How Hotel Amenities Impact the Bottom Line
With the amount of choice in hotels, where to stay can come down to more than just price: Guest experience also matters. And the free amenities offered by a hotel can shape a guest’s experience. But how does offering those amenities add to the bottom line for a hotel?
That’s the question recently asked by researchers Roland Rust and Michel Wedel, marketing professors at the University of Maryland’s Robert H. Smith School of Business, working with Rebecca Hamilton of Georgetown University and Chekitan Dev of Cornell University. The findings: To attract first-time guests, hotels should offer free WiFi. And they can get them to come back again with free bottled water during their stay.
The team looked at whether offering free amenities actually attracts more people to book rooms, whether those reservations offset the cost of offering the amenities, and if a hotel stopped doing so, whether it would save money in the long run.
The researchers came up with a methodology hotels can use to calculate the return on investment for specific amenities and identify pointless expenditures. They focused specifically on on-site fitness centers, free WiFi, and complimentary bottled water. They found that the free goods in these categories paid for themselves for many hotel brands: the bottled water and WiFi within a year and the fitness center (a more expensive initial cost) over time.
This study went further than most previous research to calculate ROI by looking at whether the amenities drew return visits from customers and how that played into profits. The study found that the free water increased hotel revenues by 2.2 percent.
“Our findings underscore the importance of observing guests’ actual use of amenities before deciding to make them standard, rather than relying only on surveys of guests’ desire for and intent to use the amenities,” wrote the researchers.
The researchers partnered with a multibrand global hotel company, surveying nearly 800 guests before and after they stayed at 33 of its U.S. hotels across six of its midscale to luxury brands. They asked people whether they planned to use certain amenities, and after the fact, whether they had done so. Then the researchers looked at actual usage and return-visits data from those same consumers to figure out how much revenue they generated over a 12-month span.
Of the three amenities the researchers focused on, free in-room WiFi had the largest effect on both leisure and business travelers initially choosing a hotel. But that amenity played only marginally into a traveler’s likelihood of staying again.
On the other hand, free bottled water didn’t make travellers initially choose a hotel, but it did make them come back. For three of the six hotel brands, the effect of free water on return visits was high and the ROI within a year was positive for five of the six brands. The survey did not examine why — free water might simply be a pleasant and memorable surprise, guessed the researchers. The WiFi and fitness room access had no significant effect on return visits for any of the brands.
As for the fitness centers, which often cost at least $125,000 to install, five of the six hotel brands didn’t see an ROI in the first year. The researchers speculate this could be a reflection of the low actual use of hotel fitness centers (in the survey, only 22 percent of guests reported working out during their stay), and the fact that is usually takes more than a year to recoup costs on larger capital investments.
The researchers’ survey data showed that hotel guests overestimated their use of the 50 amenities they measured.
“Such a tendency among travelers underscores the importance of factoring usage when calculating the ROI of free services,” write the researchers. “This effectively can give hoteliers a further edge by clarifying the degree to which each amenity attracts first-time guests and drives repeat business.”
Read more: Return on Service Amenities is featured in the Journal of Marketing Research.
Read more: Which Features Increase Customer Retention, by Rebecca W. Hamilton, Roland T. Rust and Chekitan S. Dev, is featured in the Winter 2017 issue of MIT Sloan Management Review.