What can hotels learn from casinos? Focus on non-rooms pricing.

This week I’m going to “fill in” for Natalie to complete our series on “What can Hotels learn from Casinos”?  (Look for parts 1 and 2 here and here, respectively) Today I’m going to address pricing. We all know that great entertainment comes at a price, and we also know that casinos need to manage demand and supply just like any other business. But when we are managing revenue in a casino, there are a lot of interrelated factors at play. The denomination or price of a slot machine can impact demand for that machine. The price and availability of hotel rooms need to be balanced with the ability to offer comp rooms to the casino’s most valuable players, as well as with the overall goal to drive revenue throughout the estate.  After all, the modern casino resort produces revenue across many fronts (rooms, entertainment, gaming, food and beverage, and more), so any decision that impacts room rates and availability has to consider the broader effect on estate-wide revenues.

Predictive analytics, like forecasting and optimization, have been used in revenue management applications in travel, hospitality AND gaming companies for some time. But the traditional revenue management approach is revenue-focused, not customer focused.  Furthermore, typical revenue management applications in hotels (and most hospitality and travel segments) have a notoriously short-term focus: that is, optimization focuses on optimizing revenues for a given date or date range – the longer-term impact of those pricing decisions is not considered.  As a business built for entertainment, casinos have focused their use of predictive analytics in revenue management not only on their patrons, but on a variety of other factors that impact pricing.

Let’s look at a few examples. First let’s consider the pricing of hotel rooms. In Natalie’s first entry in this series, she talked about the use of analytics to derive the customer lifetime value.  This is an important element for a casino when they decide to make a room available for a patron.  Casino patrons tend to play where they stay, and high-roller customers can make several trips to a casino each year. Traditional revenue management would optimize the best mix of business and prices for the hotel for any given day and length of stay. When you consider that the more you play at a casino, the more valuable you are and the less you may pay for a room (because discounting for “high rollers” is a common practice at most casino resorts), a typical rooms-revenue-focused optimization would likely recommend closing out the rates for the casinos’ most valuable, frequent patrons – and cost the casino valuable gaming and entertainment revenue.  Furthermore, if a casino doesn’t have room for its most valuable patrons to stay when they are here in Vegas, those patrons will likely stay and play at another hotel and casino– and this can cause valuable repeat customers’ business to be lost.

Today, the modern casino is factoring customer lifetime value into its revenue management and price optimization processes.  By segmenting their forecasts into patron value buckets that consider both estate-wide spending and frequency of visitation, versus by business types, casinos can ensure that the optimization process leaves rooms available for their most valuable patrons.

Our second example is with the pricing of tickets for shows. As noted earlier, most casino resorts have morphed into multi-facetted entertainment destinations.  Nowhere is this truer than in Las Vegas, where we continue to see an array of entertainment options whose goal is to attract guests to the vicinity and keep them entertained – the longer you stay, the more you play (and pay).  The expanding options in Las Vegas include the recently-constructed High Roller (billed as the world’s tallest observation wheel), and the recent announcement by MGM of a new 20,000-seat arena to be built just off the strip. And of course, when not gaming, watching a show, or going to a concert, you can also eat in a world-class restaurant run by a celebrity chef.

Of course, Las Vegas shows are significant revenue-generators.  With multiple shows per day, often seven days per week, with hundreds of seats available per show, and operating practically year-round, these shows can generate a lot of revenue.  But if casinos try to optimize ticket prices, without considering the impact on the rest of the estate, they may miss an important input into the decision making process; specifically, how do they fill the gaming floor with patrons? As a result, casinos must balance the need to drive ticket revenues with the need to drive patrons onto the property that will use the gaming floor, bars and restaurants. So, when making ticket pricing decisions, they use show occupancy as a goal in their optimization process and end up with a price that meets the twin goals of occupancy AND revenue while factoring in the constraint of the number of seats available in the theatre.

Finally, because casinos have a high transient quotient, casinos are frequently running campaigns to fill rooms during expected low periods – far more frequently than a typical hotel.  Many (though certainly not all) of these campaigns are oriented towards attracting known customers back to the property.  Because such campaigns are so frequent, marketing and revenue management teams in a typical casino environment work hard to:

  • Ensure that campaigns are properly aligned with “need” periods and pricing strategies
  • Estimate the “lift” from each campaign, so that revenue management can properly manage demand and pricing during campaign-affected arrival periods

Does managing all of these disparate revenue streams make casino pricing more difficult?  Certainly!  But I was not surprised when a panel of revenue managers at the G2E conference this year said that they felt that managing revenue for a 200-room hotel was in fact far more difficult than managing revenue for a 2,000 room casino property.  Why?  Because the variability of behavior on the smaller number of rooms makes predictions and revenue management so much more difficult!  The large number of rooms at many casinos leads to much more predictable behaviors across the estate – making most day-to-day pricing decisions much easier.

Casino properties are different from typical hotels – and it isn’t necessary to follow their every practice – but we should consider what can be learned from these practices in managing pricing for hotels, and apply them when and where they make sense.

