Free amenities play an important role in the decision to book a hotel. Certain features — such as Wi-Fi, pools, fitness centers, and parking — have become as important as a comfortable bed and a clean room. Even affluent travelers mention free amenities as a factor that influences their choice of hotel.
Various hotels’ decisions to provide certain amenities as perks for their loyalty programs bears out how important these features have become. Different brands and programs offer guests a bevy of complimentary services that range from bottled water to in-room Wi-Fi. For example, Wyndham, Hyatt, and Four Seasons provide free Wi-Fi to all; Hilton, Marriott, IHG and Starwood provide free Wi-Fi only to their loyalty and premium guests.
The Challenge of Free Amenities
The decision to add free amenities can be quite contentious in the hotel industry. Since most hotels are owned by franchisees, free amenities can be seen as additional operating costs from their perspective. A conflict arises: the hotel brand would like to offer more included services to attract customers; the franchisees would like to keep their costs down and reduce operational complexity. And for them, that means fewer free services.
The ability to measure the financial return of free amenities is very important. Not only can it clarify which features to provide or add, it can also help convince franchisees of the benefits of providing certain free amenities.
Is Your ROI Analysis Telling the Whole Story?
Techniques currently used to measure the financial return of free amenities tend to focus on the effects of adding an amenity to an initial choice. This may distort the full impact of the investment on both current and future revenues. A hotelier should evaluate the profitability of offering a particular free amenity based on its effects on both initial choice and repeat purchases.
Professors Rebecca Hamilton, Ronald Rust, Michel Wedel and Chekitan Dev have published an interesting paper on this issue (Return on Service Amenities, Nov. 15, 2015). The paper presents a robust and comprehensive methodology for the hotel industry to measure the financial impact of providing specific amenities.
What did the paper’s authors find?
- Free Amenities Matter – Both first time and returning guests are influenced by complimentary services.
- The Impact Varies – Certain amenities boost initial sales by attracting new customers. Others encourage customers to return. For example, free Wi-Fi attracts 3% to 17% of new customers but has a negligible impact on repeat sales; free bottled water draws up to 33% of existing customers, but has no real effect on new sales.
- Brand Metrics Also Influence Results – Each service’s overall impact also varies by brand. It depends on the brand’s mix of new and existing customers; on spend by customers; and on operational costs for the amenity. For example, free Wi-Fi is often a favorable investment option for brands with a generous proportion of high-spending new customers. Bottled water is a good investment for luxury brands with proportionately more existing high-spend customers. Compared to bottled water and free Wi-Fi, amenities like fitness centers and pools have only marginal impact.
- There’s a ROI Variance by Amenity – A similar result is apparent for the financial ROI. Free Wi-Fi has a positive ROI for the first booking (ROI Ratio: 3.4 to 7) while bottled water has a positive ROI for repeat bookings (ROI Ratio: 3 to 30). Interestingly, a fitness center does not provide a positive ROI in any of the cases.
What Does This Mean for Hotel Owners?
The initial and repeat purchase factors, combined with historical customer data and cost structures, can be used by hotel owners to evaluate the impact that adding or dropping an amenity has on expected revenue. They can choose the best investment option based on the amenities’ ROIs. This will help hotel brands enhance their premium guests’ experience and encourage the guests to book hotel stays through direct channels.;
Watch this blog for more details on a new technique to measure the true impact of a free amenity!