New York Hospitality by Vijay Dandapani

Hotel rates: past the nadir?

Hotels.com put out a press release headlined "New York City Hotel rates drop 30 percent" but also goes on to note that the city's hotels still rank as the most expensive in the US coming in at $196 (Albuquerque, NM came in as the "cheapest"). Also in small print is the fact that the Big Apple together with Las Vegas fell the hardest of all cities surveyed. 

Somewhat unsurprisingly given the financial contagion that has swept through the world, other major metropolises around the world did not seem to fare much better with Dubai reporting a 26% fall in rates for the first half of the year. Moscow led the world in falling rates with a 52% plummet followed by Mumbai, India with a 42% free fall. Consulting firm PKF reported a continuing loss in rates for London saying "that they saw rates drop by 7 percent in August compared to the same month in 2008." The consultancy also noted that "although rates are not falling as hard as they were during the start of the recession, things have yet to start to recover."

Yet a couple of analysts from Citigroup and one from Goldman Sachs in this Forbes article and AP report seem to see rosier days ahead for investors in lodging products saying that hospitality companies "will reap big rewards from a rebound in the economy". Their bullish outlook for hotel stocks are "despite lingering questions about whether these (lodging) companies can refinance debt fast enough in a slow recovery."  Their optimism stems from a view that  there is "not some permanent shift in Americans' taste for places to stay." Fair point, except it does not consider increases (in some places significant as detailed in this Bloomberg report) in inventory. In mature markets like the US that could remain a significant damper for some time to come even as the broader economy resurrects.

Celebrity write-offs

Gypping hostelries of their due is as old as the lodging industry. The authoritative "Laws of Innkeepers" by John Sherry notes that there is universal legislation "governing hotel fraud (which) classifies the crime of fraud on innkeepers as a type of larceny, which does not, however, in law, amount to larceny, for the reason, among others, that the subject of the theft is not 'property'. It is an offense relating to theft and is now designated as 'theft of services'."

While Joe Sixpack is unlikely to get away without settling the bill for a hotel stay, celebrities seem to do so with unfortunate regularity banking on their name recognition to bamboozle staff and management into extending credit when it is not due.The LA Times reports on the latest luminary who attempted to do so - actor Randy Quaid who was held by the authorities in a small Texas town for not paying his bill at a hotel in Santa Barbara, CA where he initially produced a dud credit card before leaving without making good on his charges. 

Quaid is merely one in a long line that includes somewhat controversial pop-star Lindsay Lohan who apparently ran up a substantial unpaid tab at the swank Chateau Marmont and Naomi Campbell who purportedly stiffed the Moscow Ritz for a relatively small amount when the hotel presented her with charges for damages to the room.  Nor have political personalities shirked from walking away from hotel bills as was the case with this hotel in Memphis, TN.

Most hotels have credit policies in place that would preclude such losses from regular guests. Nevertheless, some brazen non-celebs manage to get past even the vigilant as is the on-going case involving the" catch me if you can" fraudster who is still eluding hotels and authorities across several countries. Britain's Daily Mail reports that a fake "Saudi Arabian prince has been leading police on a merry dance through Europe, Australia and New Zealand. The cheeky cheat has been running up tens of thousands of pounds in unpaid bills, living the high life in the best hotels, drinking the finest champagne - and slipping away without opening his wallet."  It is unlikely he remains at large for long and likely will suffer a fate similar to a Jamaican national in Namibia who failed to pay his hotel bill and ended paying with his freedom.

Clearly, minimizing revenue shrinkage requires being alert to following credit protocols regardless of the "status" of their client. Putting star clients politely but firmly on notice when credit limits are flouted should be part of standard operating procedures in any establishment.

Timing the market for service

The broader service industry, particularly hotels and airlines, have seen cuts that contrast starkly with the last several years of expansion in all segments. Some well known international chains went so far as to "reduce their level of service -- and number of stars -- until the industry begins to recover." One respected former CEO went so far as to offer a seeming non-sequitur saying that "Ratings aren't based on making good returns on your investment". Some individual hotels in unlikely destinations like Dushanbe improbably raised their stars only to offer service that would make one almost yearn for Basil Fawlty's Torquay Hotel.

Airlines, almost always the last in service innovation or customer satisfaction, have gone overboard with their cost-cutting. These include ill-thought through initiatives such as BA's meal slashing to handing a lemon to customers as in cutting them out by Southwest. The New York Times recently ran a story on gloomily headlined "Fewer choose to pay for Front-of-the-Plane" only to contradict it with a wire story on the same day about how "Airlines have been upgrading their premium cabins to appeal to business travelers and other customers who pay higher fares.". Separately, July statistics from the International Air Transport Association indicate that "there are signs of an upturn for first and business-class airline travel." That rosier perspective stems from a drop in the ratio of declining premium class travelers as compared for the same month in '08. 

Meanwhile, those who deemed luxury to be a four-letter word a mere two-months ago may need to come up with a different adjective as in a different, but not entirely unrelated industry, the FT reports on how "Stirring demand starts to refill sails". Timing in service offerings, as in real-estate, is everything but knowing when to do so in advance remains a challenge. Hotels may well be wise to not pare down to the bones just yet.

Hi Tech CRM

The Financial Times  of September 17th, 2009 features several articles on new technology that can gauge customer intentions more accurately. One of them by FT technology writer, Geogg Nairn discuses how data analysis and smart algorithms can help businesses identify the most profitable customers thereby keeping them loyal. Called "predictive analytics technology" it "uses complex statistical models and algorithms as well as other data mining and analysis tools."