How much revenue does your property generate from non-rooms revenue sources?  Do you consider the impacts on these sources when determining your rooms pricing decisions?  What about the long-term value of your guests?  Is this also considered in your decisions?

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Text Analytics: The voice of the customer at the speed of business

I’ve written about using text analytics to capture comprehend and act on the voice of the customer on this blog before. Recently, I recorded a short presentation that outlines how text analytics provides insight from all of the customer experience data that you collect, not just review data from social media sites but also internal data such as call logs and surveys.

Natalie Osborn discusses using Text Analytics to discover insights about customers.

If you are attending the Cornell Hospitality Research Summit, I’ll be presenting on the voice of the customer on Tuesday 14 October, 2014 at 1:15pm in Statler 398. If you are not attending, but would like more information on this topic – please download the SAS white paper – “Unleashing the Power of Text Analytics for Hotels”.

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Can big data help revenue management?

Next week I will be presenting at the Cornell Hospitality Research Summit on big data and revenue management. In preparation for the Summit, I have recorded a short presentation that outlines how big data can help augment revenue management.

Alex Dietz talks about how big data can help revenue management.

If you are attending the Cornell Hospitality Research Summit, I’ll be presenting on big data and revenue management on Tuesday 14 October, 2014 at 10:30AM in Statler 398. If you are not attending, but would like more information on this topic – please read my two blogs: Big data and revenue management part one and part two.

 

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Hotel Pricing in a Social World: The unmanaged business traveler

Next week Breffni Noone, Associate Professor, The Pennsylvania State University and I will be hosting a discussion at the Cornell Hospitality Research Summit on how user generated content impacts the purchase choices of the unmanaged business traveler. The discussion will take place on Monday October 13 at 2:15pm in Statler 396.

In preparation for this discussion, Breffni and I recorded a video presentation of our research. If you are attending the conference – you should plan to watch this in advance of the discussion. If you are not attending the conference, but visiting from twitter, Facebook or Linkedin – we’d love to hear your feedback and would be happy to answer any questions that you have in the comments section of this blog.

Kelly McGuire and Breffni Noone present the results of their research.

For further information – see my previous post which outlines the details of this study.

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From the desk of the CHRS: We love innovation, right?

By Cathy Enz, PhD., Lewis G. Schaeneman, Jr. Professor of Innovation & Dynamic Management, Cornell School of Hotel Administration.

It seems that everyone loves to talk about innovation these days, but sadly the overuse of the word to describe minor tweaks and ordinary activities has turned it into a confusing if not meaningless term.  While senior leaders in many different industries use the word at alarmingly frequent intervals, I wonder if they mean the same thing I do when I talk about innovation.  For me, innovation has its roots in the notion of creating a new idea or the rearranging of an old one in such a way that it creates significant customer value.  However this business of new ideas is not as easy to sell as we might think.  You history buffs know it took the British Navy of the 17th century over 150 years to adopt a proven cure for scurvy, but in today’s world we embrace new ideas – right?

I have begun to wonder as we prepare for the Cornell Hospitality Research Summit coming in October (CHRS14) if people really like new ideas.  The catalyst for my reflection is the decision Rohit Verma, my co-chair for the summit, and I made to encourage new methods for the presentation of proposals for the summit.  This year we have asked moderators and speakers to experiment with different session types like posing a “big question” to spark debate, or both showing and telling participants about a new practice, process, program, product, or application.  We have tried to ask folks to step away from the comfort of a traditional formal PowerPoint dependent presentation to be creative, or to more fully explore a devil’s advocacy style to question the positions of others.  In short, we wanted to be innovative and experimental in both the theme of the conference and the way in which we shared information at the conference.

Here is what we have discovered in trying to execute on this idea.  First, many presenters don’t automatically accept, understand, or really want to try this new idea.  In some ways their hesitancy makes perfect sense.  Who likes to take unnecessary risks, or move out of their comfort zone, particularly if the new idea is unproven, or ambiguous, and the probability of success is uncertain?   New for the sake of newness is not necessarily a good thing.   The second thing we have discovered is that how the creator of an idea sees it can be quite different from how it is seen by others.  In fact this gap between the acceptance of a new idea by others and the expectation that people will embrace something new is perhaps one of the biggest challenges innovators face.

It is too soon to tell but our desire to improve on the conference method may not be embraced with enthusiasm, as we had hoped.  Watching from a safe distance, and following once the idea is clearer and proven seems prudent, and we get it.  I’m reminded of the inventor Howard Aiken who once said, “Don’t worry about people stealing your ideas.  If your ideas are any good, you’ll have to ram them down people’s throats.”  We of
course don’t want to ram our idea for an experimental conference down anyone’s throat.  In fact, we want to thank all of the folks who asked for clarity (see our do’s and don’ts video, including our bad acting below) and we are grateful to those of you who bravely promised to give it a go.  We are looking forward to a great conference, but I would venture that just maybe people don’t love new ideas.  See you in October, and let’s find out.

