From selling guest rooms and hotel services differently to monetizing under-utilized spaces and partnering with local businesses on experiences, a new model of retailing is slowly taking hold in the hospitality industry.
Referred to as next-generation retailing, the model involves multiple aspects and opportunities, and it applies to hotels in any location and at every tier.
“To state it simply, retailing for hoteliers is about realizing new revenue opportunities for hotels and personalizing offers for guests that build deeper engagement and make them happier,” says Eben Hewitt, chief technology officer and chief architect at Sabre Hospitality Solutions.
One key opportunity is in unbundling room attributes—such as floor level, balcony, ocean view and frequency of housekeeping service—and selling each as an add-on to enable guests to personalize their experience around their budget and what matters most to them.
Next generation retailing also involves monetizing underutilized spaces—everything from meeting and conference rooms to the hotel parking lot—and selling the hotel’s sleep rooms, amenities and services to non-staying guests in innovative ways.
“It goes beyond the sleep room,” Hewitt says. “It means thinking of ways that your hotel can be more a part of the community because you have looked at the ancillary services you offer, traditionally in service of the sleep room, as independently valuable in their own right.”
Robert Cole, founder of RockCheetah, a hospitality and travel technology consulting firm, says while there are “hundreds of ways” hotels can generate revenue from retailing, it’s fundamentally about making guests happier.
“It doesn’t just provide incremental revenue for the hotel. It actually creates value for the customer,” Cole says. “That’s really the core of what’s driving retailing initiatives by hoteliers.”
The forces driving retailing by hoteliers
Creating value for customers has risen to the level of an imperative for hotels competing in today’s travel marketplace, according to Tom Winrow, vice president of product management at Sabre Hospitality Solutions.
“There is a competitive need for hotels to stay relevant, and convince guests that they are their guests,” Winrow says.
“There is a battle ongoing right now for the ownership of the guest, and whoever can provide more value for that guest will win the battle.”
The battleground has been set by travel distributors and OTAs “who are creating a value add through their third-party partnerships that is essentially turning the hotel from the central point into just one aspect of the value chain,” Winrow adds. “That runs the risk of marginalizing hotels.”
“Hotels have not been very good at packaging things together,” notes Cole. “That’s very much going to be a major game changer. If hoteliers don’t figure out a way to play in that game there won’t be a lot of scraps left on the table and they may get shut out of that opportunity.
“My perspective has always been that the hotel should be the focal point of the trip. That’s the home base and it should be the hub of all of the guest’s activities.”
Travelers want hotels to delight them
Enhanced consumer expectations shaped by their experience using e-commerce retailers like Amazon and Netflix that predict and customize offers to match past behaviors and preferences are also putting pressure on hoteliers to do the same for their guests.
“This is the mindset travelers are used to and what they do every day in their lives, yet hoteliers still think it doesn’t apply to them,” says Hewitt.
“There is a lot of opportunity here, not to take advantage of people, but to delight the guest. It’s a matter of applying a little bit of imagination to think about how we can take care of them better.”
Demographics play a key role here. Winrow points to, “the evolution of a newer, younger consumer—the millennials and beyond—who aren’t looking to just lay their head down and sleep for a night. They’re looking to create more of a social, fun experience in the property and the area around it.”
According to a recent Deloitte Consulting research study of more than 6,600 hotel guests who collectively patronized 25 brands in different tiers, millennials expressed a desire to be “surprised and delighted” up to 71% more than other generations.
That dimension of the overall hotel experience will likely become increasingly important as millennials and the Gen-Xers right behind them, become a larger proportion of hotel guests.
The Deloitte study also measured what gives the most satisfaction to hotel guests. On a scale up to 100, empowerment scored 67% and engagement scored 66%, the highest of all the elements included.
The study defined guest empowerment as, “They provide me with the opportunities and access to drive my experience the way I want.” Engagement was defined as, “They engage me in a personalized, authentic, and attentive way.”
Both are long-standing fundamentals of hospitality that involve customizing and personalizing a guest’s stay, according to Cole. “This is actually very old thinking by hoteliers,” he says.
“Leveraging technology to pivot back to that in order to provide better hospitality is now the most important thing for hoteliers to be able to do. That provision of hospitality is the greatest value creator for a hotel.”
Hotel retailing in action: Decomposing the sleep room
Decomposing the sleep room into its constituent elements and selling specific attributes and room-related policies a la carte is one practical application of the updated retailing model some hoteliers are considering.
“Pricing your property around the concept of offering guests the things they are interested in and are relevant to them starts to rethink the concept of a guest room,” says Winrow.
“Traditionally we have thought of hotels as a collection of rooms with bed types, and you buy a rate plan for a room night,” says Hewitt.
“If we unbundle from the one rate plan the attributes of the room and the property that a guest might care about, that will make it easier for guests to shop for the things they specifically want and that they are willing to pay for. It allows a more personalized experience.”
He adds: “We’ve seen this in the airline industry for a decade, and hoteliers have yet to catch up with this idea.”
In the hospitality sector, “Some hotels could leverage retailing models to charge for things like early check-in and late check-out, which are often given away for free, as well as for different housekeeping services,” Winrow says.
“If a hotel wanted to go with an every-other-day housekeeping model but give guests the opportunity to pay for daily service, the flexibility to charge for that would exist.”
Other examples include setting a basic room rate but charging extra for a balcony, ocean or city view, or a higher floor level. Hotels could also charge extra for other room-related policies including guaranteed cancellation and pets.
“These things can be important differentiators to guests that they would happily pay for,” Hewitt says.