The article notes that a "recent Forrester Research survey of more than 350 CRM professionals, “improving customer loyalty” was rated as a key priority by 57 per cent of respondents and came second only to “improving the customer experience.” In a plain terms, the technology seeks to limit customer "churn" as well as differentiating between high value customers and those that are on the margin if now below. That enables businesses to offer incentives and rewards to high-value customers. Its use in hospitality seems self-evident as even among repeat customers it is clear that not all have the same implication for profitability.

On an (eerily) higher level another article in the FT on digital technology is headlined "Technology shows what's on a customers mind." The article quotes the head of customer experience consultancy, Foviance, as saying that she looks to "measure consumers’ subconscious responses – from anticipation and excitement to boredom and anxiety – to a range of online experiences." In order to that they use neuroscience as measured via electroencephalography (EEG). "Research subjects invited to Foviance’s London-based laboratories are fitted with a cap containing sensors that measure electrical activity in the brain as they navigate the websites of Foviance’s clients." Experts at Foviance "make website design recommendations that they claim will enhance customer engagement and boost conversion rates. Neuropsychologists, have shown that 85 per cent of decision-making happens subconsciously, which is why EEG can offer insights into people’s interactions with websites and software packages." While that almost seems Orwellian in its reach, it could be a marketer's dream in any industry thereby enabling a near-perfect of tailoring of products and services based on true customer expectations.

Taxing tourism

The concept of picking the pockets of those who do not have representation has had enduring appeal to jurisdictions within and without the US. In both large cities and small towns, mayors and civic leaders have resorted to taxing out-of-towners ostensibly to bring in more of them either by building a convention center or enlarging an existing facility.  Historically, it has been a resounding failure in most instances. A 2005 study by scholars at the Brookings Institution suggested that, in most instances, investing in convention centers was a poor if not wasteful use of public resources and that the many projects that were afoot were likely to end up as a drain on the local exchequer. That prophecy has come to pass in a number of locales like San Diego, Orange County, FL, Fairfield IA and Nashville, TN. 

That the idea of levying a tax as an incentive to for an economic activity requires the upending of reason appears not to deter the US government either. The Travel Promotion Act of 2009 started with the premise of establishing" a non-profit corporation to better communicate U.S. entry policies to international travelers and promote leisure, business, and scholarly travel to the United States."  The sponsors of the bill recognize that the "decrease in travel to the U.S. (over the past 8 years) was the understandably tightened security standards and resulting waiting periods at our borders, which had the unintended consequence of erecting barriers to travel."  A notable additional barrier was the enactment of ESTA which required residents of visa-waiver countries to obtain electronic travel authorization prior to leaving for the US (each authorization lasts for two years). But an additional barrier (and cost) in the form of a $10 fee has understandably irked several of the visa-waiver countries with the EU threatening to retaliate by requiring a visa for US citizens.  The (current) contrasting approach to tourists and business visitors on the part of the EU is underscored not only by the absence of any electronic authorization but also the complete lack of any forms to be filled prior to landing in any EU country.

It is unclear why at least some number of tourists from outside won't consider alternative locales in light of the additional burdens. What is clear is that, before long, the $10 fee is going to be ratcheted upwards as politicians and bureaucrats demand  a larger budget presumably to attract more visitors when, in fact, the opposite is more likely to happen.

Behavior advertising - sifting the good from the bad.

The advent of behavior advertising a few years ago promised to put an end to the conundrum (and trite joke) about fifty percent of advertising working for clients but not knowing which fifty percent.  The promise of behavioral advertising was highlighted, among others, by an October 2005 study which found that not only did behavioral advertising convert at a significantly higher rate than contextual advertising, but that CTR (click through) rates were also lower. That meant that advertisers needed fewer ad impressions to generate a conversion. Further, those users that click through were prime candidates for sales conversions or potential customers.

However, the Wall Street Journal and others report that underlying privacy concerns have spurred federal legislation "could hamper the ability of Yahoo, Microsoft Corp and other companies to entice advertisers with the potential to follow users around the Internet in order to tailor marketing messages."  A reuters report notes that " behavioral advertising, where a user's online activity is tracked so that ads can be served based on the user's behavior, was cited as a particular concern:"Tracking people's every move online is an invasion of privacy. Online behavioral tracking is even more distressing when consumers aren't aware who is tracking them, that it's happening".

In the hospitality field it is resellers like Expedia who have been most active in attempting to cash in on the benefits of behavioral advertising. In Expedia's words the Passport program takes "the wealth of high-intent behavioral data generated in-store and moving it "outbound" by applying it to ad targeting." Expedia is basically selling advertisers data from consumers' Internet cookies without any personally identifiable information to enable target marketing as clients surf around to major travel and non-travel websites.

The hotel majors are yet to embark on any major behavioral campaign of their own based on website visitation but they most hospitality firms likely will be beneficiaries of the approach. The curbing of behavioral advertising could stifle a still nascent effort by advertisers to maximize their ad dollars at a time when contextual advertising, as in travel publications, are fast becoming obsolete and, arguably, ineffective. More relevantly, behavioral ads empower smaller hotel firms giving them clout and visibility that, heretofore, the prerogative of the big hotel names. It behooves hotel firms to band together to work across industries with others who are similarly situated to moderate the rush to draconian curbs that ostensibly will ensure privacy but more likely will kill a viable advertising medium.