e-CRM Strategy in Hospitality

By Max Starkov

The Internet has changed the way lodging is negotiated, managed and purchased. This year over 20% of all revenues in hospitality will be generated from the Internet (15% in 2003). Another 20% of hotel bookings will be influenced by the Internet, but done offline (call center, walk-ins). In 2004, for the first time Internet hotel bookings will surpass GDS hotel bookings. Two years from now the Internet will contribute over 27% of all hotel bookings (PhoCusWright). Are hoteliers ready for this dramatic channel shift? Who owns the customer in this new environment? How can hoteliers retain customer loyalty when the competition is just a click away?

Background
The traditional CRM focus in hospitality has always been “Customer Satisfaction�.
The presumption is very simple: customers will appreciate good service so much that they would not go to your competitor. In other words: customer satisfaction + quality of services = customer loyalty.

The truth is that customer satisfaction does not always equal customer loyalty:

• 40% of satisfied customer switch suppliers without hesitation (Forum Corp)
• 65%-85% of customers who choose a new supplier claim to be satisfied and very satisfied with former supplier (Harvard Business Review)
• 85% of customers claim to be satisfied, yet willing to switch to other suppliers ( University of Texas )

A new study published in August 2004 by Cornell University also calls into question the widely held belief that guest satisfaction means repeat business. The results of its recent study challenged the theory that satisfied guests generate repeat business in the lodging industry. Analysis showed only a weak connection between satisfaction and loyalty, which is a precursor to repeat business.

Dr. Kano, a prominent Japanese quality expert, believes that customers experience value at 3 dimensions: the Basic, the Expected, and the Unanticipated Value. The Kano Model stipulates that only when companies provide well above and beyond what the customer expects they operate in the Unanticipated Value dimension. Only when companies operate in the Unanticipated Value environment they can build strong customer loyalty.

e-CRM in Hospitality Today
Electronic customer relationship management (e-CRM), in the context of the exploding Internet distribution and marketing in hospitality, is a business strategy supported by Web technologies, allowing hoteliers to engage customers in strong, personalized and mutually beneficial interactive relationships, increase conversions and sell more efficiently.
e-CRM cannot exist in isolation. Today's multi-channel marketing model requires a single brand image to be communicated across all channels. In the same time it requires interactive customer relationships to be established and maintained across all channels.

The hotel website has become the first point of contact with the overwhelming majority of hotel customers. This year 75% of North Americans will research travel online and 42 million will book travel online (TIA). Leisure Travelers look for area attractions and family accommodations. Business Travelers look for directions and high speed Internet. Meeting Planners look for function room floor plans and capacity charts.

Anytime an Internet user lands on a hotel website, a branding interaction occurs. This branding interaction can be positive (brand-building) or negative (brand-eroding). Unfortunately for some hoteliers on many occasions a visit to the hotel website turns out to be the last point of contact with this particular customer.

Two key questions are facing hoteliers today:

• Who owns the customer in this new online environment? The online intermediary, which made the booking, or the hotel where the guest stayed?
• How can hoteliers establish mutually beneficial interactive relationships with the customers in order to increase repeat business, boost revenues, and retain loyalty?

Here are the main aspects in e-CRM in hospitality:

• Know Your Customer
• Customer Service
• Personalization
• More Efficient Marketing
• Building Customer Loyalty

Below we will review the main aspects of e-CRM in hospitality, and provide case studies and research study results.

Know Your Customer

Knowing your website visitors is an extremely important consideration when conceptualizing and designing your hotel website and your e-CRM strategy. After all, addressing your key audiences and providing them with relevant information is one of the key aspects of any hospitality site.

Different customer segments should easily identify areas on the site that speak to them.
Internet users visit a hotel website not as John Smith or Jane Smith, but as a Business Traveler, Meeting Planner, Special Event Planner, Family Traveler, Spa Services Seeker, Golf Outing Seeker, Vacation Planner, Convention Attendee, Wedding Planner, etc. If you do not speak to each of these audiences, you will lose most of them to your competition.

