mindfolio - What Todays Travelers Want - HSMAI 2002

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					H S M A I F O U N D AT I O N S U R V E Y



What Today’s
  Travelers Want
When They Select a Hotel
BY ROHIT VERMA, GERHARD                         The latest HSMAI Foundation study, commissioned and funded by the
PLASCHKA, CHEKITAN DEV,                         Foundation’s corporate members, and conducted by hospitality and busi-
AND AMITA VERMA                                 ness professors Rohit Verma, Gerhard Plaschka and Chekitan Dev, takes
                                                a look at the current value drivers for hotel selection among business
                                                and leisure travelers.




T
             he hospitality industry has        what they do that adds value for their         es by using “spray and pray” tactics.
             largely been working on the        customers” (Dev and Olsen, Cornell             Therefore, to maximize the gain from the
             assumption that the tradition-     Quarterly, 2000).                              introduction of new value drivers, hospi-
             al value items such as price,                                                     tality companies need to develop an
             location, and personal service     Changing Paradigms                             understanding of market preferences
             are still the key drivers in the   As the selection process of a “place to        prior to adding new services to their exist-
overall choice-making behavior of today’s       stay” has become increasingly complex          ing offerings. Without a systematic use of
hotel customers. The changing para-             over the past decade, the market inter-        research-based analysis, any decision relat-
digms in almost all facets of consumer          ventions have become more and more             ed to new offerings is usually based on
purchase behavior suggest the possibility       sophisticated. To respond to changing          intuition and may often lead to marginal
that the value drivers (defined as features     market needs, an increasing number of          and in some cases, negative growth.
that are considered to be important to                                                             To assess the new value drivers for
customers when choosing a hotel from a          About 30 percent of                            hotel customers, the HSMAI Foundation,
set of alternatives) for hospitality services                                                  via its corporate membership program,
may also have undergone a shift in              the choice making process                      sponsored a research project directed by
recent years. Despite the compelling            is led by new value drivers                    Professor Rohit Verma (University of
urgency of this trend, no rigorous or                                                          Utah), Professor Chekitan Dev (Cornell
comprehensive studies to test this              such as technology,                            University), and Professor Gerhard
hypothesis have been undertaken. A                                                             Plaschka (DePaul University) in 2001.
recent report by a think-tank addressing
                                                loyalty points and                             The primary objective of this study was to
marketing challenges for the next decade        customization options.                         understand value drivers for business and
identifies Defining Value Drivers as a key                                                     leisure travelers in the United States with
imperative. The report urges hotel com-         hotels have either initiated or proposed       respect to upscale, mid-scale and economy
panies to “…examine whether the com-            offering a wide variety of “new” value driv-   hotels. The secondary objective of the
pany’s product and service offering is          ers, such as Internet reservations, high-      study was to explore the customer per-
actually adding value for its customers.        speed in-room Internet access, and             ceptions related to “travel and hotel safe-
Rather than simply add more services            enhanced frequent user programs.               ty” following the terrorist attacks on
and call that better service, for instance,     However, a hospitality operator cannot         September 11 and subsequent events.
operators should ask, do the services we        afford to implement all best-practice ini-     The resulting document, Current Value
provide really add value? Maybe some-           tiatives in all areas of hotel management      Drivers in Hotel Selection, was distributed to
times customers want less service, not          in order to be “everything to everybody,”      members of the Foundation corporate
more. This analysis will tell operators         nor use experimental learning approach-        membership program this summer.

20                                                                                                       HSMAI MARKETING REVIEW • FALL 2002
 EXHIBIT 1: Value Drivers for Business Travelers

                       Office/                                         Office/                                      Office/
                     Technology                                      Technology                                   Technology
             Eating Options                                  Eating Options                               Eating Options
             Options     8% Customization                    Options     8% Customization                 Options     7%    Customization
               6%                6%                            7%                6%                         6%                   5%


            Loyalty                                                                                       Loyalty
                                                            Loyalty
            Programs                                                                                      Programs            Amenities
                                                            Programs              Amenities
              16%                Amenities                                                                  13%                 19%
                                                              15%                   21%
                                   25%

               Price                                          Price                                           Price           Hotel
                              Hotel                           18%             Hotel                                       Type/Location
               20%                                                                                            28%
                          Type/Location                                   Type/Location                                       22%
                              20%                                             25%



                        Economy                                       Midrange                                        Upscale


 EXHIBIT 2: Value Drivers for Leisure Travelers

                          Office/                                         Office/                                  Office/
                        Technology                                      Technology                               Technology
                          Options                                         Options                                  Options
                            8% Customization                                6% Customization                         6% Customization
                                    10%                                             8%                                       7%
                Eating                                          Eating                                        Eating
                                                 Loyalty        Options                        Loyalty        Options
                Options
                                                 Programs        12%                           Programs        11%
                  13%
          Loyalty                                   9%                                            9%                            Amenities
                                                                                  Amenities
          Programs                                                                                                                20%
                                                                                    21%
            11%                      Amenities
                                       27%                                                                                    Hotel
                Price                                           Price           Hotel
                           Hotel                                                                               Price          Type/
                17%                                             25%         Type/Location
                           Type/                                                                               31%           Location
                          Location                                              19%                                            16%
                            14%

