By Rick Garlick, Ph.D., Senior Director of Consulting and Strategic Implementation, Maritz Research Hospitality Group, December 23, 2010

Last year, when many people stopped traveling, hotels frequently cut prices in order to bolster their struggling occupancy rates.  A year later, occupancy is coming back, although the average daily rate (ADR) charged by hotels is still lagging somewhat.  (The exceptions are New York and a few other scattered markets where ADR is pretty much back to normal.)  Conventional wisdom suggests that guests are happier when paying less money and having their hotels less crowded.  There is also the belief that, during the worst of the recession, people sought value and avoided higher end hotels.   This would suggest that, now that times are improving slightly, people might be likely to ‘trade-up’, particularly since rates have, for the most part, not yet rebounded to their pre-recession levels. 

This holiday travel season – an economic bellwether for the airline and hospitality industry – Maritz Research projected that traveler spend would increase to near pre-recession levels -- translating to expected revenue growth of $3.85 billion for the industry compared to last year.  The random digit dial telephone study included 442 respondents that stayed at a hotel some time within the past three months.  Interestingly, while hotel occupancy is up seven points from a year ago (44% in 2010, versus 37% in 2009), there is no significant change in the type of hotel travelers are occupying (i.e. they have not “traded up” in their hotel choices due to a strengthened economy), specifically:

Hotel type	2009	2010
Budget hotels	9%	9%
Midscale hotels	52%	51%
Upscale hotels	32%	35%
Luxury hotels	4%	3%
Don’t know	3%	3%

For upscale/luxury hotels in particular, there is good news and bad news about their customers’ perceptions of service.  The “good news” is that the Poll indicates there has been a strong uptick in service over the past year.  Last year, 28% of guests that stayed in an upscale or luxury property rated the service they received during their most recent stay as ‘excellent.’  In 2010 this percentage rose to 39%. Unfortunately, these hotels don’t get the credit they deserve for service improvements.  When asked whether service at these properties was getting better, worse, or staying the same,  only 8% said service at these upper end properties was ‘getting better’ compared to 14% a year earlier.  Seven percent (7%) said service was getting worse compared to 4% a year earlier.  While these are not large significant shifts, it underscores the problem that service efforts are not being consciously recognized as improvements by guests, even though their actual ratings are higher. 

A similar problem exists with price perceptions.  Last year, hotel rates fell considerably for nearly every segment and market, but people barely noticed. More people in all categories thought rates actually increased (31% overall.)  With the exception of New York and a few other selected markets, average daily rate has still not rebounded to pre-recession levels.  However, the broader perception is that rates are going higher.  In other words, people are quick to notice price increases, but far less likely to acknowledge decreases in rate. 

The bottom line is that efforts to attract guests on the basis of an improved experience, or a better price, often fail to get the attention of customers in the way a hotelier would hope.  Studies have shown that people naturally remember negative experiences (e.g.., bad service encounters, price increases, etc.) much more easily than positive ones.  Good service, particularly at higher end properties, is an expectation.  Therefore, you have to do something really special to get noticed.

One successful strategy is to appropriately let guests know when you’ve done something special for them.  Of course, this has to be handled very sensitively.  Several years ago, while staying at an upscale property, I asked the server if he could bring me an item from the restaurant that had been removed from the menu two years earlier.  After a few minutes, he came back and said, ‘I can get this for you but have to apologize to you in advance for a delay.  We’ve sent someone to one of the other restaurants in the hotel to get the ingredients required to make what you’ve asked for.’  I thought to myself that this server was brilliant.  I would have been happy had he simply told me he could grant my request.  However, had he not told me of his extra effort, I would not have been ‘wowed’ in the way that I was.  In another example, a friend, who actually owned several hotels, once told me how he asked a server if they could get him a bottled Coke rather than a fountain Coke.  The server said he was happy to oblige.  My friend said he wasn’t sure if it was deliberately planned this way, but he was in a sight line to see the server put on his coat, walk across the street to a convenience store, and return holding a bottle of Coke. 

People will notice negative changes such as when prices increase, but be less quick to notice when rates decrease or service improves.  It is important to let guests know how you are creating value for them at every level of the property.  This is a big reason why many consultants and experts strongly caution against cutting rates, but rather advise toward advertising things you are adding to create value.  If you are going to stand out, you have to find ways of blowing your own horn in a manner that draws positive, rather than negative attention to your hotel. 

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Rick Garlick, Ph.D., is the Senior Director of Consulting and Strategic Implementation, Maritz Research Hospitality Group

Rick currently focuses on hospitality clients, but has experience in a wide variety of industries. As a consultant for the design and execution of company research initiatives, he helps clients integrate their findings into action plans with bottom-line impact. Rick also provides guidance to research staff and develops new consumer, market and employee research products. He has been published in psychology and communication journals and has appeared on national media outlets CNNfn, CNBC, and NPR. Before joining Maritz, Rick worked at Gallup as a senior research director and managing consultant, and a professor at DePaul University.