Retailing in hospitality: the road to relevance and effectiveness

Travel retailing has dramatically evolved to satisfy the customers’ expectations towards personalized options and add-ons.

Retailing helps customers’ engagement and motivation to purchase, however, while in the pre-covid world travel suppliers used retail-selling to maximize revenues; post-covid it is more about generating and stimulating demand to convert bookings.

Starting with the airlines, the retail trend was to shift from all-inclusive fares to base fares + extra/add-on services to be purchased à la carte. Airlines “unbundled” their rates and gave to the guests the option to purchase extra services based on their preferences.

IATA estimated that $873 billion would be spent on airfares in 2019 and that ancillary revenues accounted for 12% of global airline revenue or $23.91 per passenger. The evolution of airline retailing brought the extra revenue to reach up to 50% share of total revenues for some carriers and started the process of transformation of airlines into digital retailers, an interesting speech from the CEO of Air Asia can be watched here.

Hotels followed the same logic of airlines in seizing the opportunity to drive ancillary revenue through retail selling and add-ons, but at a different pace. To better define what is retailing for hoteliers, I quote Eben Hewitt, CEO at Sabre Hospitality who defines it as

“…realizing new revenue opportunities for hotels and personalizing offers for guests that build deeper engagement and make them happier”.

It is now 2020 and the world has unfortunately changed. Engagement and guest satisfaction are still priorities for the hotels, but the cruel reality is that the hospitality industry is struggling to survive and striving to drive and stimulate demand by building value, to avoid the price drop. Given the current crisis scenario:

  • Does it still make sense to direct efforts to the ancillary revenue generation when the greater issue is missing revenue from the core product (rooms)?
  • If so, how to make the need to deliver value to the customer and to generate extra income from the retail selling, coexist?

When times get rough, seizing every single revenue opportunity that can positively impact the bottom line can be a lifesaver as long as the customer needs are taken into consideration.

Customer experience is at the core, together with the right time, the right segment, the right price. The elements at the base of revenue and marketing and intertwined: understanding the customers’ brand new needs is vital to thrive. Therefore, the one-size-fits-all approach of selling is not effective in a world where the customer wants to be reassured and requires a tailored-made offer to be engaged. This principle was true pre-covid and it is true now more than ever: two of the most ineffective ways to sell, are to present the customer with too many options and to standardize. 

Too many options – Taking for example the extra services offered through the direct website’s booking engine: how many times does it happen to find a very long list of ancillary service options? If the customer finds too many options he/she will likely lose attention and the sale will be nuanced. On the contrary, if we segment the demand correctly, we can identify segment clusters with specific needs and build narrow and tailored offers around them. In this way, we do not push too much on the “a la carte” approach and we can restrict and target the right offer, to the right customer, at any time. Relevance is the key.

Standardize – Standardizing means selling everything to anyone and is strictly connected to the previous point if we think of the concept of segmentation. These days, the difficulty lies in the fact that on the one hand, we have to focus on value and create inclusions in the offers in order not to lower prices; on the other hand, we may need to have attractive entry prices, and therefore “unpack” our rates starting from the room only to have aggressive entry prices but without discounting. Two options on the plate that can happily live together if we turn to different customers for each offer. An example is to offer “all-inclusive” rates on direct channels and to offer room only to customers who book by mobile at the last minute. Specific target = actual sale.

An excellent article on the effectiveness of tailored-made offers for revenue success comparing the Netflix model with the hospitality model can be read here.

Hotels have plenty of opportunities for retailing:

  • simple room upselling
  • cross-selling of services (like restaurant, spa, beach..)
  • monetizing services that are usually given for free (eg. upper floor, balcony, cleaning services, parking…what I call “attribute-based upselling”)
  • converting underutilized spaces into extra revenue opportunities like smart working rooms, staycations, parking lots for public usage and more (read here)
  • showcase physical products and goods for sale inside the property
  • synergies and cooperation with local actors to cross-sell experience and activities

What is making the Hotels direct booking process different from OTAs, is the opportunity to work on personalization vs standardization. To offer a tailored service vs a commodity service.

OTAs are moving right in the same direction, and we should not leave anything to chance, especially during these tough times.

If we change our perception of the hospitality business being less about just selling rooms and more like a retail business, we will look at our Hotels with brand new eyes and discover incremental revenue opportunities we did not realize existed before.

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