                        Economy                                        Midrange                                       Upscale


APPROACH                                          ators need to examine whether their                advanced choice modeling developed in
The hospitality industry has an abun-             product and service offerings actually             part by Professor McFadden (Winner of
dance of options when determining what            add value for customers while at the               2002 Nobel Prize in Economics). The sur-
products/services should be offered to            same time being economically viable to             vey results were analyzed using economet-
customers. For example, an operator can           the organization.                                  ric choice modeling programs developed
offer various combinations of traditional             To address the project objectives, the         by the research team in co-operation with
value drivers such as hotel amenities, eat-       research team conducted an online                  The Alliance Group Management
ing options, or loyalty programs. Some of         national hotel choice survey to capture            Consultants (www.allgrp.com). This
the new value drivers include features            the individuals’ (both business and                approach involves assessing customer
such as online reservations, high-speed           leisure travelers) preferences with respect        preferences for various combinations of
Internet access in rooms, ability to cus-         to value-added features offered by                 “service bundles” offered to the cus-
tomize the room décor, or flexible check-         upscale, mid-range, and economy hotels.            tomers. For example, even with five
in and checkout policies. However, oper-          The survey methodology was based on                potential value drivers, each with only

FALL 2002 • HSMAI MARKETING REVIEW                                                                                                          21
                                                EXHIBIT 5: Relative Preferences for Office/Technology Options
1 and 2). The relative breakdown of the
various options within this category is
summarized in Exhibit 5.

Hotel Amenities                                              High Speed
                                                           Internet in Room                                High Speed
Hotel amenities account for 20 – 30 per-                                                                   Internet in
                                                                 54%
cent weight in the choice-making process                                                                      Room         Business Center
(Exhibits 2 and 3). For business travelers,                                                                   35%               50%
                                                                          Business Center
the most important feature seems to be                                         32%
shuttle service to and from airports.                        Internet                                         Internet
                                                            Reservation                                      Reservation
Swimming pool facilities and fitness cen-                                                                       15%
                                                               14%
ters are equally important for them. For
leisure travelers, the two most important
hotel amenities are swimming pool and                           Business                                           Leisure
access to childcare facilities (Exhibit 6).

Safety and Security                             EXHIBIT 6: Relative Preferences for Amenities
The safety and security of travelers is of
utmost importance to everyone in the                                                                                  Shuttle
hospitality industry today. In light of con-                                                                  Fitness Service
                                                                Shuttle
cerns expressed by potential travelers fol-                     Service                                       Center 9%
lowing the events of September 11, 2001,                         44%                                           12%            Childcare
                                                                                                                              Facilities
the HSMAI Foundation felt it was impor-                                        Childcare                                        27%
tant to try to gauge how safety and secu-                                      Facilities
rity issues impact hotel selection. Those                  Fitness               19%
                                                                                                                Swimming
surveyed for this study strongly support-                  Center     Swimming                                    Pool
                                                            18%         Pool                                      52%
ed 24-hour video surveillance of the
                                                                        19%
parking lot, lobby and hallways; photo
identification at the time of check-in;
and for including safety and first-aid kits                      Business                                          Leisure
in rooms. The other significant finding
was that both leisure and business travel-
ers seem to be willing to pay approxi-
mately a 10 percent higher room rate for       have to be quick to adapt to the new and          Current Value Drivers in Hotel Selection was
enhanced security measures.                    changing requirements of their cus-               funded by the Corporate Member organiza-
                                               tomers in order to win their business.            tions of the HSMAI Foundation:
CONCLUDING REMARKS                                                                               • Benefactors — Cendant, Citicorp Diners
This study is a significant step in develop-   Next Steps                                        Club, Marriott, MeriStar, Six Continents.
ing a better understanding of the nature       In this study we’ve outlined the relative
                                                                                                 • Supporters — American Golf Corporation,
and evolution of the value drivers among       importance of some of the key value drivers
                                                                                                 Best Western International, Choice Hotels
customers of the hotel industry. Whereas       for the hotel industry. We all know that this
the “core offering” of a hotel: price,         is only one part of the equation. In order to     International, Disneyland Resort, Fairmont
room and location still account for about      truly be successful, firms need to understand     Hotels & Resorts, HotelRevMAX, Irma S.
70 percent of the choice criteria, about       their own distinctive competencies and            Mann Strategic Marketing, John Q.
30 percent of the choice making process        their operational strengths and limitations       Hammons, Manhattan East Suite Hotels,
is led by new value drivers such as tech-      and choose the product/service delivery           Millennium Hotels and Resorts, Omni Hotels,
nology, loyalty points and customization       strategy that not only satisfies the customer     Opryland Hotels, Passkey.com, Prime
options. While the skeptical reader might      but also is in line with their own capabilities   Hospitality, PriceWaterhousCoopers,
be inclined to say “told you so,” it is        and overall direction. The logical next step
                                                                                                 Radisson Hotels & Resorts, RealTime Hotel
important to remember that in an era of        would be to tie in customer demands with
                                                                                                 Reports, Ron Volper Group, Smith Travel
high speed competition where hospitality       the operational capabilities of a firm to
services have become more or less com-         determine the optimum mix of service              Research, Sonesta Hotels, Resorts & Nile
modities, and hotels are fast becoming         delivery options to maximize its value both       Cruises, Starwood Hotels & Resorts,
indistinguishable from each other, hotels      to the customer and to its stakeholders. ■        TravelClick,Inc., Wyndham International.

