Maximizing Perceived Value
Notes from PAAI Conference
Byron McCutchen, Board Member
A real life example given at PAAI sets a high target for Inn makeovers and improvement efforts. Before and after results were summarized as follows:
Before After
Occupancy,% 48 70
Ann. Rev,$ 400 k 700 k
Room Rev, $ 30k/rm 80k/rm
Avg. Rm rate,$ 150 275
In describing this incredible 4 year transition, the owner began with a simple but profound concept: What would be required to increase the value of the rooms and guest experience to twice the price then being achieved?
It began as a process of looking on-line at various offerings around the country and noting what separated the highest and most expensive room rates from those at lower levels. It took on reality when that was summarized into an action and investment list for what would be required to totally makeover the Inn's perceived value and strategy of operation to achieve enhanced revenue. In addition to listing these items an actual dollar value in revenue gain was estimated to confirm potential payback and create courage for the investment.
A great example was the choice to refurbish all bath facilities with spa type tub/shower capability. The owner estimated this was worth an average of $35 - 50 per night on rooms so equipped, or an average of $7,000 yr on each room just based on existing occupancy. As you can imagine it is easier to write the check when you actually consider the math and believe the payback is possible. King beds in all rooms, even when the fit is a bit tight, gave another estimated $15 per night in room revenue. A line of French milled soaps would add $7 per night to room rates and build revenue from gift shop purchases after experiencing this luxurious feel as part of guest stays.
Concierge services were increased and considered to add several dollars per night to perceived value. Although it sounds simple, advertising and promoting the making of reservations and detailed experience planning for a guest's stay was primarily a commitment of staff time, training and a creative process. Some negotiated lower rates also added to the bottom line received by the Inn for doing theses arrangements and charging list price for the activity.
A new enhanced list of wines and champagnes, chocolates, flowers and other special treats was added with great detail and enhanced elegance in the way they were described and listed. Special in room massages and extras were arranged with local providers. Every facet of the guest experience seen at the best Inns surveyed was incorporated into the new package of offerings, with commensurate increased pricing.
To be fair, all of this was accomplished in a market where room rates already existed from $150/night to over $700/night in a highly visited area of California. So, this Inn moved itself up the scale from opening price point to near mid-price point with in an existing market. However, the concept of considering your Inn's current positioning and "value attraction" equation, versus other options locally or regionally has great merit in helping define a business plan to change the game in your property's results and future performance.
Critical to the process is the detailed estimating of what can reasonably be expected as a payback on the potential transition you are planning. Obviously, the environment and competitive situation may constrain of enhance your chances of succeeding. The overall economy (like today's!) may be a major influence on timing even if long term it is worthwhile.
Even if you never execute such a plan, thinking about your Inn and its current offering in terms of value provided and honestly assessing competitive options for guests may influence your choices and way of doing business even before a major make over investment. You may be surprised at what you can learn from taking the time to compare and analyze your Inn with this concept in mind.