 

As the leading source for research on and for the hospitality and related service industries, the Cornell University School of Hotel Administration invites representatives of industry and academe to the 3rd Cornell Hospitality Research Summit, on the beautiful campus of Cornell University in Ithaca, New York, October 12-14, 2014. A conference unlike any other, the CHRS is designed to create new knowledge through the intentional interaction of industry and academic presenters and participants.

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How Business Travelers Buy: Hotel Pricing in a Social World

With the growing popularity and availability of online reviews and ratings, consumers have more information than ever before when purchasing a hotel stay.  In order to build effective pricing and positioning strategies, hotel managers need to understand how consumers are using all of this user generated content with price to make a purchase decision.  Dr. Breffni Noone, Associate Professor at Penn State, and I have done a series of studies to understand how consumers use all of this information to assess value, and ultimately, make a purchase decision.  Our latest research looked at unmanaged business travelers.

As in previous studies, we used a choice modeling experiment.  In this technique, researchers select a set of attributes of a product or service they wish to test, and subjects are presented with a set of options with varying combinations of levels of those attributes.  They are asked to select the option that is most attractive to them (the one they would buy).  As participants repeat this exercise over different sets of options, it is possible to statistically assess the importance of each attribute in decision making, and the value that they place on the attribute and its levels.

The study design

For this study, we told our business traveler participants that they were attending a meeting in a city center.  We told them we would show them a set of hotels that were “business-friendly” with equivalent class of service and amenities, all with locations equally convenient to the meeting.  We then showed them a set of three hotels in which the price (low, medium, high), review sentiment (positive, negative), review content (physical property, service) review language (emotional, descriptive), aggregate rating (low, medium, high), TripAdvisor Rank (low, mid-range, high) and brand (known, unknown, preferred) varied.  We asked them to select the hotel they would book from the set of three options, and they repeated that exercise three times.

The data was gathered via an online survey distributed to a representative sample of the US population.  We screened for participants who traveled on business at least six times per year, and were able to make the choice of where to stay themselves (i.e. not overly constrained by a corporate travel policy).  Since we knew that loyalty program affiliation could be influential in traveler decision making, we asked them to tell us what loyalty programs they belonged to, and to identify a preferred brand from within those loyalty programs.  We presented a list of brands within these loyalty programs that met the study criteria of “business-friendly” hotel, so for example, the Hilton Honors brands were Hilton, Embassy Suites and Doubletree.  Note that this was not a study about loyalty program membership, so we can’t really make inferences to the general population of business travelers, but it is interesting to see how these business travelers are affiliated with common loyalty programs.

Business traveler loyalty behavior and demographics

Figure 1 shows the distribution of membership and the distribution of preferred brands by loyalty program.  We also asked whether they belonged to a “non-brand” loyalty program (like hotels.com or Leading Hotels), and you can see that 45% of them were members of such programs.

Figure 1: Loyalty Program Membership of Sample

Figure 1: Loyalty Program Membership of Sample

 

Figure 2 shows the demographic composition of the business travelers in this study.  You can see that about half of them take 6-10 trips a year, and the vast majority stay two or more nights per business trip.  Interestingly, the vast majority of these business travelers do read reviews and say they are influenced by them.

Number or cards held, which programs

Figure 2: Business Traveler Study Demographics

Study Results

Overall Attribute Importance

The first output of a choice modeling study is the overall importance of each attribute in driving customer’s decision making.  The following list of attributes had a significant impact on value perceptions, and they are presented in order of importance to the business traveler:

  1. Review Sentiment (positive, negative)
  2. Brand
  3. Aggregate Ratings
  4. Price
  5. Review Language (descriptive, emotional)

Contrast this with the list for the leisure traveler:

  1. Review Sentiment (positive, negative)
  2. Price
  3. Aggregate ratings
  4. TripAdvisor Rank
  5. Brand

As you can see, there are already some interetsing differences in how these two segments assess value and make decisions, yet review sentiment is  most influential for both segments.

Influence of attribute levels on value

The next step in a choice modeling analysis is to understand how value assessments vary with the different levels of the attributes.  In other words, how do negative versus positive reviews impact value?

The following results were obtained from the analysis of value impact by attribute level:

  • When reviews were negative as opposed to positive, not surprisingly, there was a large negative impact on value perceptions
  • There was a small positive impact of the known brand over the unknown brand, but a large positive impact on value of the preferred brand over the known brand
  • While the value impact associated with both a mid-range aggregate rating over a low rating and a high rating over a mid-range aggregate were significant and positive, the impact of mid over low was actually greater than the impact of high over mid
  • There was a negative impact on value when the price was raised to the mid-level over the low price.  Business users did not notice the difference between the mid and high price
  • Finally, there was a slight positive impact on value of a review with descriptive language (“The bed was very comfortable”, “The room was cold”) over emotional language (“I LOVED the bed”, “The temperature in the room was annoying”)

Looking at the aggregate rating results suggest that it is more important to business travelers that the hotel is OK, than great.  They will assess what the experience will be like (by reading the reviews, especially descriptive ones), and as long as they feel it will be OK (and they can get points), they will book.  This doesn’t mean they don’t appreciate a great hotel, but in the balance between staying with their preferred brand that is just "OK", and a hotel with “great” reputation, they are likely to choose the preferred brand.  While business travelers are relatively price-insensitive, they do respond to a deal.  Hotels with an “unknown” brand that are in a better reputation position than the “preferred” hotels in their market (the ones with well-known loyalty programs), might be able to encourage business travelers to stay by offering a deal.  However, if the price isn't among the lowest prices in the competitive set, the business traveler is not likely to notice.

