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Optimizing customer satisfaction via price discovery

March 25, 2012

Earlier in the month noted consumer advocate and Chirstopher Elliott wrote in the Washington Post on a new internet entrant to in the crowded hotel revenue management field. Called Backbid.com, the website  promises to "revolutionize how travelers book hotel rooms". The site allows customers to clearly see "all of the details about the property, the amenities offered and the specific bid being offered" before confirming the reservation. And as the company notes "the best part about BackBid is that there is absolutely no risk to you; if you don’t like any of the bids that you receive, just keep your existing reservation."

Whether backbid rises to the level of disruptive technology whereby customers reap heretofore unknown gains in transparency and pricing remains to be seen but the website's founder is quoted in the Post article as saying the site is "empowering the consumer to say, ‘This is what I’m looking for,’ and the hotel to say, ‘This is what we can offer. It turns the tables on the traditional way of booking a hotel room."

At the heart of every revenue management system lies a forecast of expected demand which unfortunately is a long standing and inherent weakness of the industry's revenue model and it remains so. That nearly all including the allegedly best forecasting algorithms failed spectacularly in the immediate aftermath of the September '08 financial crisis has been well documented. While Backbid does little if anything by way of addressing forecasting lacunae, it addresses a related weakness in the revenue management model: that of "booking decay" when supposedly "confirmed" reservations melt away as the day of stay approaches.

Somewhat unsurprisingly there have been detractors in the lodging industry with one commentator predicting that "BackBid will ratchet up competition to an unsustainable level" and goes on to note that “If Backbid succeeds, this sense of competition will only heighten, and hotels will be undercutting each other left and right. It’s not good for the hotel industry because everyone involved loses revenue. And while on the surface, cheaper prices may sound good to the consumer, it really means that hoteliers have fewer resources to put toward making your stay better."

The fear of hotels losing out due to revenue compression likely is both overblown if not unfounded and in reality is a straw man argument. Backbid provides price discovery and enables a guaranteed revenue base as unlike regular hotel reservations labeled rightly by the post as being offered with "generous refund policies" Backbid's bookings are non-refundable and likely will go a long way towards addressing booking decay, a long time bane of revenue managers. This not only ensures customers are happy that they are maximizing their utility but also enables hotels, in the long run, to price their inventory optimally. 

 

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No bull: religion + business = red ink and faces

March 18, 2012

A Cornwall UK based website has a story about British hoteliers Peter and Hazelmary Bull who were asked by a UK  county court to pay £3,600 in damages to civil partners Steven Preddy and Martyn Hall, from Bristol. The site notes that "the Christian owners of a Marazion guesthouse ordered to pay damages for turning a gay couple away say they are ready to take their case to the Supreme Court."

Earlier this year, Peter and Hazelmary Bull lost their latest legal challenge against a finding that they broke Britain's equality laws. The hotelier couple plans on continuing with their battle all the way to the European Court of Justice, the last resort for those in the UK and the EU. The Bulls' legal battle began in 2008 when they turned Martyn Hall and his civil partner Steven Preddy away from their bed and breakfast. They denied their stance was anti-homosexual and said "their deeply-held Christian beliefs meant they only allowed married couples to share a room."

The Wall Street Journal weighs in on the issue with an op-ed from their European editorial page writer complete with the somewhat shrill headline "Can Britain Tolerate Christians? and seems to suggest that a "carve-out for religious business owners such as the Bulls" may only be a temporary palliative that "will only further muddle companies' freedoms to dispose of their resources as they see fit—regardless of faith, sexual orientation, or ever-changing estimations of political expedience."

The foregoing may be true but it is hard to imagine a dispositive outcome via a future law that explicitly allows folks like the Bulls to excluse clients based on their religious beliefs. Given their demographic trends, Britons could, before long, find themselves in an unpalatable (to the current majority) situation analagous to that of hotels in Saudi Arabia where Bibles are banned. It is not inconceivable that a British Muslim businessperson with a hotel bans anyone from entering his/her hotel with a Bible. The same new law that permits the Bulls to exclude gays would then likely be used against those carrying a Bible. In both instances what is a near certainty is a loss in revenue.

Rising travel costs: not an impediment to more travel?

March 11, 2012

At the just concluded ITB world tourism fair in Berlin Germany, a constant refrain was rising costs associated with high petroleum prices and an incessant appetite for more taxes on travel providers from hotels and airlines to even car rental companies.  German hoteliers were vociferous in condemning the raft of new and higher taxes including the quaintly called "culture tax". It is a theme found around the world particularly in the cash-starved jurisdictions of the Western world including the US.

That higher taxes have, historically, never garnered more revenue in the longer term is not a persuasive argument for the "sock it to the foreigners" crown inhabiting legislatures. Adding to the woes of guests is the reflexive tendencies of many hotel companies, particularly the larger chains, to levy their own "tax" on guests as "incidentals" with extortionate WiFi charges leading the charge. Britain's Daily Telegraph has a top ten list of things to change in travel with extraneous (and outrageous) hotel charges coming in at #3.  These include £6 for a couple of bottles of water and more than £5 an hour for Wi-Fi with 24 hours coming in at more than £20 a day.

