Hotel Profit Discovery

Three Hotel Freebies That Destroy Profit

Many hotel marketing and promotional ideas sound like they should work when being thrown about in strategy meetings, but when the PMS/POS data is actually analyzed intelligently you find that they do more harm than good. Based on my work with resorts over the past eight years, I can safely say that these three common freebies simply won’t deliver any value to most properties.

Free Alcohol.  This is the easiest way to give away profit inadvertently.  At the last resort where my family and I stayed we were given a ticket good for two free alcoholic drinks at the pool bar.  Based on the analysis that I have done at about a dozen resorts implementing this same tactic, there has not been a single instance where this practice has increased any outlet revenue.  If you tap into the data in your POS, I’ll bet that the vast majority of your guests do not have more than a couple of drinks, most have one.  In fact, recent research suggests that most adults in the US have less than one drink per week.  I’ll bet that’s also true in other countries.  The unintended consequence of this freebie is that the free ticket basically cannibalizes the one potential drink sale and when you analyze the POS data further you will usually find that most guests do not order anything else.  Furthermore you are probably giving away two drinks to someone that would have never ordered a drink during their stay.  At many properties, a significant number of guests do not spend anything at the outlets.  This is probably a result of the notion that hotel food and beverage is usually overpriced.  In my case, I took my 2 free drinks and left.

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Free Restaurant Breakfast.   Let’s be clear, I am not talking about the free bagels and muffins at economy hotels, I am solely referring to sit down breakfast or buffets at full hotel restaurants. Research conducted by Kellogg Co. shows that only 1/3 of American adults eat breakfast.  Again, I bet the number is actually lower in other countries.  Which means that those guests that pay for breakfast either would have paid anyway or are changing their habits because they are travelling or on vacation.  Therefore, if the willingness is there to pay why give it away for free. The typical theory behind this tactic is that it promotes bookings, but there are dozens of studies that show that free food ranks low as an incentive to book among travelers. In most cases what happens is that this free meal is the only one that the guest ever eats at the property.

Free Extended Nights.  Offering a fourth or fifth night for free may be a smart move for a casino, but it is disastrous for most other properties. One theory behind this tactic is that you can change a traveler’s itinerary.  This almost impossible for hotel’s to do since the tiny amount of flexible traveler’s in the market make their plans around airline fares first(it is the most expensive and least available part of the trip plan).  By the time they book the hotel room, the flight has been locked. The other theory is that you can offer a lower daily ADR for a long stay without lowering your rates. Again, you are not going to change the average stay at your property with this tactic as most guests can’t stay longer just for the free night.  The typical result is that you end up giving a discount to a tiny number of guests who would have paid the full rate anyway.

I don’t mind when these freebies are given away as part of a loyalty reward, but when they are available to all guests it makes me wonder if anybody is minding the bottom line.  In general, always have a clear understanding of the behavior you are trying to promote when you give away a freebie, then track the results.  If you are not getting the results you seek, then the best bet is to stop the freebie before it destroys your profit.

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Robert Hernandez, Statistical Analysis and Data Mining for Revenue Growth Robert is an expert in the field of mathematical Hotel Optimization and Analytics. He has spent the last 17 years building data-driven forecasting and optimization models for companies in over 20 different industries, from tech to tourism. Robert possesses a very unique skill set including cross-disciplinary experience, advanced mathematical and analytics skills, data transformation, industry-specific knowledge and business-process improvement expertise. Robert began his career at the Walt Disney Company in Revenue Planning. Read More+



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