The first time I led a customer experience measurement program for a hotel chain, we used printed surveys in more than two dozen languages, which we mailed to properties across the world for distribution in hotel rooms by housekeeping staff. We didn’t have the data back then, but it was taken as axiomatic that great guest experiences drove guest loyalty, and that loyal guests frequented the hotel brand more often and spent more per visit than less loyal guests.
Axioms no longer are sufficient; now everyone wants the data. The questions posed are fairly standard:
- At the guest level, does the guest experience influence how much guests spend both during a given stay and with the brand over the course of a year?
- At the property level, do differences in the guest experience manifest in terms of occupancy rates and RevPAR (revenue per available room)?
- At the company level, approximately what share of total revenues is attributable to guest loyalty?
So I thought I’d share some findings (anonymized, of course) from various programs conducted over the years with multiple full-service hotel brands, all of which primarily fall in the “Upper Upscale” or “Deluxe” categories.
Hotel Guest Experience
What makes a great hotel guest experience? The answer is a bit more complex than the question, and will vary somewhat by type of property. For the upscale properties that are the basis of the following data, the foundation or table stakes is the readiness of the room and accuracy of the reservation. While having the right room ready on time doesn’t translate into a great experience, the absence of any of these basics completely undermines the experience.
Table stakes attended to, the business traveler differs from the vacationer. For the business guest, key issues center on frictionless experiences that facilitate work: easy check-in/check-out, good in-room work environment (space, lighting, internet, outlets, etc.). Less time-stressed, vacationers are more enamored by personalization and being made to feel “special” (even if it is “special” at scale).
Guest Spend
Across multiple brands, we found that guests reporting the best experiences spent about 30% more than the average guest spend per stay. Better experiences drove longer stays (or, conversely, less-than-great experiences resulted in early departures), and larger overall spending. Not only was the spend per stay greater, but the spend over the ensuing 12 months was also magnified at both the property and brand levels. Guests with the strongest experiences spent 40% more over the year at the same property compared to those with average experiences, and a whopping 250% more than guests with poor experiences.
The impact of the experience at one property extended to the overall brand as well. Guests who were the most pleased with their experience at a given property went on to spend about one-third more over the ensuing year with the brand in total compared to those with OK experiences and twice as much as guests with weak experiences.
Impact on Hotel Properties
In addition to the increased spend per stay and per year, at the property level, guest loyalty translated into a network effect of higher occupancy rates and, by extension, higher RevPARR (revenue per available room). Given the high fixed costs of operating a full-service upscale hotel (and any hotel for that matter), occupancy rates are critical to profitability. Most of these properties needed occupancy rates of 75%-80% before turning a profit.
To measure this, we parsed the properties of two brands into loyalty quartiles based on the average feedback from guests at the various properties. The year-over-year occupancy rates at the properties in the lowest loyalty quartiles were basically flat, while those in the second quartile increased 5%, and those in the top loyalty quartile surged 16%.
Because of dynamic pricing (essentially charging room rates based on supply and demand), increased occupancy rates led to higher ADR (average daily rates) and RevPAR at properties in the top loyalty quartiles. With occupancy rates flat, properties in the two lower loyalty groupings saw modest year-over-year RevPAR declines. By contrast, properties in the second quartiles realized a 3% bump in RevPAR, and the top loyalty group saw an increase of 6%.
We also assumed that guests with the best experiences generated “referral value” through their recommendations and reviews. We were not comfortable with how to quantify this, so we left it as an axiom we couldn’t quantify.
Share of Hotel Company Revenues
This presented a different challenge: estimating the share of total hotel company revenues that could be attributed to guest experience/loyalty. For this effort, we only had the necessary data for one chain. We looked at a number of factors that might influence hotel revenues, from guest experience and loyalty, advertising, and guest mix to seasonality and macro-economic conditions.
Overall, we determined that 10% of total revenue for this hotel company was driven by the guest experience. This was less than we had initially expected. We dug back into the numbers and realized that the impact of guest experience was somewhat muted by the importance of “uncontrollable” factors, such as seasonality and the overall economy. We also needed to account for the very large conference business for the chain, which brought in a largely captive audience. Controlling for these variables boosted the share of revenues that could be attributed to the guest experience to approximately 17%. So $1 out of every $6 in revenue was driven by the guest experience.
Real Numbers, Real Impact
Data is more compelling than opinions. While the data cited above are from multiple brands, hotel companies need to run their own numbers. The guest experience we can hypothesize might be somewhat more important in the upscale/deluxe tiers in which our clients competed. We would expect guests looking for more basic amenities to be less influenced by the guest experience.
But now we are back in the realm of hypotheses and expectations. It is incumbent upon hotel chains to run the data based on their own numbers to replicate the exercises summarized above to understand what the guest experience means for their business.