Assessing overall value

Choice modeling analysis also allows you to look at a combination of attribute levels and assess the overall value to a consumer of an option with that set of attribute levels.   We are going to present a set of equations below representing an hotel option from the study. The important thing to focus on is not the value of result of the equation, but how the number changes as we change attribute levels.

The below equation represents the most valuable option for the business travelers, in order of attribute importance.

Positive Reviews + Preferred Brand + High Rating + Low Price + Descriptive Reviews = 1.52

With this set of attribute levels as a baseline, we can manipulate the attribute levels and track their impact on overall value.  For example, holding everything else constant, the below equation represents overall value when the price is raised from lowest to highest.  You can see that the overall value is impacted slightly, but not by very much.  This is not surprising since the price was only the fourth most important attribute to business travelers, and it was only the low price that the business travelers valued.

Positive Reviews + Preferred Brand + High Rating + High Price + Descriptive Reviews = 1.25

Contrast this result with the leisure traveler study, where price was the second most important attribute.  The first equation is the most valuable option for the leisure traveler, and the second shows the impact of raising the price from low to high.  Leisure travelers are clearly highly price sensitive.  The overall value drops significantly when the price goes from low to high.

Positive Reviews + Low Price+ High Rating + High TARank+ Known Brand = 1.95

Positive Reviews + High Price+ High Rating + High TARank+ Known Brand = 0.46

Now look at what happens when the most important attribute for each traveler changes.  Holding everything constant from the baseline, the first equation below demonstrates the impact of negative reviews on overall value for business travelers, and the second for leisure travelers.  You can see here that the impact on value for business travelers over the baseline was quite significant, nearly half of the value is lost when the reviews are negative as opposed to positive.  However, for the leisure travelers, all of the value is lost when reviews are negative.  Business travelers clearly pay attention to reviews, but they are willing to balance that against other attributes like brand and rating.  Leisure travelers simply wont consider the hotel if the reviews are negative.

 Business: Negative Reviews + Preferred Brand + High Rating + Low Price + Descriptive Reviews = 0.69

Leisure: Negative Reviews + Low Price+ High Rating + High TARank+ Known Brand = 0.01

 

Summing it all up

So, what does all this mean?

There are a couple of key takeaways from this study:

  • Reviews matter – business travelers look to the reviews to assess what their experience will be like.  If the review is positive or negative they want to know why.
  •  Loyalty matters – Business travelers will put up with “good enough” or “OK” if they can get their points
  • Price matters – Business travelers still recognize a deal, but it’s only the lowest price that entices them.  They are relatively insensitive beyond that.

Figure 3 summarizes the key takeaways from this study as compared to the leisure study.  These takeaways present several opportunities for hoteliers.  For example, a hotel that has a heavy mix of business travelers who are members of their loyalty program might be able to put off renovations for a while (assuming the declining quality of the product is reflected in declining reviews and ratings), but a leisure property would not.  A brand that is relatively unknown in the market, could attract business travelers to forgo their preferred brand if their reputation was better, by offering a “deal”.

The bottom line is that pricing in today’s social world is not getting any easier.  Not only do you have to understand your price relative to the market, and your reputation relative to the market, but you also need to understand your business mix.   All of these decisions require good knowledge of the market backed by solid revenue and reputation analytics.

Figure 5: Key Study Takeaways

Figure 3: Key Study Takeaways

 

 

 

 

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What can hotels learn from casinos? Focus on the service environment.

What can hotels learn from casinos? In my first post on this topic I explored how casinos apply predictive analytics to help them focus on their customers. In this post I will explore how casinos use analytics to help manage the service environment with the dual goals of improving profitability and customer experience. But first, let’s kick off with some of the crazier myths about how casinos manipulate their physical environments to make you, the patron, gamble more.

I’ve heard it claimed that casinos pump hyper-oxygenized air into casinos to keep your mood buoyant and attention focused on gaming. I have also heard claimed that there is a big red button in the basement that can dial up or dial down how much patrons can win! Neither of these rumors are true, but there are a lot of moving parts in a casino.  Casinos do manage their service environment, and they use analytics and data management to help them do it. They focus on things such as the location and placement of the slot machines and gaming tables, the denomination of those machines and minimum bets of the tables, as well making sure that they have the skilled team members to manage these experiences and also the patron themselves.

