When we started helping hotels with UP2, we were addressing a market where ancillary sales were not considered at all. Our instincts were telling us that upgrade2 was a no-brainer, but we recognised that innovation comes hand in hand with risk. Every entrepreneur - by definition - thinks that their ideas make absolute sense, so we obviously wanted to know that we were not going to be wasting resources on a dream. We knew we had to do this ‘by the book. We had to do our due diligence and a proper market audit.
At a time that airlines like JetBlue and EasyJet were formally reporting over 30% of revenue coming from ancillary sales, the vast majority of hotels did not even measure its impact.
It is relevant to mention here that at about the same time, we were focusing on raising some capital, so an audit would not just help us objectively understand what the market would ‘take’; it would also help us prove that we understood it.
So off we went, and did our investigation (very properly, following CIM standards), and before we knew it, we found ourselves hunting for some interesting questions. Questions that hoteliers often found very difficult to answer - because they weren’t focusing on ancillary revenues at all! Questions such as:
How much did hoteliers around the world take advantage of the proportionately long period between a reservation being made, and when the guests arrived at the hotel?
What did they do to during this time? And did they get it right?
What advice did those who got it right had for us?
What were the consequential dimensions of their efforts (e.g. content, frequency, response metrics) that consistently generated engagement?
How did the experienced differ for hotels from different hotel types? And which were the right criteria for us to identify different ‘types’?
Asking the right questions was critical, and we were worried about it. We thought we would struggle to find out if we were going down the wrong path, so we widened the net - asking as much stuff as the patience of our interviewees would allow. I remember this was a worry at the time, but from the world go, we knew we were in the right path. When we looked at the first answers, we immediately saw a convergence. It was fascinating to read!
Some of our findings:
Hoteliers are largely leaving the world of ancillary sales completely untapped. This is true to this day - even when Covid19 demands that business put their best foot forward. I will only mention this one metric: At a time that airlines like JetBlue and EasyJet were formally reporting over 30% of revenue coming from ancillary sales, the vast majority of hotels did not even measure its impact. That is to say, they didn’t record ancillary sales separately, at all! The concept of measuring revenues per guest, associations of spent per rate plan or room type, identifying and offering stuff that is most likely to convert for each guest … it all sounded very sensible to everyone we spoke, but nobody was actually doing it.
At the time, they were mostly not doing any fo this for good reasons. Technological barriers, control of roadmaps by CRSs and PMSs, fragmentation of the tech landscape and ‘other fires’ were all at the top fo the list.
From those few who were tracking ancillary revenues, most saw profits being much more favourable on non-room items. Interestingly this is a trend that continues to this day. There is a lot of ancillary product inventory that is untapped, unmonitored and perishing every day. It is much better to offer that JetSki to your guests (at the right time and price) than having it in a shed gathering dust.
Very few hotels worked with free options. When we first tried UP2 with Yotel (typically not the kind of brand you would expect to generate a lot from ancillary sales), the GM of the Heathrow property not only surpassed our expectations, he was also delighted to just offer feather-free pillows to guests up front. Apparently it was a frequently asked item, and it helped them hugely to set up the room with the right kind of pillows. But I digress. The point here is that at audit time, those few who did offer free stay-customisation options, reported phenomenal results. The correlation between free item uptake and scorecard performance was through the roof even when we were talking about very simple things - like IHG hotels which were just starting to ask their guests if they would like a room close to the lift, or far away from it!
We learned that “Money Spent, is Money Forgotten”. This is a direct quote from a very established gentleman who had worked on ancillary sales technology for a US based entertainment mega-corporation (which also owns hotels). He was amongst the first that had discovered the importance of the disproportionate length of time between the point where a booking is made and the time of arrival. They found that
a) asking someone a week before arrival if they wanted a room upgrade,
b) giving the better room type at a fair price (when they didn’t have enough occupancy in those suites), and
c) only showing bookers the price difference from the originally booked rooms,
was the sweet spot for upsell revenue generation. Over 10% of guests took up the offer. That had a massive positive impact on their ancillary revenues, which in turned convinced them to look at the topic more seriously.Hoteliers know a lot about their guests. In fact, way more than airlines do. This presents a tangible opportunity for unprecedented personalisation.
Think about this: When a booking is made, you know when you will have a guest in your hotel. You know the exact location where they are staying. You know what rate plan/package they booked, what room type, who they are sleeping with, and you know what the area around your hotel has to offer. You often also know which specific events they are participating in, or at least what interesting events are taking place in the area at the same time (all your demand generators). So much opportunity to offer and delight at the same time … to me it is a wonder that hoteliers are not all over this, all the time!
In terms of what drives incremental revenue and guest satisfaction (with all the downstream benefits for hoteliers), there is no competition. Post reservation ancillary sales and personalisation after someone is already a customer, is a discussion we should be having today.
We would welcome any conversation with passionate industry friends, who are interested in talking about how we can help you be guest profitable. It would be our pleasure to help!
Vladimir Martinov
CEO | Upgrade Two Ltd
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