Five steps to repeat booking success

December 01, 2009 | Hospitality Industry

Marketers have long talked about the concept of customer Life Time Value. For hotels in an increasingly global and connected marketplace this is more important than ever.

By Dr Des O’Mahony

Marketers have long talked about the concept of customer Life Time Value (LTV). For hotels in an increasingly global and connected marketplace this is more important than ever. LTV is about future profitability of the customer to you, from future cash flows generated from that customer and their actions on your behalf.

Life Time Value is made up of multiple blocks of income over the lifetime of the customer relationship. There is the revenue from that first booking, the revenue from any additional purchases or services added during that stay. There is the value of good recommendations to other customers that this stay may generate, which nicely results in a reduction in the cost of acquiring new customers. And there is the premium obtained from future stays of that guest if, and this is the big if, they are satisfied with the first stay. All these blocks of income need to be considered in the LTV calculation of that customer.

For any first time guest that comes through your door, there has already been a cost to you for gaining that customer. For customers delivered via channel websites, that cost is dominated by the larger commission fees paid to those site - but there is also the potential future loss to you of the customer loyalty whereby that customer may well use the channel site into the future and avail of different hotels instead of yours. For customers delivered directly via your own website, there are other charges such as the cost of building and maintaining your website, the cost of your own online marketing campaigns, cost of offline marketing, fees or commissions for your own online booking etc., all of which can be calculated as an average value, the Cost Per New Customer (CPNC) for your business.

In many cases, a careful calculation of the CPNC will reveal that the profit from a single stay is unlikely to outweigh that acquisition cost. Multiple stays, up-sells, or reducing cost of acquisition are therefore a must in order to grow revenue and profitability.

To calculate LTV and CPNC figures reliably, you need years of customer data. But the principles of the issue are usually sufficient as a starting point to help you improve LTV substantially.

1. Improve Front Line Service
Front line service levels more critical now than ever. They need to be maintained and constantly monitored and improved where possible. Always ensure your staff are trained to be helpful, pleasant and accommodating at all times. Impress upon them the consequences of poor customer service for future earnings and the potential damage that can be caused by poor reviews and word of mouth. Ensure they realise that every action and every guest counts and that failure to meet standards has real financial consequences for the business, and by extension their job security. Staff training is a relatively cheap cost in comparison that the cost of offline and online marketing. Invest now and continually.

2. Aim For High Online Service Levels
You must ensure that the service afforded your guest online is as good as that offline. With more than 50% of all reservations in 2010 estimated to be completed online, your website is in a very competitive landscape. Ensure that you provide high quality imagery. Ensure that you anticipate your customers’ needs in terms of mapping, directions, local information. Above all, be sure that your online booking system is clear and informative, helps the user through the process, instills confidence through its security handling and security standards compliance such as PCI compliance, works in the user’s language and currency, and offers convenience such as SMS booking confirmation.

3. Listen To Your Guests, And Respond
Review and discussion sites and forums are the most popular tourist sites today. It is an old maxim that bad reviews that are dealt with and handled well result in the most loyal of customers. It is critical to manage your online presence on sites like TripAdvisor, ensuring that you answer the good as well as the bad reviews. Remember, if someone praises you person to person, you don’t just ignore them, you thank them. So do the same online. Use a review service that allows you feed genuine customer reviews right to your own website. Potential customers then see that their views are taken seriously, they know they have a direct forum if required and they know that the hotel will respond appropriately to issues they may have.

4. Don’t Abuse Email Marketing
Ensure your website or booking engine operates as an opt-in service for future communications. Apart from the legal requirements, opt-in is a very valuable concept. Batch emailing everyone simply annoys the majority, potentially damaging repeat business and referrals and lowering your LTV. With opt-in, you have a much smaller but much more dedicated list of those who specifically wish to see your special offers and other communications. The relative success rate is proven to be an order of magnitude higher without the concurrent annoyance to those who are not interested. But don’t let it lead to “email fatigue”, wearing out your welcome. Generally for hotels, emailing about once a month is not too high a frequency - but again it is proven that the higher the frequency the lower the response. Examine your client base carefully - if people on average return once a year, then isn’t emailing once a week a little excessive?

5. Reward Stays, Not Just Loyalty
We have all experienced this one, particular from telecoms or cable companies. The company advertises a great deal, but won’t let you avail of it unless you are a new customer. This is very negative marketing. It screams to existing customers that they are considered of less value to the company. It works to an extent for companies that require lock-in to long-term contracts. Hotels don’t have that luxury. As a hotel, you must therefore improve the chances of the customer returning to you by incentivising them as much as possible at all times. Consider upgrading guests when you have distressed inventory, for no reason other than that they are your guests. If there is some fee service at your hotel, consider sometimes giving it for free for a day. If the spa is underused today, offer a free spot to the first people who arrive down to breakfast. Random acts of kindness may be a small cost, but result in great reviews and goodwill.

Bottom line - be concerned about building and maintaining your customer relationship online and offline. Losing a customer is not just lost future income, but real cost too since reactivation costs are usually significant. You shouldn’t be too concerned at spending more than the average profit in order to generate the first sale, provided you have strategically planned on ensuring good life time value from your customer relationships.

Dr Des O’Mahony is CEO and Founder of Bookassist, a leading online strategy and technology partner for the hotel industry. Follow Bookassist on Twitter at twitter.com/bookassist