When it comes to planning the operations of a casino floor, bad decisions can mean significant losses in customer loyalty and potential revenue. The challenge is how to plan the right mix of gaming choices, denominations, and table or machine placement to optimize the patron’s interest. In Canada – 85% of gaming revenue is made up of slot machine revenue. As a result, slot operations are a primary focus of their analytics.

Saskatchewan Gaming Corporation, operator of the Casino Regina, has placed a lot energy and analytics into how they manage their slot operations. They pulled together all of the transaction data on their slot machines and created a best-case predictive forecast into how each game would perform in the year to come. In the process, they began collecting insights into leading predictors of patron preference for machines. This helps them optimize profitability. They also looked at how they can predict the impact of potential changes to slot performance based on ‘what if’ scenarios.

Finally, Saskatchewan Gaming Corporation used advanced optimization to determine the best approach to future business, considering factors such as physical space and budget. This information helps the casino company to optimize its slot machine purchase options, including the analysis of which machines to replace and when to replace them, while also ensuring the patron experience is not hampered through excessive machine down-time. Analytics allows this casino company to offer the right games, in the right locations to attract loyal and valuable patrons.

Optimization techniques are not isolated to machines for casinos but can also be used to ensure that the right service operations staff are available to serve patrons. It’s important that if you offer a patron a meal, that you have a seat available in the restaurant for that patron. Patrons who have to wait for service in a restaurant or a seat at a gaming table may be tempted to take their business elsewhere. Forecasting demand for each service area, and matching the right skill set to the area is very important for casinos. Just think of all of the different skill sets required to run a gaming floor, from the different dealers to the cashiers, pit boss and machine technician. Optimization approaches are needed in every aspect of casino operations.

Casinos also carefully manage the patron’s service experience while they are in the casino. Casinos use master data management techniques to ensure that they can use what they have learned about their patrons to enhance the patron experience. Master data management can deliver the results of analytics to the service operations team members, to ensure that each patron is recognized and treated appropriately and most importantly - consistently.

Managing the patron’s service experience is particularly important when something starts to occur that none of us really want to think about when we are in a casino, and that is losing. If a patron hits a losing streak their enjoyment may start to decrease.  The patron may decide to leave the casino and “try their luck” somewhere else. Casinos know if they offer patrons a free meal or a drink at the bar, allowing the patron to step away from the losing experience and focus on something else, the patron will start to enjoy themselves again. Casinos trigger alerts to their service teams to identify patrons who are losing. These alerts can be informed with analytic such as customer lifetime value and next best offer, which helps the service team take the appropriate action to correct the customers experience while at the same time remaining profitable.

While the loss of a casino patron may be much more “of the moment” than that of a hotel guest, the use of analytics and data management to help detect and avoid that act of attrition is something that all hotels could benefit from. How are you detecting behavior changes in your guests? Do you have steps in place to identify when the customer experience is going wrong, or when the customer is about to leave you?

Casinos use master data management (MDM) techniques to communicate important customer preference information to staff who sit at each interaction point. Master data management is the processes, governance, policies, standards and tools that consistently define and manage the critical data of an organization to provide a single point of reference.  One of the benefits to service organizations of using MDM is that when that single point of reference is a customer profile, the master data can ensure that the treatment of customers is consistent and that preference information reaches all customer points of contact.

How do you ensure the service experience is consistent across your operation and throughout your estate? Are you relying on information hidden in the comments field of your property management system? Are there small “moments of truth”, such as the preferred pillow or using the preferred method of address that mean the guest stays satisfied?

When you proactively manage the service environment, you can deliver on a great guest experience and avoid customer attrition. Casinos use solid data management techniques to help communicate their guest’s preferences and predictive analytics to identify moments when intervention is required.

No hyper-oxygenized air required.

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Reviews, Ratings and Hotels – What research tells us (so far)

As those of you who follow me know, I’ve been working on a series of studies with Breffni Noone (Professor at Penn State) about the impact of user generated content (UGC) and price on consumer buying behavior.   When we speak about this research, we tend to hear the same sets of questions from most audiences – whether they are revenue managers, marketers or even outside the industry.  In this blog post, I’ll review our research to date, and then I’ll answer some of the common questions we hear based on what we’ve seen in our literature reviews for our research.  Next month, I’ll explain our latest study which compares business travelers to leisure travelers.

Price and UGC – Influence on quality and value perceptions

Now that user generated content is available at the point of purchase, consumers have more information than ever before as they evaluate a hotel purchase.   In order to continue to build profitable pricing and positioning strategies, hoteliers must understand how all of this information together influences consumers.   Previous research has shown that consumers’ perceptions of quality and value are the primary drivers of purchase behavior.

In our first study, we designed a scenario based on the online purchase of a four-star hotel for a weekend leisure break.  We presented a hotel where the price varied low to high (relative to a reference price), the reviews were either mostly positive or mostly negative, and the ratings were low (2.8) or high (4.8).  We then asked consumers to report their perceptions of the quality and value of that hotel.  You can read my post about this study here.