It is a matter of perspective on what is truly important to the customer. Different characteristics of the property can appeal to different customer segments. For example, to the business traveler, choosing a hotel may be influenced by the availability of a function room, high-speed Internet access or proximity to an area corporation, while a leisure traveler may find the same hotel a great location for local area attractions; same hotel, same destination, different purpose.

Case Study:
Who Are Your Online Customers?

The 2004 RUSH Report, a joint effort by Hospitality eBusiness Strategies and iPerceptions, based on nearly 40,000 customer survey respondents on 30 major brand hospitality websites, shows that 56 % of all visitors on hotel branded websites are Leisure Travelers and 32% are Business Travelers. Approximately 3% of hotel website visitors are involved in meeting or event planning.

Understanding why online travelers visit your web site is of ultimate importance. Are they coming to make reservations? Compare rates with a third-party site? Seek directions to the hotel? Or are they looking for the hotel's phone number? Our study shows 34% of all visitors on hotel branded web sites seek information about the hotel, while 30% of the visitors come to make or change a reservation. 23% are people that visit the site to research/compare rates.

A very important question is the creation of a Single View Customer Database. Is your guest data from POS, PMS, CRS, call center and Web channeled into a single database? Many major brands have invested millions of dollars to achieve single view of customers regardless of sales channel. The benefits are obvious:

• Identify your most valuable customers with best lifetime value perspective (20:80 principle)
• Allows guest-centric data mining: guest history, guest profiles, past bookings, preferences, etc.
• Enables informed decisions in real time
• Allows fast response times
• Real-time Guest Lifetime Value
• Deliver business insight to executives, marketers, sales

Personalization

Personalization is more than providing the right information to the right person at the right time. Personalizing the customer experience on the hotel website is a powerful conversion and retention tool. Customizing your interaction with your most valuable customers (those 20% that generate 80% of your business) will provide significant long-term rewards.

Personalization on the property level should start by identifying all electronic touch points with your customers (hotel guests, meeting planners, travel professionals, etc) and creating an action plan. Personalize all electronic communications with your customers. Adopt a policy on how to address your guests via email (first name only, Mr/Mrs +Last Name, etc). Addressing the customer segmentation issues on the property website is a logical next step. Creating a targeted email marketing campaign is another good step.

For the major hotel brands, the personalization efforts are much more complex and expensive. Customization tools used by some major brands and airlines allow website users to actively personalize their website experiences using over 250 criteria. Here are some of the efforts by the major travel and hospitality companies to make the user experience more personable:

• Personalization agents using a variety of customization applications, capable of creating Behavioral Profiles and a Real-time profile for each customer
• Collaborative filtering: Using preference matrix and artificial intelligence to capture and predict customer interests
• Decision-support applications utilizing various applications for Behavioral Profiling, Predictive Modeling, Collaborative Filtering and Click-Stream Analysis, capable to sense the purchasing behavior and patterns of the user. By providing a customized booking experience these applications can boost the conversion rates.

Customer Support

It is important to understand that customer service is only one aspect of e-CRM and is primarily a reactive function aiming to improve performance and efficiency, while e-CRM as a whole is a proactive long term strategy.

We believe that on the Internet the customer support aspect of e-CRM is an extremely important trust building and customer retention tool. A well positioned Contact Us or Help button or Push-to-talk feature speaks volumes about the hotel brand ("They care about us") and builds trust. 57% of online shoppers actively seek sites with good customer service (2003 eMarketer Survey)

A review of the top major hotel brands shows that only Hilton uses "live agent" or "push-to-talk" functionality. Expedia and Travelocity do not use this functionality as of yet. Feedback from hoteliers that have installed "push-to-talk" functionality for over 24 months now, shows that consumers rarely use this feature. We believe that just the existence of this functionality plays an important role to provide additional peace of mind for the customer.

