The hotel industry, which has enjoyed a five-year boom, is now girding for tougher times ahead.
Already, the torrid growth in revenue per available hotel room—a key industry indicator—is rapidly decelerating. In some bellwether markets like New York, room revenue has even declined. Meanwhile, many properties that started construction during the boom years are coming online, further intensifying the competition.
This year, hotel companies have started taking aim at one of their biggest costs: commissions for reservations made through online travel agencies such as Expedia and Priceline. Large chains, including Hilton, Hyatt and Marriott, are now offering loyalty program members exclusive discounts for booking through their websites.
Those direct-booking discounts are a smart way for hotels to build a direct relationship with customers and avoid the 15 to 25% commissions the online agencies charge. But competing on price in a softening market is a risky move, so there is pressure to find other paths to increased margin.
The best opportunity to increase revenue is to expand the array of add-on services and extra-price options available to customers. Hotels already offer room upgrades, in-room dining and so on, but there are many more ways to offer customers valuable services that cost little to deliver.
For instance, mobile technology linked to customer databases now allows hotels to offer guests personalized extras throughout their stay and at key moments. This is far better, for both the customer and the hotel, than offering up-sell options only at booking, as many chains still do today.
We can see how this new model works by imagining a business traveler arriving in a city in the early evening. She uses the new hotel mobile app to check in to her room, which was booked at a corporate rate. At check-in, the app lets her pick the location of her room (away from the elevators), configure it as she wants (with an espresso machine) and have room service dinner waiting (gluten-free chicken Caesar salad).
After dinner, she remembers that her meeting the next day is not until the afternoon, and rather than follow her usual routine of looking for a Starbucks to hang out in for the morning, she uses the app to purchase a late check-out option and to trade up to the hotel’s new blazing fast premium Wi-Fi so she can download some large files in the comfort of her room. With her saved time, she uses the app to rent some exercise clothes and sneakers and goes for a run in the morning.
This may be a simple example, but the half-dozen additional transactions surely improved the profitability of what would have been a low-margin corporate stay. Yet, nearly everything the hotel offered was built on facilities and capabilities already in place, not on major new capital investment. At the same time, the guest was empowered to have a better experience, likely improving her overall satisfaction and engendering true loyalty.
Every hotel brand, of course, will need to create different sets of options that best suit its market, but the overall approach will help nearly any property thrive in what will likely be the tough days ahead.