Ancillary revenues in the hotel industry

Mobile technology can help hoteliers increase their sales of ancillary products and services.

Though ancillary products and services (add-ons) were first introduced by the airlines, they are also sold by hotels, though less often. As long as hotels have the tools to promote such sales, there are numerous opportunities for increasing customer spending: fees for Internet, parking, breakfast, etc. Mobile technology is one such tool that can help boost additional revenues and enhance the customer’s hotel experience.

A practice used throughout the tourism industry

According to PhoCusWright, in 2011 U.S. hotels sold approximately US$1.85 billion in ancillary products and services, which accounted for 1.7% of the country’s total hotel revenues. Compared to the airline industry, a pioneer in the use of additional charges, the hotel sector is not very active. In fact, according to Amadeus, U.S. carriers generated $12.5 billion in ancillary revenues in 2011, representing an average 12% of a company’s operating results. The Forrester and Amadeus firms estimate that by the year 2015, ancillary sales will account for more than 18% of a tourism business’ total revenues.

What are these ancillary products and services?

In the hotel sector, rooms are the core product. All related products and services like food and drink, upgrades, and Internet, cancellation or early departure fees (see Table 1) generate ancillary revenues (see also: La «montée en gamme» ou comment générer des revenus supplémentaires tout en augmentant la satisfaction de la clientèle). They are supplied by the hotel itself or outside service providers (see also: La vente croisée: une source de revenu encore peu exploitée par l’industrie touristique), and are suggested by hotel employees, call centres or delivered automatically via technology.

Mobile technology and its benefits for hotels

While hotel options can be purchased before (e.g., upgrade) or after the client’s stay (customized promotion for the next stay), the time to maximize ancillary revenues is when the client is actually present in the hotel.

According to PhoCusWright, mobile technology appears to be one means of accomplishing this by increasing the visibility of ancillary products and services at each point of contact with guests. Hotels with their own app or mobile website version can make customized, location-based offerings available on smart phones and tablets. Hotels have already realized the importance of this market, for many of them have added a tool for reserving spa treatments or ordering in-room services to their mobile site or app.

The many uses of mobile devices in hotels

When hotel in-room tablets are available, they boost sales of in-room services and on-demand films and games. QR codes can be placed in various locations throughout the establishment to facilitate communication with guests, encourage customer feedback and promote specials at the restaurant or souvenir shop. Mobile payments using NFC technology (see also: La tendance cash-less gagne l’industrie touristique) also help hoteliers sell more ancillary products. Finally, hotels who belong to location-based social networking sites like Foursquare can use them to share promotions that entice clients to spend more (get the second breakfast free, two drinks for the price of one, etc.).

Micros’ MyStayManager application organizes a guest’s entire hotel stay: reservation, additional products and services as needed, check-in, in-room services, wake-up call, spa reservation, view of final bill and check-out. Hotels can send targeted promotions to each guest by email or text message, inviting them to take advantage of the services and products available in the establishment.

How can hotels increase ancillary revenues?

It is not easy to make ancillary sales.  Here are the challenges facing both managers and third parties:

• Determine points of contact and the customer profile

PhoCusWright has identified the points of contact for each stage of the travel cycle (see Table 2), and there are numerous opportunities for hotels to increase ancillary sales. The firm recommends that hotels make greater use of « up-selling » when rooms are reserved, just like airlines do. According to Valyn Perini, CEO of OpenTravel Alliance, they can then make more offers between the booking date and arrival date.

• Have the right technology

The global distribution systems (GDS) of traditional travel agencies, online agencies and meta-search engines do not provide customers with access to all ancillary hotel products and services. This means that hotel managers have a competitive edge, if they can offer these products on their hotel website and they have high-performance management systems (see also: Technologies en hôtellerie: regard sur les systèmes de gestion).

• Manage inventory and availability

Hotels must assess their potential future sales and anticipate how much inventory is needed. Some products are limited in number (e.g., spa treatments), while others can be sold without restriction (e.g., breakfast). It is also essential that product and service availability be updated in all reservation systems.

• Other obstacles

Hoteliers hesitate to make ancillary products and services accessible via third-party distribution channels, because of the commission charged. Moreover, business travel agencies like Carlson Wagonlit Travel and American Express are not likely to suggest these options, because their clients are used to getting services comped in hotels and thus do not feel like they should pay.

Is there a magic formula?

To increase its ancillary revenues, an establishment must meet certain conditions: communicate effectively with its clients, know their preferences and needs, multiply opportunities for interaction, and adopt mobile technology and payment. If hoteliers suggest personalized products and services adapted to the traveller’s current stage (before, during or after the stay), these products will be perceived as value-added services and not sales.

Sources:

– Amadeus. « Airline ancillary revenue soars to $32.5 billion worldwide in 2011, » amadeus.com, 19 October 2011.

– Dandapani, Vijay. « Pricing Ancillary Goods and Services, » 4hoteliers.com, 6 March 2013.

– Google and Nielsen. « Mobile Search Moments – Understanding How Mobile Drives Conversions,« , google.com, March 2013.

– Juman, David and Ralph Merten. « Tee Times & Touchscreens: Hotels Leverage Mobile to Drive Ancillary Sales » insider.phocuswright.com, 13 February 2013.

– Merten, Ralph. « Hotel Ancillary Revenue in Europe, » PhoCusWright, January 2013.

– Samuels, Gerry. « Can mobile change the way travellers feel about ancillary products? » tnooz.com, 2 June 2011.

– Turner, Shawn A. «Hotel ancillary revenue model questioned, » hotelnewsnow.com, 9 March 2011.