Only 50% of those searching travel online actually make their bookings online (Jupiter, PhoCusWright, and HeBS). The other 50% look online, but book offline, due to privacy issues, security concerns, purchasing habits, or need to speak with a live agent to finalize the travel booking, etc. Therefore a hotel website should take extra steps to accommodate these 50% of the potential bookers by providing online help desks, live agents, push-to-talk features, very visible 1-800 numbers, TTY phone numbers, etc.

Case Study:
e-CRM Comp Analysis of 9 major upscale hotel brands.

HeBS uses its proprietary CyberScore system to evaluate various aspects of 9 upscale hotel brands. HeBS addresses e-CRM features and functionalities considered essential for optimum customer experience, such as customer support, ease of use and visibility of customer support throughout the site, customer support by phone and email, personalization, "Self-service" Customer Service Tools (FAQs, interactive maps and business locators, etc), "Live" Customer Service Tools, corporate and property level help desks and contact info. Evaluated were a total of 9 e-CRM features. The maximum score is 90 (9 features, 10 points each):

Conrad (Hilton) ranked first with 80 out of 90 points (89% utilization of best practices), followed by Westin (67 points and 74%) and Intercontinental Hotels with 65 points and 72%. In fourth place is JW Marriott with 59 points (66%), followed by Hyatt (54 points and 60%), Four Seasons (47 points and 52%), and Ritz Carlton (46 points and 51%). Le Meridien (37 points and 41%) and Mandarin Oriental (33 points and 37%) scored last.

As the Case Study represents, all hotel brands have room for improvement in all of the evaluated e-CRM areas.

Customer support in the Internet age relies on a wide range of tools and techniques:

Web Self-Service Tools: Intelligent service channel management and natural language search engines, directing customer requests to most appropriate support information and services; FAQs; Ask the experts self-service chat rooms, interactive maps and directions and business locators, etc.

Live Service Tools: Push-to-talk functionality and real-time interaction with live agent; instant messaging and chat-room type of assistance; Voice-over-Internet Protocols (VOIP) applications; automation to pre-screen live support (selective approach)

E-Mal Service Tools: Inbound e-mail management; automated e-mail response systems, capable of automating 80%-90% of e-mail volume with 98% accuracy, and dramatically improving service and reducing support staff by up to 40%.

More Efficient Marketing:

eMarketing plays a crucial role in establishing interactive relationships with your customers. eMarketing is a marketing strategy that uses the Internet as its medium. This includes display ads (e.g. traditional banners), keyword search, classifieds, email marketing, referrals and sponsorships, etc.

The main issues facing eMarketers in hospitality today are:

• Guest profiling and one-to-one marketing.
• Accurate segmentation: focused segmentation equals higher response rates
• Create narrow-focused marketing campaigns
• Utilizing lifestyle data and personal preferences in the marketing
• Building opt-in email lists and precision e-Mail marketing (fivefold higher response rates)
• Internal benchmark of customer lifetime value
• Cross-selling opportunities
• Campaign tracking and ROI analysis

Developing a robust and effective eMarketing strategy requires not only an extensive knowledge of your customers and precise customer segmentation, shifting marketing finds from offline to online channels, but deciding what your marketing objectives are. eMarketing can be successfully used as a direct response vehicle (short-term, results-oriented) or as a branding tool (long-term and strategic goals).

Here is a quick review of the four most popular eMarketing formats:

• Display Ads (e.g. Traditional Banners): Steady decline: 2003: 21% (as percentage of total online advertising spend); 2002: 29%; 2001: 36%; 2000:50% (PWC/IAB). Click-through rate 0.83% in Feb 2003 (eMarketer)
• Keyword Search (e.g. PPC, paid-inclusion, etc): Steady increase: 2003: 35%; 2002: 15%; 2001: 4%; 2000: 1%.
• Classifieds: increased usage of this format: 2003: 17%; 2002: 15%; 2001: 16%; 2000:7%.
• e-Mail Marketing: Currently between 3%-4% of total spend; Jupiter Research reports that US email marketing spending will rise from $2.1 billion in 2003 to $6.1 billion in 2008.

