By Jay Wrolstad
The challenge for hotel owners and managers, then, is to select the freebies that provide the most bang for their buck.
A new Cornell University study shows that while some amenities boost hotel revenues and profits by increasing initial visits and repeat business, companies must take a close look at the return on investment from each “free” product or service before making a decision whether to offer it.
More or less?
In the article, “Return on Service Amenities,” the authors note that, despite the widespread use of free offerings, customers want even more while hotel owners complain of “amenities run amok” and resist investing in them.
“The hotel industry provides fertile ground for such a study because
of the ways in which competing interests within the industry grapple over amenities,” he said. “Brands seem bent on engaging in ‘amenity wars’ as they compete to hit on the next offering that will drive business to their properties, increase market share, and engender customer loyalty.”
The authors focused on three common amenities: in-room bottled water, Internet access, and fitness-center availability, using data provided by a global multi-brand hotel company.
Their conclusions: offering bottled water provides a good return on investment; the return on Internet varies according to hotel brands; and a fitness center has little impact on attracting initial or repeat customers.
The three biggest takeaways from this research are:
- Hotel managers should consider the long-term and avoid investing in amenities based simply on initial sales projections.
- Positive—or negative—returns on an amenity may be site-specific.
- Business managers are advised to conduct market tests of amenities at the brand level.
“Our methodology can be adapted quite easily to compute the financial returns of offering amenities in related industries,” Dev said. “For example, service providers in the hotel industry and the airline industry maintain detailed customer databases, tracking customer purchases and revenues over time. By offering test amenities, they could measure the effect of the amenity on both initial purchases and on repeat purchases.”
The study will be published in the Journal of Marketing Research.
The other authors are Rebecca W. Hamilton, the Michael G. and Robin Psaros Chair in Business Administration and professor of marketing at Georgetown University; and Roland T. Rust, Distinguished University Professor and the David Bruce Smith Chair in Marketing, and Michel Wedel, Distinguished University Professor and the PepsiCo Chair in Consumer Science, both from the Robert H. Smith School of Business, University of Maryland.