Definitely Doug 2/26/21: It’s Not Just a Room – Part 2

by Doug Rice

It’s Not Just a Room – Part 2

My last column started by reminding readers that for the last 50 years, the way hotels sell has remained basically unchanged. It went on to discuss attribute-based selling as a major opportunity to better align with the expectations of today’s guests. This week I will continue the theme and highlight some of the many other revenue-enhancing technologies that have emerged in recent years (or are in development now) and that should at least be on the radar of hotels, if not already in their plans.

As consumers, Amazon has trained us well to think in terms of a shopping cart, to look at suggestions for what people who bought something also bought with it, and to expect personalized suggestions based on our individual buying histories. Yet very few hotels are prepared to sell anything other than standard room types on their website, and even fewer can do so for third-party bookings or personalize the offering. While a true shopping-cart experience may still be some distance in the future for hotels, there are more and more options for capturing at least some of the additional potential revenue now.

The cost of new technologies is often a barrier to adoption, but there is really no reason not to look at these emerging products. Many are priced based on success (at least as an option) or offer a free trial. Some have been shown to generate significant additional revenue as well as a better guest experience. And this could be particularly welcome during the latter days of the COVID pandemic, as many guests choose to spend more time – and a greater share of wallet – within the bubble of the hotel or resort.

Perhaps the most mature technologies in this class are the ones that sell room upgrades. This was first introduced by Nor1 (recently acquired by Oracle) around 2005; more recent entrants include UpsellGuru and Roomdex. Upgrades may be offered either via a reverse-bidding system, where the guest says how much they are willing to pay and the hotel decides whether and when to accept it, or at a known price for immediate confirmation. Many guests who are unwilling to pay the full rate for a better room are still happy to pay a smaller increment, and upgrades can be an important part of the ancillary revenue strategy for hotels with premium rooms that cannot always be sold at full rate.

In implementing an upgrade program, hotels in brands that have strong loyalty programs need to consider the expectations of elite members, for whom complimentary space-available upgrades are often an important benefit. Setting the upgrade price too low will result in frustration for these key customers by making comp upgrades too infrequent; on the other hand, setting it too high can leave money on the table if no one buys it. Reactions from elites might be muted if the price clearly varied by elite tier, with higher tiers getting better discounts. This would give the hotel the benefit of some additional revenue vs. giving the upgrade for free, while also providing at least some value to the elite member.

The cost to the guest would need to be appropriate for the value of confirming the upgrade in advance vs. taking one’s chances on a free upgrade at check-in. The cost could also go down as the arrival date nears, assuming premium rooms remain unsold. This would help ensure that those guests willing to pay the most are prioritized: they would presumably confirm earlier rather than wait and potentially lose the upgrade. Reverse-bidding platforms support this notion because the hotel has the choice as to whether and when to accept an offer, but it is not hard to envision ways to support this concept with other upgrade sales approaches.

In considering the different upgrade models, hotels should evaluate booking patterns for premium rooms to decide how many to offer, how to price them, and when to confirm them (some revenue management systems can assist). If you know you will have unsold premium rooms, you can offer them for a modest add-on and confirm at or shortly after the time of booking; if not, you may choose only to accept bids or requests, and wait until closer to arrival to confirm. Or you can wait until a few days before arrival to even make the offer. Every hotel is different and will need to test and tune the process. Even at the same hotel, guest behavior may differ depending on market segment, elite level, season, day of week, or business mix.

Hotels should also consider the opportunity to upsell to rooms that have features not captured by standard room types. During a renovation, for example, one hotel was reportedly able to generate substantial additional revenue by upselling guests to rooms that had already been renovated. There was no distinction in the inventory of the reservations or property management systems (PMS), but the upsell software could manage availability of renovated rooms separately.

A final consideration is whether the PMS can automatically confirm upgrades or whether the hotel must process them manually. Aside from staff resources, the inevitable time delay for manual processing can mean that availability of the upgraded room may disappear before a confirmed upgrade has been entered into the PMS. If this happens with a reverse-bidding system, the bid can simply be declined. But if a confirmed upgrade has been sold and cannot be delivered, the guest will be unhappy.

Other popular upsell options are early check-in and late check-out. These are most useful for major city hotels with lots of long-distance travelers whose flights may arrive early in the morning or depart late in the evening. But virtually every hotel has at least some guests who, in some circumstances, would happily pay a few extra dollars for more flexible arrival and departure times. At least one major brand has built these options into its core reservation process and web booking engine. But industry-wide, it is still surprisingly uncommon for something that is so much in demand by many travelers and so easy (at least in many cases) for the hotel to provide. Leaving aside those high-occupancy, high-turn days where operational constraints may make it difficult, most hotels have few reasons not to monetize this.

To maximize the return, hotels need to vary the cost based on the length of the time extension. Asking a guest to pay half a night’s room charge to check out one hour late, while a common practice today, is not a formula for success. Most guests will both see this as a rip-off AND decline the offer, a lose-lose proposition for the hotel.

As mentioned in Part 1 of this column, Oracle’s 2021 roadmap for Opera includes allowing guests to book rooms for any duration of time, rather than only for some number of full nights. This may be the right model for some hotels, while others may find they need better automation and/or integration of housekeeping operations to make it work. Oracle’s approach is also intended to provide native support for day-use room rentals, which few PMSs handle well. Roomdex offers a flexible capability to pre-sell early arrivals or late departures, with two-way integration with some PMSs. Hotelflex avoids operational issues by limiting early-arrival and late-departure offers to those situations where occupancy is below some hotel-specified threshold, and only within about 24 hours of arrival. A couple of vendors reported that early-arrival and late-departure offers were accepted about 15% of the time, which if true would translate to significant incremental revenue.