Case Study:
Independent Hotel in Napa Valley
This boutique 100 room hotel opened in the fall of 2003. The hotel launched an aggressive Direct Online Distribution and Marketing Strategy. The hotel website has comprehensive e-CRM features, including user-friendly navigation, tons of useful information, customer support section, self-service tools and trust-building functionality, free promotion to entice people to sign up for the monthly e-Newsletter. The website won a major industry award as the best hotel website in the U.S. in 2003. Results: Within 6 months the hotel opt-in e-mail list grew to 10,000 recipients. The hotel performs highly targeted email and PPC marketing campaigns. The website has indeed become the first point of contact - over 50% of bookings come via the hotel website.

Customer Loyalty

True loyalty on the Internet is difficult to achieve your competition is just a click away. Loyalty Programs of the major hotel brands provide a crucial competitive advantage over online discounters and intermediaries who do not have such programs.

Loyalty programs are very popular with online travelers, and especially with people who book online. Forrester reports than in 2002 over 80% of Online Bookers belong to some kind of a travel loyalty program, and more than 60% to a supplier-sponsored one. Here are the most obvious benefits of a well-functioning loyalty program in hospitality:

• Identify your most loyal customers
• Market to your most loyal customers
• Accumulate guest-centric customer intelligence
• Optimize Lifetime Guest Value

And yet hoteliers do not need just any customer loyalty. A low-attachment loyalty (e.g. inertia loyalty, price loyalty) can bring only limited results. Hoteliers should strive to achieve a true Premium Loyalty (i.e. emotional or brand loyalty), which is characterized by high level of attachment and repeat purchases. This is the ultimate loyalty valued most by companies.

The 2004 RUSH Report findings show that 50.9% of all visitors on hotel branded web sites identify themselves as members of a hotel brand Loyalty Program. 49.1% are not members, and some of them claim that they would consider becoming members of a hotel Loyalty Program, or would be interested to learn more. These 49% of visitors are up for grabs and available to any proactive hotel brand. Offering a well functioning, easy to understand and manage, and well presented Loyalty Program on a site is an important step in that direction.

What would make online consumers return to the site? Existing customers are not only less costly to retain, but they also respond 4-5 times more readily than new customers to promotions and e-mail campaigns.

The overall customer satisfaction with the hotel website is indicative about the retention capability of a website. The 2004 RUSH Report finds that website visitors are neither very satisfied nor dissatisfied with their overall experience on the hotel brand website. Less than 19% of visitors characterize their experience as Excellent, while almost 17% report that they are not satisfied and qualify the experience as Fair or Poor.

Overall Site Satisfaction: How would you rate your website experience overall?
(based on a sub-set of 34,533 respondents from 28 hotel websites)

• Excellent   18.80%
• Very good  35.73%
• Good        28.94%
• Fair         12.22%
• Poor        4.31%

      Total: 100%

Different customer segments perceive the hotel website differently. While not dramatically different, Business Travelers appeared slightly more critical than other user groups. More Business Travelers rated the hotel sites as Fair or Poor than Leisure Travelers, 16.79% to 16.25%. Even when they felt satisfied, Business Travelers appeared more critical: 54.57% found the site to be Very Good or Excellent compared to 55.14% for Leisure Travelers.

Conclusion:
e-CRM is an integral part of online distribution and marketing in hospitality. The Internet provides the best direct means to reach existing and potential customers. Establishing interactive relationships with your customers, which is the essence of e-CRM, will help you retain your customers, increase revenues, and build brand loyalty.

About the author:
Max Starkov is Chief eBusiness Strategist at Hospitality eBusiness Strategies, Inc. in New York City (www.hospitalityebusiness.com ). He advises hospitality companies on their Direct online distribution and marketing strategies. Max has an extensive eBusiness experience having co-founded and served as CEO and Director of two travel and hospitality related Internet startups. He also teaches graduate courses on "e-CRM", "Hospitality/Tourism eDistribution Systems", e-Knowledge Systems and "e-Travel" at New York University 's prestigious Tisch Center for Hospitality, Tourism and Travel Administration. You can reach Max at max@hospitalityebusiness.com

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