room overlooking Times Square? “Yes,” says the weekend couple, “it’s exactly what we were looking for.” However, the hectic business traveler with no time to enjoy the view doesn’t get that offer, because they are in town on a different occasion and unlikely to make that purchase.
Conversely, hotels must present these options like a merchant, with a good assortment of products that consumers are likely to buy. That means not cluttering the web site with irrelevant offerings.
Pinpointing why customers are staying, who is most likely to accept the offer, and how much they are willing to pay for it is critical. It’s also the way hotels can start thinking like a merchant.