GuestSpan Speaks!

I have to pull the MBA card for a moment and respond to Stephen Hennis’ July 20 blog* about room rates and occupancy. The main gist of his blog is to prove that dropping rates to increase occupancy can actually hurt your RevPAR – which is a good message, because it’s correct in theory, and I’ve seen a number of hoteliers hold prices to their benefit.

For the record, I think he’s 85% right.

How Stephen is right:
Aside from the data analysis in his blog, there is the issue of cost structure. The folks in the supply chain world have a term called “Best Operating Level,” which basically means the level of production with the least per-unit cost. In the hotel world this translates to occupancy percentage. I’ve talked to a number of hoteliers, and most of them tell me their optimum occupancy is around 70-80%, which I have illustrated** below:

If you use the market demand curve as a guide for pricing, you can determine an estimated window of profitability that (generally) peaks at that best operating level (see below).

So Stephen is right – it doesn’t matter where the demand curve falls, dropping your rates to increase occupancy will cause you to lose money. And since so many hoteliers wildly push for sold-out nights as a starting strategy, holding rates and scaling back to a more profitable 70% occupancy is certainly a smart play.

Now, for that 15% of wrong:
Of course, if demand drops so low that you can’t operate above your break-even occupancy level, you’re in enough trouble that holding rates won’t do any good. So you can hold, but there has to be a better option than continuing to bleed out of principle. This is why, in both good and bad markets, I’m a big fan of a simple, two-step process.

*Increase demand by adding value, then

*Regulate occupancy back to optimum levels through pricing.

Increasing value is the trick of course, because so many value-adding features are so cost-intensive; and who can really afford to spend money when the money is tight? I confess I hold glibly to the idea that the best values can cost little or no money at all. For example, organizing communications to increase service response time can increase customer satisfaction without costing a dime. It’s a great strategy, and it won’t come at the expense of your room rates.

Shameless, self-promoting plug: GuestSpan’s iRoom has a quantified positive impact on customer satisfaction, and offers a cash-positive return on investment. Check it out at www.guestspan.com/iRoom!

*Stephen’s Blog can be read at http://www.hotelnewsnow.com/blog.aspx?PageType=Blogs&a=117&b=3704

**The illustrations are based on Bob Bobson’s Sleepy Mountain Inn, a cozy boutique at the base of the Misty Mountains, near the Mines of Moria.

I don’t talk to librarians anymore. Can’t think of the last time I spoke to someone at the bank. Airline counters are a thing of the past. If I have 10 items or less at the grocery store, I don’t talk to a cashier (unless I have produce. Produce is complicated..). By the time I arrive at the movies, I go right to the concession stand and into the theater. When was the last time I went inside a convenience store to pay for gas? I’d never have to go into the store if they would simply put a drink dispenser next to the gas pump.

Every one of these areas in my life (and more) provide a self-service option. I am willing to take them up on their offer more often than not (except of course, in the case of produce. I can’t figure out how to ring up the right lettuce…)

And, judging by the number of growing terminals and the people at those terminals, I’m not alone. User interfaces are simple. The technology works. I can get what I want.

And, I’m not anti-people. I tend to like people. My wife is a people. My kids are people (in varying degrees). I’m mostly people myself.

But, I’ll tell you, there are some instances when I’m happier with my self-service experience than others. The library is fantastic. Easy. Quick. Scan a barcode on the outer cover of the book and be off. The grocery store, Wal-Mart and Home Depot are not my favorite. The self-checkout process is complex. Lots of payment options. “Unexpected Objects in Bagging Area?” ARGH!

Last week, I was speaking with Ram Thakur, PhD who is on top of self-service. He said that simplicity is the key. The more complex the process, the higher level of dissatisfaction. Makes sense to me.

But, self-service isn’t going away. It is getting smarter and will pop up in almost every area of our life. They don’t make mistakes. They are easy to use. They are less expensive and more consistent than humans and they don’t mind working at all hours without a break.

(Note: GuestSpan is very concerned with this topic as we intend to put self-service into every hotel room in the world. Hotel guests will get everything they want (food, product, information, service) more quickly than they have every experienced. Watch for us in your next hotel stay.)

Terry Jones, founder and former CEO of Travelocity, told a major hotel brand:

“People don’t like to stay at your hotel. People like what they can do when they are at your hotel. That may be a business meeting, getaway or trip to see Grandma. They didn’t come to your hotel to stay at your hotel.”

Mr. Jones’ comment was not what the brand wanted to hear, but was true.

And, this thought applies to business travelers as much as anything. When I am on the road for business, I want to be a member of the local community. Those first couple of nights, eating at the close diners rather than the good restaurants, are not as enjoyable as they could be.

That’s why GuestSpan is creating a system that puts hotel guests right into the local scene from the minute they arrive.

I’m not just trying to create self-promotion in this post. I’d appreciate readers leaving comments about what they would like out of their travel experience. What information are you lacking that would help you make the most of a stay in a new city?

Also, take 3 minutes to be part of our survey audience. If you travel for business, take our 9-question survey by clicking HERE.

We are going to make your next hotel stay much better than you might have imagined.

Hoteliers chant the refrain, “Our people (guest service staff) make the difference to our guests.”

Great.

But, not necessarily true.

I won’t spend time today talking about most of my business travel and the decline in guest service staff I have experienced.

Instead, let’s examine an article by Kate Leggett of KANA (A multi-channel client service company). Ms. Leggett talks about her experience of trying to build a relationship with a bank. After years of being a customer at her local branch, she realized that the bank didn’t know her any better than they did the day she opened the account.

In brief, when starting a home remodeling project, she opened a home equity line of credit. Nobody at the bank told her that a cash-out refi would have been less expensive. Shortly thereafter, a family emergency took her out of town and because she wasn’t thinking about her bank account, she incurred $250 of overdraft charges, even though there was plenty of money sitting in a side account. These events led her to think:

“After 10 years of working with my bank and being consistently disappointed, I considered what I valued in my interactions with my bank. Yes, having a personal relationship was important, but what was more important was that the bank help answer questions that I had, and to recommend basic financial plans tailored to my situation.”

She ended up finding an online bank that provided all the services she wanted, answered all of her questions and seemed to “know’ her better than the service people at the local branch. Kate’s concluding thought provides a lot to think about when considering the idea of service:

“I used to think that a long interaction for each service issue led to a better relationship. But now, I am not so convinced. A short, fulfilling interaction where you get what you want by looking for it yourself can be as fulfilling as one in which you are held by hand.”

To me, the message is that we have to rethink how we deliver meaningful service to clients, guests, patrons, etc… The presence of a person is less valuable than providing answers, no matter the interaction method.

Just something to chew on for those that claim that their people make the difference. You’d better have really good people if you’re going to beat technology.