“Then guests are happier because they are paying more precisely for elements they want and they can find them more quickly and easily because things have been unbundled.”
For hoteliers, “That requires a shift in mindset to start thinking about all of the aspects they can monetize,” Winrow says.
“For guests, it’s about paying for the things that are important to them without feeling that they are being nickeled and dimed.”
Another dimension of decomposing the sleep room is to unbundle how it’s bought and when it’s used. An example is making day use of a hotel room available for purchase, a model Hewitt says has been in use in Europe and especially Japan for several years.
“That has value, especially for business travelers, to be able to rent the room for three or four hours instead of the entire night,” he says. “Thinking about the sleep room that way is another aspect of retailing.”
Hotel retailing in action: Unbundling services and spaces for non-staying guests
Retailing opportunities for hoteliers is not limited to unbundling hotel room attributes - or to staying guests.
“When you think of hotels and the ability to retail their space, it’s not just about catering those selling opportunities to staying guests,” Winrow says.
“There’s a broader opportunity to go beyond that segment as well. Hotels can basically create a new class of paying customer from non-staying guests.”
Hotels and resorts with on-property amenities including spas and golf courses have marketed these to non-staying guests as an important customer base for many years.
But dry cleaning services, gyms, pools, meeting rooms and other facilities can also be sold to non-staying guests to realize additional revenue.
“Today’s retailing opportunities for hoteliers include looking at underutilized spaces within a property, spaces that are non-monetized today and are not thought of as part of the balance sheet of the hotel budget,” Winrow explains.
Meeting rooms in particular are a primary opportunity. “A lot of hotels, especially lifestyle brands, have a lot of space that might go unused that they could turn into things like co-working space,” says Winrow.
“There is a huge explosion of co-working companies that provide space for a set duration of time. Hotels are well positioned to provide their meeting and conference rooms as co-working facilities.”
There are many other revenue-generating opportunities from monetizing underutilized spaces that hoteliers can tap once they adopt a retailer mindset.
As an example: the parking lot at a hotel near DFW Airport, where most guests are business travelers staying a night or two.
“They are already running a shuttle to and from the airport, and they have a fixed cost there,” Winrow says.
“What goes under-utilized is their parking lot. They have the pre-existing infrastructure in place, and if they charge for parking in their lot at a better rate than what DFW charges, now they are monetizing that underutilized spaces—their parking lot—to generate incremental revenue from non-staying guests.”
Hotel retailing in action: Partnerships and community involvement
Hewitt sees partnering with local businesses as an important component of retailing for hoteliers as well as an opportunity to generate incremental revenue, offer an array of local experiences to staying and non-staying guests, and establish the hotel as a community hub.
“We can be more accommodating about the things that already exist, and generate revenue for those as a more integrated part of the community,” he says.
“If hoteliers can see themselves as a hub in the community instead of a stopping place for travelers passing through, they might think about experiences differently.”
“For example, are there events the hotel can put on where people who aren’t traveling can see the hotel as a kind of community space that offers a variety of services. That’s one vector, and that vector creates deeper engagement and deeper loyalty with staying and non-staying guests.”
Hewitt offers the example of a small roadside economy property located within walking distance of six wineries and several restaurants.
“Why not partner with them to offer wine tours and packages that guests can book through the hotel’s website,” he says. “There is a lot available to retailers in those kinds of partnerships, even in two- or three-star hotels, if they really are engaged with their local community.”
Getting started: What it takes
A shift in perspective is the first step required for hoteliers to adopt an actionable retailing mindset.
“Traditionally hoteliers have not thought of themselves as retailers. They have thought of themselves as welcoming, hospitable hosts,” Hewitt says.
“The first thing they need is the willingness to say, I can do this, I am a retailer, waking up to that and looking around and saying, wow, there is a lot of money under the sofa cushions here.”
According to Winrow, that requires transitioning out of the mindset that a hotel’s primary product is a room night and its primary services are taking reservations and fulfilling guest stays, “and then partnering with distribution providers to enable the retailing capability that is needed from that industry to help expose some of the untapped opportunities to both maximize revenue for a hotel and better cater to guest needs.”
Winrow advises hotels to “turn back on themselves and ask, what makes my property unique, and what about that aspect can I better market to consumers.”
Operationalizing a retailing model involves the pursuit of partnerships.
Says Winrow: “If they want to start incorporating third party relationships with entertainment providers, transportation services or other types of experience-based services to offer through their concierge capability, their direct channel or even through indirect distribution, a good part of the effort - beyond the friction that might exist with technology providers - is in relationship building through off-property partnerships.”
Responding to opportunity and need
Winrow says there are no exceptions to the opportunity—and the need—for hoteliers to adopt a retailing mindset and begin implementing new initiatives.
“There is no scenario that I could ever come up with where I would say, yes, here is a hotel that has nothing to offer, even in the lowest of segments,” Winrow says.
“The only barrier is their willingness, their capability to operationalize the business partnerships they need with third parties, and having the technologies that would allow them to seamlessly execute those partnerships without increasing the operational effort.”
Hewitt points out while that most of the hospitality industry is in the very early stages of implementing retailing initiatives, hotels that ignore the trend will put themselves at a competitive disadvantage.
“Hoteliers could get away with ignoring this until now because people are sometimes slow to change and might give a pass to hoteliers for a while,” he says.
“But they need to understand that what might have been delightful for a guest quickly becomes a straight up expectation, where if you don’t have it, you’re in the stone age. We are at a place where retailing innovations from hoteliers are becoming imperative because of this expectation.”