Dark clouds are gathering over the hotel industry, or at least over the hotel customer experience. If budget hotels have always existed, it’s a revolution of a different kind that seems to be in the offing, similar to that in air transport, with the introduction of a low-cost business model, regardless of the property’s range level.
Business model low cost and unbundling
What is a low-cost business model? It’s a business model where the customer only pays for what is strictly necessary, and is charged for anything beyond that. This is also known as unbundling: services that were previously bundled with the main product are now sold separately, at extra cost.
In the airline industry, this phenomenon is well known: for example, when the service usually included in the ticket price becomes a paying supplement, as it has become on Lufthansa in economy class on medium-haul flights, for example.
In the hotel industry, this could mean charging for access to the gym, or even for cleaning the room.
We recently spoke of statements made by the CEOs of Marriott and Hilton that did not augur well in terms of customer service, but we now know that some hotel owners are fully aligned and have concrete ideas on the subject.
Stop giving gifts to customers
“I kind of keep trying to push the boundaries here and say, as a hospitality professional, stop giving things away for free... Being a hotelier doesn’t mean giving things away to people for free.”
This is the message from the CEO of MCR, one of the largest hotel owners in the U.S. (124 properties, including Hiltons, Marriotts and the prestigious New Yorker and TWA Hotels).
Here we see the idea of increasing margins by charging for everything that goes beyond basic service. Paradoxically, during the crisis, some hotels discovered that they could easily increase their margins, and many took a liking to it.
For greater customer satisfaction…of course
Will it be difficult to get the message across? Not so much: people got used to it in the airline business, and they’ll certainly get used to it in the hotel business…or not.
But the same fallacious arguments are used as in the airline industry.
First and foremost, better customer satisfaction? By making him pay more? No, because the fact that you have to pay for the service makes it better? If you buy the argument, good for you, but we’re convinced that quality can be included in the price!
So that customers save money by only paying for what they use? It’s a common argument, illustrated once again by the words of MCR’s CEO:
“Business travelers never use the pool, so why should they have to pay an indirect cost inherent in using the pool?”.
Another fallacious argument. After a long or short trip and a grueling day of meetings, I can tell you that many business travelers want nothing more than to quickly take a dip in the pool or a visit to the spa.
Another of Marriott’s key arguments is to respect the peace and quiet of guests, who can’t bear to be disturbed by the intrusion of cleaning staff into their rooms. And MCR’s CEO jumps into the breach:
“The big unanswered question is whether customers will ever have to pay for housekeeping services.”
I can already offer you a magic solution against these “instrusions”: the “do not disturb” sign hung outside your bedroom.
What could become chargeable in hotels?
There is a long list of services that could become chargeable in the future (and sometimes already are, depending on the property) is long.
- Early check-in
- Late check-out
- Housekeeping
- Swimming pool, gym, spa, etc.
- Wifi or wifi fast enough to work (light wifi remaining free).
- No free bottled water in rooms
There’s an economic rationality behind it that we don’t understand.
The economic limits of hotel extras
Whether you like the principle or not, there are obvious and easy sources of savings for hotels: anything that is “variable”, i.e. dependent on occupancy. The more customers there are, the more toiletries are used, hence the fact that in recent years we’ve seen the quantity of toiletries reduced, their capacity reduced, and even the use of fixed soap and shower gel dispensers, so that 100% of the quantity purchased is “useful” (before, they had to throw away a partially-used tube of shower gel).
We can also talk about the household. Whether she’s cleaning one room or 10, the cleaning lady is paid the same, but if not all customers ask for cleaning services, fewer cleaning ladies will be needed.
The situation is more questionable when it comes to swimming pools and gyms. Whether there are one or 20 customers inside, the investment and operating costs remain the same. Imagine if only 10% of guests paid for a swimming pool: no hotel would ever install one, or will neglect its upkeep.
Which leads us to the limits of the approach.
Will customers pay twice for the same service?
Since unbundling became fashionable in the airline industry, we haven’t seen a significant drop in prices. Are Swiss, British Airways or Lufthansa tickets cheaper now that “Buy On Board” has become widespread in economy class on medium-haul routes? I don’t think so.
Consider a “real” low-cost too. If you add to the ticket price the cabin baggage supplement, an on-board snack, the credit card supplement, the airport check-in supplement…you will often pay more than with a traditional airline.
It is not economically feasible for the costs of infrastructure such as swimming pools and gyms to be borne solely by the customers who use them.
It’s only a short step from there to saying that infrastructure costs will be borne by all customers, but that those who use it will pay extra, which is tantamount to some people paying twice there’s only one step…which some would be tempted to take.
Artificial enhancement of loyalty programs
Last but not least…this would enable hotels to artificially enhance loyalty programs that they tend to systematically devalue.
All you have to do is take a free service, make it chargeable for everyone except customers with a certain status in their loyalty program, and then you can say “we’re improving benefits for our loyal customers” while nothing changes for them. They don’t get anything extra, they just have nothing removed.
And customers are often fooled.
Should we fear it?
If all of the above is worrying, should we be afraid of seeing it become widespread? We don’t think so.
On the other hand, we’ll see a finer segmentation in hotel chains, with some practicing unbundling, others not. This will even help large groups like Hilton or Marriott to better differentiate some of their brands whose boundaries are confusing and hard to read.
We’re also dealing with a very “US” prism. This market has its own specific characteristics, and we know that compared with Asia, for example, loyalty program benefits are sometimes given out much more sparingly. There are things that happen there that wouldn’t happen anywhere else.
However, it will happen, the question is to know in what proportions.
Meanwhile, Hilton’s “non-luxury” properties in the USA (when it comes to market specificities…) have done away with daily room cleaning, but it’s still possible and free on request. The next step, of course, is to make it chargeable. It remains to be seen when.
Bottom line
- Many hotel services now provided free of charge will become chargeable.
- But not all hotels will be affected, depending on brand and geographical area.
- This sometimes means charging the customer twice for the same thing.
- Hotels are likely to use it to artificially enhance their loyalty programs.
Image : low cost hotel by Sam DCruz via shutterstock.
Articles similaires
Hospitality: assumed mediocrity, even with the most loyal customers?
Resort fees: the plague of the hotel industry, between scam and insult to the customer experience
Which hotels offer lifetime status on their loyalty programs?
Europeans are disadvantaged by loyalty programs