Beyond upgrades and flexible arrival and departure times, ancillary product and service sales are an opportunity for most hotels. Many mobile apps and even some AI chatbots now offer some (usually limited) selection of add-on products, such as a bottle of champagne or flowers sent to the room, a massage, parking, or airport transfers.

A more mature platform from Oaky is designed to be plugged into almost any booking process. It does not change how the room itself is initially sold; this would be hard to do and, more important, would likely reduce the conversion rate on the core product. The paradox of choice suggests limiting the number of products displayed at any one point in time, and in the booking process you already have to deal with the room type and bedding (or hopefully in the future, attributes). So Oaky sends an upselling message only after the room has been confirmed. It enables the hotel to create a (potentially very long) list of potential upsell options, which is then customized into a short list based on what they know (or can infer or guess) about a specific guest.

This approach has the advantage that it can work with most third-party bookings as well; a link can be included in the confirmation email that is sent to the guest via the third-party. Oaky also integrates with chatbot technology; if a guest sends a prearrival chat question about parking, for example, they can respond in the chat with a parking offer.

Oaky reports that at least 8,000 different upsells and add-ons have been defined by the hotels within their customer base. Many of these are simply variations on a theme, such as different meal plans. Clearly, no single hotel would have anything close to this number, nor would more than a handful be offered to any individual guest. But they had seen a lot of creativity from their hotels in devising unique add-ons, such as goldfish in the room for lonely business travelers or roll-your-own-joint workshops (presumably only in destinations where this is legal, or course!). They also noted that emailed upselling links worked well for bookings made well in advance, but that text messages via SMS or WhatsApp got better response for close-in bookings, when guests may already be en route. They also claim to have sold some 76,000 bottles of champagne to guests of their hotels on New Year’s Eve!

A final potential emerging trend is the ability for a guest to select a specific room from a floor plan, either at the time of booking or shortly before arrival. While some hotels may view this simply as a value-add to generate better guest satisfaction, there have been some limited attempts to monetize it. Hilton has offered the capability to select your room at online check-in for some time; you see a basic floor plan and which rooms are available based on your rate. This works if you know the hotel and where you prefer to be, but it does not offer a lot of information to help an unfamiliar guest choose the ideal room. I have tried using it several times and spoken to several others who have as well, and the consensus is that when it works (not always), the guest experience is underwhelming (not to mention that I never once ended up in the room that I had actually chosen). In one case when I checked in, the front desk told me “you really don’t want that room, it’s one of the few in the hotel with no view!” I applaud Hilton for being the first to try this, and it is better than what others are (not) doing, but improved implementation concepts are needed.

Koridor was one example of a potentially better approach. It offered multiple pictures of the interior of, and the view from, any room that was available to choose. Unfortunately, Koridor was a casualty of COVID and was taken off the market last year. It will be interesting to see if it resurrects itself later, or if another company acquires the intellectual property to deploy within an existing product.

I recently saw a demo from post-COVID startup Expect Me, which is in pre-sales mode for a summer launch. Expect Me combines some of the ideas of attribute-based selling with the choose-your-own room concept, allowing the guest to specify room attributes of interest and then see a visual layout of the hotel showing which rooms meet the criteria and are available. It also showing upsell options for better rooms. Expect Me blocks specific rooms in the property management system, so unlike attribute-based selling it cannot really be used at the time of booking without causing issues, but it can be offered shortly before arrival.

Any presale of an ancillary revenue product that affects room inventory (such as upgrades, early arrival, late departure, pick-your-room) will really only work well when the software is fully integrated with the PMS. It needs to be able to determine real-time availability at the time of the offer, and to block the room or account for the committed inventory once an offer has been accepted. The costs and availability of integration vary significantly from product to product and PMS to PMS and are important considerations, but the good news is that today in at least a few cases, the integration is free (a trend hotels can hope will continue).

Overall, I am pleased to see more options for preselling the guest what they want. With respect to ancillaries, there are some worthwhile products on the market that did not exist just a few years ago. Whether the time is right, and which one is best for you will depend on factors like integration with your PMS, booking process, chatbot, and other systems, as well as the types of ancillary sales your hotel expects.

Upgrades, early check-in, late check-out, and pre-sale of the hundreds of different things offered by large hotels and resorts, are all no-brainers if done well. It is however important to minimize the operational impact and ensure that delivery of what has been promised is supported by automation. Expecting hotel staff to review comments in a reservation to see whether something needs to be done is a formula for a poor guest experience. At the very least, automation should be able to remind the staff to do what needs to be done at the appropriate time, or if possible, simply do it.

With all this progress, the hotel sales model is still fundamentally broken. I am looking forward to the maturing of attribute-based selling approaches, and their integration with the sale of upgrades, early arrival, late departure, and ancillary products and services. Today the tools to do each of these things exist but are mostly immature, and when you put them all together, they form a patchwork that will yield a suboptimal booking experience even in the best case, and a chaotic one in many. From a technology standpoint there is no reason a guest should not be able to buy every element of a hotel stay, or for that matter every element of an entire trip, using an intelligent shopping cart and a suggestion engine powered by a customer database and artificial intelligence.

More to the point, and to recap what I stated in Part 1 of this series, hotels need to wake up and stop selling only standard room types and start to think about how to merchandise everything they have to offer to generate more revenue. It may be years before occupancy and room rates recover to pre-COVID levels, but top-line recovery can happen much sooner for hotels that think out of the box.

Douglas Rice

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