optimizing the customer experience. an opportunity for the hotel and hospitality sector

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Optimizing the Customer Experience. An Opportunity for the Hotel and Hospitality Sector A Mulberry Consulting White Paper David Hicks and Markus Mueller June 2012 www.mulberryconsulting.com

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Executive Summary More effective management of the customer experience is already an opportunity area for operators in the hotel and hospitality sector to do more to differentiate their business through the customer experience. Some are already doing this. It has the potential to help customer retention, create better internal alignment of actions, identify cost savings, and drive incremental revenue growth. The practical first step towards achieving these goals is Customer Journey Mapping Introduction Recessionary times are a sharp reminder for hotels to build loyal customer relationships with their guests. But a common response among hotels was to implement extensive operating cost reduction programs, without an understanding of the effect this would have on the customer experience and therefore on customer loyalty. This raises the question what is the right filter to determine what hotels should purposefully stop/start doing or do differently to optimise the customer journey, and maintain loyalty. While competition has been higher than ever in the hotel sector, the proliferation of brands and branded hotels worldwide has led to a perceived commoditization of the hotel product. The sea of sameness is obvious and is supported by the fact that more and more individual design and boutique hotels are opening, each trying to be different. Big hotel chains are re-launching brands or creating life style segments for themselves, developing new service programs to appeal to the next generation of customers and trying to differentiate themselves from a commoditized hotel experience. A common factor both limiting companies’ ability to respond and to deliver a consistent brand experience across the estate and regions is the fact all hotels have a cyclical lifetime where physical condition and design do not help to deliver a consistent customer experience. A number of hotel brands have recognised this and started to develop distinct brand values and global communication strategies to start to differentiate their brand message but the truth from a customer perspective is that, other than perhaps the advertising, the actual ‘in-hotel’ experience has not changed that much (indeed advertising often increases service expectations that are then under-delivered). Nor has the customer journey become more consistent across each property in the branded estate. In general it appears the bigger the brand the more potential there is for inconsistency within the individual hotels due to the physical condition hotel life cycle and the operational challenge of delivering a consistent service experience delivery. Whatever strategy a hotel brand might adopt to differentiate itself and deliver a consistent branded guest experience, we find three operational components which are absolutely essential to build customer trust:

• a coherent brand filter and positioning • organisational alignment of all operational programs to minimize friction and enhance service

delivery • a superior execution of customer experience, delivered consistently across all channels and

touch points What’s needed is not one or two of these in isolation – the bad news is, it’s all three together. Anything less will not differentiate or create value over time and if developed in isolation increases dissonance and is likely to end up driving higher costs. . In the hotel industry, where there are inevitably large differences within the same hotel brands ( due to property age, physical condition, design, legacy staff and culture), a purposefully designed customer experience persistently and consistently delivered remains one of the few, cost effective sources of competitive advantage and differentiation.

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Industry Challenges In addition, a number of industry-wide business challenges also face hotel companies seeking to build a consistent branded guest experience across their estate and differentiate the customer experience they deliver: Ownership alignment: It is a common business strategy for hotel management companies to franchise or manage hotels and not own the asset. This strategy provides many benefits, allowing companies to grow much faster and focusing on the things they can do best. However it also presents challenges in regards to delivering a consistent branded guest experience across a branded estate. Owners often do not provide extra funding for brand standards or hire new staff without a tangible return of investment. They obviously make decisions in the best interest of their asset return and are happy to make compromises with the overall brand promise or experience. Hotel management companies therefore have to be prepared to spend time and money in extensive training programs to purposefully create and then persistently and consistently implement a group culture, and experiences. Financial Viability: Global hotel brands face the challenge of creating a consistent global hotel experience while also dealing with different regional land and development costs as well as varying operating costs (including employee and energy costs), a consistent experience will cost more/less in different markets. Distribution versus consistent quality growth: Securing key locations is a major consideration for brand owners. Just how many brand compromises is a hotel company then willing to make in order to get coverage in key locations? This critically depends on the company brand / experience strategy but can lead to a vast difference in brand delivery across regions and countries. Cyclical Lifetime of a hotel: The nature of a hotel business is that the physical condition of the asset, the design and furniture are getting older or outdated over time. Hotel companies have to be able to decide where to draw the line when a hotel falls below brand expectations but which might not reflect its financial life cycle – whilst depreciation and contribution figure large in financial statements, brand value is not reflected in the same way. Often these experience “hurdles” and quality controls are inconsistent or are not in place. A lobby of a hotel could be outdated in terms of the brand delivery but in perfect physical condition. The question arises how do you “measure” the outdated physical environment? Consumers today buy a new TV every 4-5 years. In a hotel a TV has to last 10 years from a financial perspective. The answer isn’t only to rely on customer feedback scores which on their own can be deceiving; an end-to-end view is needed Customer Expectations: While a hotel from a specific hotel brand might be completely below brand expectations for their global customer the hotel might have built its own local customer base at a lower price point which is perfectly satisfied with the hotel experience and gives them high satisfaction scores. However a global customer of that brand might be shocked by the different experience. Proliferation of brands and branded hotels worldwide: The proliferation of hotel brands is itself contributing to the commoditization of the hotel product. There is less room to build a distinct and separate brand experience that uniquely sets the hotel apart from the crowd. Underlining this trend is the recent relaunch of the Holiday Inn brand, a large number of budget hotel entrants and the rise of Boutique & Designer hotels like ALoft, Indigo, Armani Hotels and Bulgari Hotels. Instilling authenticity: Delivering a consistent brand experience that is also authentic and delivers both the brand promise and reflects local culture remains a challenge to all brands. Customer expectations and employee needs (arising from cultural differences) are often not understood or consistently addressed and are usually left to be handled by the best knowledge of the acting general manager (not in itself a bad thing) but typically without a corporate framework to help ensure the consistent delivery of the desired ‘branded’ guest experience.

