An Economics Lesson Wrapped Inside Hotel Revenue Management and Delivered to Loyalty

Aug 3, 2012

Considering we’ve just entered that time of year where many of our children are winding down their summer vacation and gearing back up for school, I thought I would open this blog with a brief “Economics 101” lesson, introducing a term that is helping hoteliers grow revenue, and, if used properly, aiding their loyalty programs too.

Positive externality.”

Leave it to economists to coin such a drab phrase. But beneath its clunky eight syllables is an important definition. Positive externality is the “consumption or production of a good [that] causes a benefit to a third party.” Education, it turns out, is a good example. When you “consume” education, you’re not only gaining knowledge, but you’re able to spread that knowledge to others. “Others” in this context are the “third party” beneficiaries.

Positive externalities crop up in the hospitality industry too especially as it relates to the “consumption” of social media. A recent tnooz article discusses how social media and the data gathered from it can drive hotel revenue. Take for instance, customer online reviews – an exercise in hotel transparency and feedback that has been sweeping the web in the last 12 months. Now, thanks to rampant smartphone adoption, the phenomenon has migrated to the mobile space. A comScore study found that consumers were willing to spend 38% more for a hotel stay after reading positive online reviews, be it on a mobile device or web. That means a $150 per night hotel stay becomes $207. For revenue managers this is very big news.

But it’s important to note that the same social media-driven technologies buttressing revenue growth can have a similar impact on loyalty as well – a fact that might reverse the troubling findings reported in a July 16 New York Times article. The article addressed the problem of hotel patrons jumping loyalty programs for a host of front desk failures that run the gamut: incompetent staff and service, loyalty points not properly credited, failure to have promotional deals honored as stated, trouble redeeming loyalty points, swift status level reduction following points expiration and so on.

Lodging loyalty, it seems, is often bed sheet thin.

The fact of the matter is that in late 2012 “front desk failures” shouldn’t happen. Loyalty programs and their offerings, like the recent trend of mobile booking and the embedding of hotel services into mobile devices like m-checkout, m-concierge, entertainment packages and remote room service, should be part of the mobile mix. Once incorporated, gaining guest feedback on the strengths and weaknesses of a loyalty program and what type of rewards would keep them loyal via social media should be easy to process and act on in real time.

So how does this relate to positive externalities? The same on-the-go social media technology assisting revenue managers maximize room rates can also improve a hotel loyalty program’s success – measured by an increase in members, lower dropout rate, and higher levels of engagement. And a successful loyalty program further aids revenue manager efforts, completing the cycle of mutually beneficial work. Simply put, revenue managers and loyalty managers shouldn’t see themselves as siloed aspects of hotel operation. Social media can (and should) be the bridge.

As our economy teeter totters on success or failure and the Labor Department’s July jobs report  about to push consumer sentiment one way or the other upon its release, private predictions are for a better than expected month and unemployment to hold at 8.2% – hotel managers would be wise to take this economic and technological lesson to heart – and to take action.

Lodging loyalty may be bed sheet thin for now, but mobile and social media are working hard to increase those thread counts.

Read more about loyalty in the hospitality vertical here.