FALL 2002 • HSMAI MARKETING REVIEW                                                                                                           23
H S M A I F O U N D AT I O N S U R V E Y


four possible options, over 1,000 combi-      design procedures, a selected number of       gender, education level, annual household
nations of hotel services can be offered.     customized hotel scenarios were generated     income, and household composition.
The choice modeling procedure involves        for each individual respondent. Each hotel
carefully constructing meaningful combi-      choice scenario contained a list of fea-      Value Drivers for Business Travelers
nations of value drivers (choice scenar-      tures (e.g. weekday and weekend price;        For business travelers, core offerings
ios), getting customer preferences for        loyalty program options, and various          along with price, amenities and loyalty
choice scenarios, and estimating relative     hotel facilities, technology and customiza-   programs are the major value drivers in
utilities for various value drivers using     tion options) offered by three generic        all three markets (economy, midrange,
econometric modeling methods.                 hotels – one upscale, one mid-range and       upscale). Core amenities, location, price
   Based on a detailed assessment of new      one economy. The respondent was asked         and loyalty programs are the critical
product-service features offered by various   to choose one of the three hotels (includ-    value drivers for the economy segment.
hotels, a review of practitioner and aca-     ing the choice of “none”) described in        For the midrange segment, the relative
demic literature, and after consultation      each hotel offering. Finally, A Web-version   importance for various value drivers is
with hospitality industry experts, a cus-     of the survey instrument described above,     similar to that in the economy segment
tomer survey instrument was developed.        was developed and hosted on a secure          except for a relatively higher weight for
The survey instrument contained ques-         server. Only those potential respondents      hotel location and type. Price seems to
tions related to respondents’ frequency of    who had stayed in a hotel during the last     be the primary value driver followed by
hotel stay during the last year, questions    12 months were allowed to participate in      type/location of the hotel for the upscale
about their most recent trip, their views     the survey. The final sample size was         segment. See Exhibit 1 for details.
about technology, and a series of hotel       approximately 1,000. The respondent pool
choice scenarios. Using experimental          was very diverse in terms of location, age,   Value Drivers for Leisure Travelers
                                                                                            Within the economy segment, the pri-
                                                                                            mary value drivers are the amenities
EXHIBIT 3: Relative Preferences for Loyalty Program Options                                 available. Price becomes more important
                                                                                            for the midrange segment although the
                                                                                            relative importance of other value driv-
                                                                                            ers mostly remains unchanged com-
                                                        Airline Miles                       pared to the economy segment. See
                           Hotel Points
                              20%                            21%                            Exhibit 2 for details.
        Airline Miles
             40%                                                           Hotel Points     Loyalty Programs
                                                                              50%
                                                       Retail Points
                                                                                            For business travelers, retail points and
                        Retail Points                      29%                              airline miles seem to be equally attractive
                            40%
                                                                                            choice drivers. Leisure travelers, however,
                                                                                            would prefer to accumulate hotel points
                                                                                            over shopping or airline miles. Variations
                 Business                                       Leisure                     in preferences within various loyalty
                                                                                            point options are presented in Exhibit 3.

EXHIBIT 4: Relative Preferences for Eating Options                                          Eating Options
                                                                                            Business travelers assign maximum
                                                                                            weight to restaurant facilities among the
                                                                                            three types of eating options considered
                  Restaurant                                              Restaurant        in the hotel choice experiment. Leisure
                     56%                                                     24%            travelers on the other hand consider free
                                                      Free Breakfast                        breakfast and availability of in-room
                                                           45%                              kitchen facilities more important than
                             Kitchen                                                        the availability of restaurants (Exhibit 4).
          Free Breakfast     Faclities                                 Kitchen Faclities
               22%             22%                                           31%
                                                                                            Office Facilities and Technology Options
                                                                                            Overall, office facilities and technology
                                                                                            options only account for 5 to 10 percent
                 Business                                       Leisure                     of the total weight in the overall choice-
                                                                                            making decision of customers. (Exhibits

22                                                                                                    HSMAI MARKETING REVIEW • FALL 2002

				
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