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Human Resources Issues: Securing qualified and suitable people, (in particular in “developing” countries), is a challenge. Big hotel companies have started to create their own hospitality schools to address this challenge, but central training needs to be flavoured by local culture and market conditions. Operational frameworks are key to effective HR deployment. General Manager Stretch: Hotel managers usually come from an operational background in a hotel. However, the required skills for hotel general managers have changed dramatically over recent years. Today a general manager needs to have well rounded leadership skills, to understand sales, margin, revenue and yield management and finance. They also need to have excellent relationship and communication skills to manage all stakeholders (including hotel staff teams, the brand owners and the hotel owners) and must understand the branded guest experience and service delivery. Often numerous corporate programs and different competing priorities create a lack of clarity and focus for hotel general managers, which ultimately impacts on the hotel performance. Again a common framework for operational prioritization and delivery is key. Business Segmentation: Hotels have operated with effectively the same basic customer segmentation model for at least the last 30 years, which is a mixture of purpose of visit, rate segment and distribution channel. Existing segmentation models makes it very difficult to capitalize on new trends and potential new needs-based customer segments (eg: women travellers) since hotels look at the data within the same basic value based framework. In addition, there is little evidence that hotels are equipped to be able to deliver a segmented customer experience. A Practical Approach Optimizing the customer experience does NOT mean “gold plating” everything that the customer touches. Rather, it involves systematically measuring and understanding the rational and emotional drivers that customers care about most, and then “operationalising” the consistent delivery of the intended experience persistently and consistently across the business. In simple terms, the key is to understand what matters most to customers, purposefully focus on and design the intended experience, and then consistently and persistently deliver this across multiple touch points. Our experience suggests the most practical and speediest method for addressing this requirement is to start with Customer Journey Mapping, which is a proven practical way to visualise what customers currently experience when dealing with a company, (but looked at from the customers’ own perspective). Customer Journey Mapping provides not only a visualization of all the touch points and interactions between an organization and its customers. The process of mapping also shows and diagnoses where service experience delivery is valued by the customer and where it matters less or falls short. This map of the current experience identifying moments of truth, and pain points can quickly build into an operational framework with descriptions of the actions needed to deliver a desired experience. An early white paper on this subject “Mapping the Customer Journey” by Forrester Research notes that “Mulberry Consulting has customers rate the experience in terms of importance and company performance to identify broken moments of truth” which Forrester sees as a best-practice approach. A major challenge to delivering an optimized customer experience is ensuring that the whole organization acts in concert, as one. The many business benefits of Customer Journey Mapping include improving operational alignment across functions leading to business efficiency improvements and customer effectiveness improvements.

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Getting Started For hotel and hospitality organizations considering a new or revised customer experience effort there are a number of pragmatic questions that will help establish the starting point:

• Has the hotel broken down its brand promise so that it is easy to see how the customer experience supports and enables the value proposition? Is there visibility as to which touch points have the greatest impact on customer retention, persistency and advocacy?

• Has the business defined who our customer is? What are their expectations and how do they want to interact with their hotel?

• Do you aim to treat our customers equally? Is there an effective customer segmentation framework in place that differentiates the offer?

• Are the key customer-facing capabilities across the organisation identified and aligned to provide a seamless service experience?