The main takeaways from this study were:

  1.  In the presence of ratings and reviews, consumers do not use price as an indication of quality. Hotels can lower price (within reasonable bounds) to generate short term demand, without impacting consumers long term quality perceptions.
  2. Reviews are the most powerful value indicator for consumers: Consumers look to the reviews over aggregate ratings to form quality and value perceptions.  We hypothesize that the uncertainty associated with the hotel experience leads consumers to gather as much information as they can before purchase. Reviews provide this, ratings do not.
  3. Competing on price alone is not a winning strategy. Consumers will look closely at UGC and price. This means you must understand your price position and your reputation position versus the competition.
  4. Good reviews are not a license to charge more: Despite the power of positive reviews, consumers still prefer to pay the lowest price. All things being equal, if your price is lower, you’ll drive demand to your property.
  5. It’s hard to overcome “bad” UGC: Lowering the price of a badly rated, and negatively reviewed, property drives no additional value in the minds of      the consumer. If you happen to be in that unfortunate position, you should keep the price up, and take what you can get – which according to our results won’t be much. Use your energy to fix the problems with your property instead of worrying about how it is priced!!

How consumers choose – Price, UGC and Value

In our first study, participants evaluated one hotel.  We were interested to understand how they would behave if they were forced to make a choice.  We designed a choice modeling experiment that would help us understand the tradeoffs consumers make and the attributes that drive value perceptions.  In this study, we again used a four-star hotel for a leisure break, and told participants that all hotels had equivalent amenities and location.  We then showed them three hotels in which we varied levels of the following attributes: the brand (known or unknown), price (low, mid, high), ratings (low, mid, high), TripAdvisor Rank (low, mid, high), review sentiment (negative, positive), review language (emotional, descriptive) and review content (service, physical property).  We asked them to select the hotel they would book.  They repeated this exercise three times.  By tracking their patterns of choice, we were able to understand how each of the attributes, and the levels of those attributes influenced choice behavior and value perceptions.    You can read more about this study in this blog post.

There were four main takeaways from this study:

  1. Reviews  and price are the most important influencers of choice. While consumers did pay attention to aggregate ratings, TripAdvisor rank and to a lesser extent, brand, positive reviews contributed the most to consumer choice behavior followed by lower price.
  2. Negative reviews remove you from the choice set. Period. Lower price or higher ratings do not overcome the impact of negative reviews. Consumers simply will not choose a hotel with negative reviews.
  3. Consumers prefer to pay a lower price. While consumers would go for a higher-priced hotel when the reviews and ratings were better than the alternatives, all things being equal, they will look for the lowest price. Hotels need to understand their position relative to their competition both on reputation and on price in order to take advantage of any pricing power associated with positive UGC.
  4. Consumers only notice high ratings and rankings. Our results showed that consumers only notice ratings and rankings when they are high as compared to other choices. Consumers do not place any value on the comparison between low and mid-level ratings and rankings.

These two studies were focused on the leisure traveler.  Our next study looks at choices of the business traveler.  I’ll describe that study in next month’s post.

Any discussion of the influence of UGC on consumer purchase patterns tends to raise a similar set of questions.

How do your findings relate to the Cornell study where a one point increase in Reputation Index resulted in an 11.2% increase in pricing power?

Our study results definitely complement the Cornell Center for Hospitality Research Study done by Chris Anderson in 2012.  If you missed it, I covered it in this blog post.  That study focused on performance measures, where we looked at consumer behavior.  We did provide one nuance to that work, and that is that the pricing power associated with improving your reputation index by one point will only happen on the “top end” of ratings – as in, if you raise your score from a 3.5 to a 4.5.  Consumers will not notice any movements on the low end – as in a 2.8 to 3.5.

My advice is to take any of these study results in the context of your market and your business strategy.  You will have increased pricing power with a good reputation (likely if you have a well-run, high quality hotel, you’ll have a good reputation, good performance and you’ll already be at the top of the market).  How you take advantage of that pricing power depends on your business strategy and your market conditions.  Our study demonstrates that consumers prefer to pay the lowest price they can.  With a great reputation, you have the ability to drive share with an aggressive pricing strategy.  You can drive revenue with a good reputation – but only assuming you are clearly better than the competitors in the market.  Both Chris’s study and ours reinforces the point that you need to have a good understanding of where you sit in the market on reputation and price, and a good understanding of your hotel’s business strategy, before making any pricing decisions.  The job of revenue manager is not getting any easier!

Should I respond to reviews?

Many hotels have invested a good deal of resources in responding to reviews – both positive and negative.  I have seen one study so far that looked at “response to negative reviews” in the context of hotel performance.  There seemed to be a relationship such that hotels that responded to negative reviews had better performance (ADR, RevPAR, Occupancy).  There is plenty of anecdotal evidence as well.  My own opinion – this comes down to service recovery.  You would address a problem if it were brought to you in person or via letter, so responding to negative reviews is a good idea.  I suspect that ‘over-responding’, or not being genuine, however, can do as much damage as that negative review, so I’d say be careful.  More research needs to be done in this area.

Should I be worried about my TripAdvisor Rank?