Germany is not far behind with, for example, the Hilton in Berlin charging €22 for the privilege of connecting. As the Telegraph notes "given that Wi-Fi access doesn’t cost the hotel anything" (other than capital costs) it is beyond unconscionable that hotels continue to extort presumably under the assumption that business travelers don't care as their employers pay for it. The Wall Street Journal, however, recently had a report on more hotels incuding incidentals in room charges. 

Nevertheless, despite rising costs both in airfares and, in some areas, hotel charges there is a highly encouraging prognostication on the growth of air travel by the Federal Aviation Administration that says "airline passenger travel will nearly double in the next 20 years"! The agency's report says that "the total number of people flying commercially on U.S. airlines will increase by 0.2 percent to 732 million in 2012, then to 746 million in 2013, and then increase more rapidly to 1.2 billion in 2032. The aviation system is expected to reach one billion passengers per year in 2024." If even fractionally true, it may well be a case of let the good times roll again for travel providers.

 

Owning the consumer: Online travel agencies vs service providers.

March 04, 2012

Online Travel Agencies like Expedia and Orbitz have roiled the hotel and, to a considerably lesser degree, the airline industry since they appeared over a decade ago. The hospitality industry has made several attempts at asserting a degree of control over distribution channels but  has, thus far, come up short. The latest foray led by the industry's national organization, AH&LA  and STR (the industry's leading supplier of benchmarking reports) is in the form of an extensive report entitled "Distribution Channel Analysis". 

The much publicized 200+ page document quite obviously has much to say that is truly meaningful with regard to the dramatic changes in distribution channels that have severely affected profitablity for all offering specific pointers that range from the economics of pricing, the advent of "soft brands" that mimick many of the features of traditional hotel brands to the pitfalls of "rate parity" wherein all distribution channels have the room rate. Also elaborated upon is the arrival of a new set of third party intermediaries like Google, Apple and Facebook and attendant meta-search and their implications for additional cost. 

The  Distribution Channel report is a welcome attempt at alerting a largely fragemented and generally technologically somnolent industry.  Interestingly and almost on cue consulting giant McKinsey and Company's Quarterly magazine's February issue has a report that offers a slightly different lens with which to look at the industry's bete noire.

The Quarterly's report begins with a somewhat damning noting of a "myopic focus on costs rather than returns" and suggests that "incumbents move away from a model focused almost exclusively on reducing channel costs and toward one that seeks to maximize returns by best serving customer needs." That, per the magazine, has led to a missing out on the continuum of the customer experience from before the time of search to "well after purchase and travel". The Quarterly suggests four "imperatives" for travel organizations:

  1. Focus on customers, not channels:  While, ideally, suppliers would tailor services to each individual, organizations, companies should "craft focused solutions for a range of broad customers segments. Since price driven leisure travelers are drawn to transparency and comparability above all else, shopping at an average of three to four web sites before making a purchase they suggest that airlines, hotels, and car-rental companies bring price comparability to their own sites.
  2. Win in the era of 'big data": The industry is urged to develop detailed "pictures" from the reams of data at its disposal with a view to driving marketing initiatives that "more deeply engage customers". The report acknowledges that IT required to "deliver on data’s promises is daunting. But there’s equally no doubt that companies from outside the travel sector specifically tooled to make the most of data are going to figure things out, enter the market, and try to steal customers."  Visually enabling this aspect is now more possible thanks to a website called MetaLayer. The startup's CEO notes that they "make data so intuitive that anyone can gather insights from tons of data."
  3. Unlock the power of partnerships: Thinking broadly about the kinds of solutons that really engage and stimulate customers instead of merely undertaking discrete tasks well requires greater integration of lateral and vertical partnerships. The example of consumer packaged goods where manufacturers and retailers have brought about "far more effective merchandising decisions and physical-distribution and logistics outcomes" is suggested. This would require "identifying companies with similar interests and synergistic capabilities (rather) than about throwing new money and new technology after problems rooted in structural issues of coordination."
  4. Master the entire customer experience: The main thrust of McKinsey's advice is the notion of understanding and mastering and catering to all aspects of customer experience continuum. That includes the "dissolution of organizational barriers—not only budgets and planning processes but also ownership of information—to gain a comprehensive view of the customer journey."

The Quarterly's article ends by noting that the "digital revolution has upended business as usual in almost all industries, and travel is no exception. Consumers are empowered by information: they have near-instant access to their flight, hotel, and car-rental options; virtual price transparency; and the ability to play suppliers off against one another. The game is now about delivering a superior customer experience. If players can do that, the investment returns will follow."  Perhaps a reasonable playbook for effecting a win for the real stakeholders.

 

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  • President of Apple Core Hotels, a chain of 5 midtown Manhattan hotels offering value and comfort in the heart of the city.

    Member of the board of Directors - Hotel Association of New York.


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