• Does the hotel understand the rational and emotional components of its service proposition, and does it know what customers do and do not value? Is the business able to measure whether equity is being created or destroyed at key touch points?

• Do individual staff members understand the purpose of their individual role in delivering a component of the overall customer experience, and how that fits into the bigger picture?

If the answer to any of these questions is “no”, then Customer Journey Mapping is a good way to start to get an objective and customer-centred view of what is currently in place, what is working and what is not and where to focus resources to address it.. Business Benefits The business benefits for hotels of effectively mapping and optimizing the customer experience for key customer groups are significant and compelling:

• Internal and External Alignment: Clear agreement on the desired customer experience and a comprehensive map of the customer journey are powerful tools for achieving internal alignment of functions, with a positive impact on staff morale, motivation and effectiveness. Hotel management companies and franchisors get the benefit of being able to clearly communicate the return on investment from following standards to hotel owners and why they are in place.

• Customer Satisfaction & Retention: Studies consistently show that there is a clear

correlation between customer satisfaction and the impact on top line revenue of hotels. A positive service experience helps maintain customer retention, persistency rates, and conversely, a poor service experience drives these metrics down. Also, a business cannot up-sell or cross-sell customers who leave, so customer retention needs to be a strategic priority for any hotel company. Every company operates with a unique set of circumstances but our experience suggests that the financial business case for Customer Journey Mapping is very strong, with each single percentage point improvement in customer satisfaction adding significantly to the top line revenue. This holds true for cross-sell and up-sell opportunities.

• Cost Control: Delivering a poor customer experience is in fact significantly more expensive

than optimizing it as money is often wasted in over-servicing areas not valued by customers. Customer Journey Mapping can help businesses to identify the key areas most valued by customers in which to invest in order to make the greatest difference, and provide the framework to operationalise better models of customer behaviour, thereby increasing revenue and reducing costs over time.

• Segmentation: Customer Journey Mapping can reveal the flaws in existing segmentation

models and can also provide data and insights leading to more nuanced segmentation strategies and provide the operational framework to deliver them. For example, hotels tend to

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segment customers around purpose of visit and distribution channels, which can easily lead to a “one size fits none” outcome.

• Return of Investment and Differentiation: Hotels are commonly categorised by a star rating

depending on the product quality and general service levels. They often fail to deliver and communicate a different and/or distinguished experience from their competitors. A unique and consistent service experience is an opportunity to strike away from the “sea of sameness”. A fully mapped and clear operational framework around the core brand proposition, translated into all customer touch points have a greater customer impact and create more consistent, differentiated and satisfied guest experiences.

About the authors David Hicks is Chief Executive Officer of Mulberry Consulting and has led the business since its inception in 2002. He has over 20 years' experience helping organizations measure, manage and optimize the customer experience they create. He has led many major customer-focused change initiatives and has worked with companies in financial services, auto, retail, publishing and technology in the UK and abroad. As a board level executive at The Royal Mail, he built and deployed a service specification used by 280,000 staff nationwide. David has an MBA from the IBM Business School at Southampton University and a post-graduate diploma in Strategic Marketing at Harvard. A respected and accomplished speaker and writer on CRM and Customer Experience, David regularly speaks at events all over the world Markus Mueller is Vice President Sales & Marketing at Moevenpick Hotels & Resorts. Passionate about building ‘brand love’, he has a strong track record of getting things done in multi-country and culturally diverse organisations including Moevenpick, Hyatt, Marriott, IHG and Dorint Hotel. He has held senior leadership roles over the past nine years in corporate and regional functions responsible for, among other things, new hotel openings and brand campaigns, and has extensive change and consumer engagement expertise in the health/ fitness, hospitality and service management sectors. Mulberry Consulting Mulberry Consulting celebrated its 10th anniversary in 2012. Since start-up Mulberry Consulting has been retained by senior management at some of the world’s largest organizations to provide advice on optimizing the Customer Experience and driving customer-centred change, a process we think of as helping our clients become more Customer Intelligent. Our proprietary tools and processes have been used successfully by many companies to develop frameworks within which disparate internal activities can be effectively connected and aligned behind a clear Customer Experience proposition. Mulberry Consulting is headquartered in London, UK with offices in New York and Toronto; and with partners in South Africa. For more information please visit us at www.mulberryconsulting.com or contact David Hicks, Mulberry Consulting CEO, at [email protected]. Our existing clients are also available to talk directly about the impact our work has had on their businesses.

Sources:

1 American Customer Satisfaction Index

2 Forrester 2010 UK Customer Satisfaction Index

3 2010 UK Customer Satisfaction Index