I have heard plenty of stories from industry about improvements in TripAdvisor Rank correlating with more bookings.  In our study, TripAdvisor rank was influential only when it was high, and the attribute was not a hugely influential overall.  However, there are two aspects of TripAdvisor Rank – the absolute number itself and the positioning that the rank gives you in search results.  In our study, we just presented the number (x out of 217 in the market).   Consumers may not be focused on the number itself, but being higher on TripAdvisor gets you noticed more because you will show up sooner in the search results.  There has been plenty of research on how many pages consumers will search through before making a decision, and it isn’t many.  Despite what our results say, I’d still recommend working to get the best rank on TripAdvisor that you can so that you show up as early as possible in the search.

Are the number of reviews important?  Should I be working to get more reviews?

I have seen a number of studies that show that consumer confidence increases with the number of reviews.  Consumers “believe” the UGC more when there is more of it.  I would definitely recommend that hotels work to increase the number of reviews posted across all types of review sites.

There is one exception to this.  I saw one study where increased number of reviews actually had a negative relationship with RevPAR at the luxury level.  These researchers hypothesized that as the number of reviews increased for luxury properties, the perceptions of exclusivity decreased, which left some consumers thinking “I don’t want to pay this much to stay where everyone is staying”.

Does the “quality” of the review influence decision making?

I have seen some research indicating that consumers “trust” a review more if the review quality (length, grammar, etc.) is good.  While there isn’t much that a hotel can do about this, you can feel secure that a badly written, negative review will not be valued as highly as a well-written positive review.

There is still much more work to be done– but what is clear from all of the research described here, is that reputation definitely drives consumer decision making.  To stay competitive, hotels need to monitor their reputation, and to use the information within the reviews themselves to continuously improve their offering.   Stay tuned for the  results of our new research next month!

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From the desk of the CHRS: What is the New Science of Service Innovation?

By Cathy Enz, PhD., Lewis G. Schaeneman, Jr. Professor of Innovation & Dynamic Management, Cornell School of Hotel Administration.

With the theme “The Future of Service Innovation: The New Science of People, Organizations, Data, and Technology”, the Cornell Hospitality Research Summit 2014 this October is focused on how to create new knowledge.  When we think of science, we think of knowledge gained through a systematic process that includes collecting and testing information, often with the desire to find solutions to particular problems.

As a forum for direct, research-based dialog between industry and academe, the CHRS 2014 will be all about what is new in our understanding of service innovation, broadly defined.  So the “new science” of service innovation is a desire to apply new knowledge that is based on systematic analysis or data collection to address problems we face in hospitality organizations.  The domains of people, organization, data and technology were selected for emphasis because producing solutions to complex problems in these domains are where much of the action is within innovation.  New ideas, business models, processes, and practices will be key to our discussions at the summit.

Distinguishing service innovation from other types and forms of innovation is also important to hospitality.  While many discuss invention and technology interchangeably with the word innovation, we believe that the hospitality industry needs to pay close attention to both product and process innovations.  In a roundtable held on campus several years ago, we defined service innovation as the introduction of new or novel ideas that focus on services.  New ways to deliver value, new service concepts or new service business models are just some elements of this type of innovation.

In our own exploration of service innovation we find agreement from many practitioners that along with shifts in technology, continuous operational improvements, investments in employee performance, and management of the customer experience are ways to facilitate the delivery of service innovation.  In the upcoming summit our different presentation tracks will focus on these elements of service innovation delivery.

As co-chairs of the summit, Rohit Verma and I feel that innovation must also happen in how we share knowledge.   We hope to create knowledge on the spot by a focus on exploring big questions, stimulating debate, and providing ways to assure active audience participation.  The New Science of Service Innovation is based on using information in a systematic fashion, and we think the CHRS 14 is just the beginning of many new approaches possible for building a community of practice around innovation in the hospitality industry.

As the leading source for research on and for the hospitality and related service industries, the Cornell University School of Hotel Administration invites representatives of industry and academe to the 3rd Cornell Hospitality Research Summit, on the beautiful campus of Cornell University in Ithaca, New York, October 12-14, 2014.
 A conference unlike any other, the CHRS is designed to create new knowledge through the intentional interaction of industry and academic presenters and participants.

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What can Hotels learn from Casinos? Focus on knowing your guests.

Did you know that total consumer spending on gambling at commercial casinos in the US was calculated at $37.34 billion in 2012? $8.6 billion of this revenue was returned to states and local communities in the form of taxes and other levies. The US casino entertainment industry also provides jobs to 332,000 people who earned $13.2 billion in wages, benefits and tips during 2012. It’s hard to deny that gaming is serious business. And like all serious businesses, the casino entertainment industry is leveraging predictive analytics to ensure that they stay on a winning streak.

Over the next three posts, I am going to explore the three main areas where analytics make the difference for casino companies. Knowing their patrons is one of the areas where casinos apply predictive analytics to help them to stay on the leading edge. The second is the process of running the casino, this areas covers the machines, equipment, physical surroundings and even the service experience of the patron themselves. Lastly, we will look at pricing in the casino environment – how casinos forecast and manage supply and demand for their products.

