How to Break Away From Room Categories

By Markus Mueller

Last updated January 26, 2022

4 min read


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Why should hoteliers change the way they manage room inventory in the first place? The simple answer is: because they can make more revenue and increase customer satisfaction when guests are able to self-select room features that are relevant to them.

 

By moving away from traditional room categories and taking a granular inventory approach, hoteliers can cover several new revenue-generating opportunities, including:

• New revenue management tactics due to a higher number of price points

• Upselling solutions of room features and services

• Automatic room assignment and avoidance of free upgrades

• Clear differentiation of own sales channels compared to third-party channels

 

All of these elements can strengthen your brand value through positive guest recommendations and increase the chances of returning guests. Historically there were many good reasons to display and sell room inventory in a simplified way. However, technology has improved significantly and now allows hoteliers to reinvent their sales strategy by digitizing their inventory with all its uniqueness and selling directly through their own channels. With a granular inventory, hoteliers can create real differentiation from third-party sellers and are able to sell something that no one else offers. This could previously only be offered by email or phone, assuming the seller knew the rooms well. It depended on guest participation prior to check-in.

 

Product Sales Approach in Other Industries

Other industries have already learned from crises and optimized their online sales process years ago to meet the needs of the "connected consumer". In the airline industry, there was a lack of upselling opportunities to increase sales due to a non-differentiable product. The retail sector was increasingly forced to provide an appealing online sales experience due to advancing digitalization and pioneers such as Amazon. Clothing can now be tried on virtually and many products can be personalized according to customer needs.

 

Airlines:

• Additional price points due to different booking conditions

• Differentiation through additional services - sales attributes

• More than quadruple in ancillary revenues & baggage fees alone

Online retail:

• Configurator & filter functions to individualize the shopping experience

• Extra revenue through product personalization options

• Double-digit growth compared to traditional retailers

 

Comparison of Two New Approaches

Attribute Based Selling: The hotel industry has long talked about adapting the airline approach of Attribute-Based Selling (ABS). This approach proposes breaking rooms into smaller attributes to increase potential upsell sales during the booking process. In an ongoing effort to improve return on investment opportunities, some major hotel chains are already piloting their beta versions of this approach, but they are a long way off final implementation.

Room Feature Combination Sales: A newer approach than the one just described is feature-based room sales, in which rooms are clustered according to combinations of features. Additional experience dimensions are digitized and codified. With this new system, each room can be clustered into an individual combination, resulting in many more price points. Through this approach, the booking journey is much more experiential and the customer-centric approach leverages artificial intelligence to better align guests' needs with the hotel's sales strategy.

 

New Sales Approaches

Using a basic room category and selling individual room attributes on it (ABS approach): In this approach, the price is based on a room category with the lowest common denominator of the whole inventory (basic/standard room) and all other attributes can be added by the booker depending on whether he considers them relevant or not. When the booker adds attributes, the price of the room increases. Simple, right? The principle is to first select the basic room at an entry price and then add attributes such as bed type, balcony, air conditioning, connecting door, high floor, or even other services not related to the category, such as early check-in or late check-out. In terms of upselling, the ABS approach starts with the room rate, with attributes being added. It is up to the booker to decide which attribute is considered relevant. This method is copied from the airline industry and enables upselling at the point of purchase. The more attributes the guest adds to their shopping cart, the higher the final room rate. The price point of each attribute is transparent to the booker in the selection option. You can find further explanations of the ABS approach in the article from Hospitality Technology.

 

Room Feature Combination Selling: A Guest-Centric Experience Approach

The basic approach here is to move away from room categories as a whole and divide all rooms into room feature combinations. This allows rooms to be sold with both their unique features and a reduced number of features, and to be labeled differently. The guest has the possibility to select preferences and is shown corresponding room options as a percentage match. The booker is given the option to select the best room combination for them, with the bundled price points of the various room attributes displayed in aggregate (i.e. without displaying the price of the individual features). The approach not only allows the sale of all room attributes including connecting rooms, but also any inventory combinations a hotel can and wants to offer such as rooms next to each other, three rooms to a newly clustered offering, etc. This provides the basis for a radically new sales approach. More price points are naturally created by repackaging rooms in different ways and marketing them through different labeling. Upselling takes place during the booking process. The booker can select feature preferences, but without considering how much they are actually worth.

Supporting statistics or studies on user preferences in terms of attributes or room characteristics are almost non-existent for the hotel industry. Since the approach of moving away from room categories is still very new and attributes can vary greatly from property to property, collecting data points to understand which attributes are preferred by which user profiles is a critical first step to understanding price elasticity and demand patterns.

 

The Departure From Room Categories

Moving away from selling by room category brings with it a high number of additional price points at the point of sale. The value of each room feature can be assessed differently depending on the reason for travel and personal needs. For example, traveling with companions such as a spouse or family, the purpose of the trip, or personal preferences can significantly change the value perception and price elasticity of each room feature. The more price points and options that can be intelligently offered and presented to each booker, the higher the booking conversion and value will be.

In addition to additional price points, a new feature-based inventory management also offers the opportunity to enhance one's own brand and pursue a new sales strategy. Only granular inventory management can also enable a differentiated inventory offering according to target groups, individual pricing, and differentiated marketing activities.

 

First Steps for Feature-Based Inventory Management

In principle, it is recommended to check your inventory to make sure it is up to date. In the end, the room turnover is the one with the highest margin.

• Take the time to review your inventory, identify the differences, and record any previously undocumented features!

• Download a template here to get started and customize it according to your needs.

• Update your inventory in your relevant systems (PMS, IBE, CRS, etc.).

• Define the way you want to sell through your direct channels and implement the approach starting with email and phone reservation requests.

The next step is to review your current technology landscape to identify which solutions are already in place for this approach and which may still be needed. It may also be possible to replace several existing solutions with a single new approach.

 

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Markus Mueller
I am the co-founder of GauVendi with over 25 years’ experience in multi-country and culturally diverse organizations across the Caribbean, Europe, Middle East and Asia within the tourism industry, holding an MBA with Distinction from Warwick Business School.