Hotel owners and operators have long offered complimentary amenities to enhance their guests' stays and differentiate themselves from competitors. The decision of which amenities to offer is typically based on customer surveys, competitive position, and marketing and financial goals. While brand managers are eager to enhance their brands with all the latest and greatest amenities, owners are reluctant to pay for amenities that don't pay off. Debates often arise between owners who pay for amenities and brand managers who mandate these amenities as brand standards.
A new report from Cornell University's Center for Hospitality Research (CHR) informs this debate by suggesting a return on investment (ROI) analysis to determine which amenities are the best ones to offer. The research is described in: "Hotel Brand Standards: How to Pick the Right Amenities for Your Property," by Chekitan S. Dev, Rebecca Hamilton, and Roland Rust, which is available from CHR at no charge.
The researchers collaborated with a global multi-brand hotel company to analyze the return on investment on three popular complimentary amenities—bottled water, internet access, and fitness center use—for six hotel brands, using thousands of pre- and post-stay guest surveys and archived guest data. Their study found notable differences between brands for which amenity had the highest payoff, and differences in the impact of amenity use on first-time guests and repeat business. While internet access had a significant impact on attracting first-time guests, for example, complimentary bottled water offered the highest ROI in terms of generating repeat visits.
"ROI analysis based on customer lifetime value provides a useful way for owners and operators to assess the incremental value of a particular amenity based on revenue from new and returning guests net of costs," said Dev, who is an associate professor of marketing and branding at the School of Hotel Administration in the Cornell SC Johnson College of Business. "From our ROI analysis we learned that some amenities are great at attracting first-time guests, while others have a significant impact on generating repeat business. In addition, we found that guests generally overestimate their likelihood of actually using various amenities. This means that a marketing survey that asks potential guests about their intended amenity use may not provide an accurate estimation of their actual use."
During the study, some of the hotels began offering complimentary bottled water. "This set up a natural experiment that allowed us to compare revenue changes for hotels that added bottled water with a matched set of those that did not," Dev said. "We found a noticeable revenue increase for the hotels that started offering this amenity corroborating the results of our earlier analysis."
The results of this study will provide owners, operators, brand managers and consultants with an easy to use method for analyzing the value of an amenity based on its impact on customer lifetime value, he concluded.