But first let’s address one of the biggest myths about the casino business right up front. The casino business is not about “winning” or “losing” money. Casinos are in the business of providing entertainment. When a customer comes to a casino, they are not buying a chance to win (or lose) big, they are buying entertainment. The fun of playing at a table or at a slot machine, the pleasure of dining in a restaurant, seeing a show, playing golf or enjoying the hotel, spa and pool amenities are all of the reasons that patrons visit casinos.

Any business that is focused on providing entertainment must center on its customers, and it would be difficult to find an industry that is more focused on its customers, or patrons. But the casino industry has a challenge. Patrons can be very fickle. There are a variety of entertainment options available and only limited entertainment dollars in every patron’s wallet. What’s more, the casino entertainment experience has been built on recognition. Valuable patrons are rewarded with offers such as free meals, free or discounted play and free rooms in exchange for their patronage. Over time these offers and rewards have become expected. If a patron of a casino doesn’t feel that they are getting the offers and recognition they deserve, they can easily chose to find their entertainment elsewhere. One of the most important things for a casino is to know their patrons’ preferences well so they can provide the entertainment experience to keep them coming back, while at the same time understand the patron’s value so that offers and rewards remain profitable.

So how do casinos know their patrons so well? They know them from the data they collect. And the data we are talking about is data on the customer experience. Casinos do have some challenges when it comes to data. Think for a moment about all the experiences you can have in a casino. Gaming – whether it is table games, slot machines, even betting on horse racing. Eating and drinking in restaurants, bars, cafes, even your hotel room. You can see a show, play golf or relax in the spa or by the pool. That’s a lot of points of experience which results in a lot of transactions that are each managed by individual systems.

Pulling all that data together is a challenge. First casinos need to bring together all of the customer transaction data from all of the disparate systems that manage it. Then they need make sure that the data is of good quality and that there are no duplicates or bad data. Once the data is clean and ready, casinos build a 360 degree view of their customers and start to apply predictive analytics.  This gives the casinos a unique understanding of their patron, including current and predicted customer lifetime value, the theoretical win they expect to gain from the patron whether it is daily or by trip for out of town patrons. They also build segmentation and response models to help them understand how to market to the patron and how they are likely to respond to offers.

Companies with a game-changing analytics set their business strategies based on what the analytics tell them.  In their book, “Competing on Analytics - The new science of winning,” authors Thomas H. Davenport and Jeanne G. Harris highlight Caesars Entertainment as a great example of this. By gathering and analyzing patron data through their Total Rewards program, Caesars found out something very important. They realized that their core, profitable patron was not who they thought it was. It was not the high-roller who dropped thousands of dollars per trip, but it was the high-frequency, lower spend per visit slot player.  They designed their entire brand position, rewards program, service offering and business strategy around this player, and went on to become a market leader in the US casino industry.

Foxwoods Casinos is another great example. Foxwoods segmented their customer database to such an extent that they were able to understand their guest preferences very well and get extremely granular with their campaigns. In some cases, for example, they can send 400 variations of a single mailer out to their customer base. Let’s think about that for a moment. Can you imagine sending FOUR HUNDRED different versions of the same mailing to your customer base?  When you know your customers well you can give them exactly what they want, and keep them coming back.

The same challenges with disparate systems that exist in casinos exist for hotels. The hotel front office system may capture all of the transactions if a guest charges to their room, but what about those guests who do not room charge, but use a credit card when dining, or those guests who do not stay in the hotel but still use the hotel restaurants, spa, and meeting rooms? Are they identifiable as a unique customer, or are they a nameless transaction in a point of sale system? Building a comprehensive view of all of your guests can be a challenge if you have disparate systems. A data management strategy can assist you with bringing together data from different systems and consolidating it into unique customer records.

Once you have a 360 degree view of your guests, the options for analytics are vast. Perhaps you want to look across all of your customer records and understand what relationships exist between those that use the restaurants at your properties and those that use other facilities, for example, your spa. This can certainly help with understanding how changes to the restaurant operations such as opening hours or even a renovation will impact the revenue of the spa. When it comes to marketing, a better understanding of guest preferences and spending patterns can help drive segmentation, which in turn drives better tuned offers.

While hotel companies are unlike casinos in many ways, one of the fundamental similarities between the two is the need to focus on knowing the guest. Casinos have implemented loyalty card programs that capture data and reward their patrons no matter which area of the business they are patronizing. And data collection doesn’t stop at only those patrons who show their loyalty card. Through data matching it is possible to identify those customers that do not use loyalty cards, but can be identified using their name, address or other identifier. How much do you know about guests who do not use your rooms? Do you know enough to tailor a promotion for them that will encourage spending in other outlets, or even other properties?

When you know your guests well you can give them exactly what they want, and keep them coming back. Casinos use solid data management and predictive analytics to help understand their guest’s preferences, and predict what guests want. In my next post I will explore some of the ways that casinos optimize their physical environment and operations – stay tuned!

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