1278 days ago
 

Tnooz Asks: Occupancy issues on Room 77

The launch of startup of the moment, Room 77, has triggered varying levels of gushing praise and scepticism.

Startuppers and investors in San Francisco last week, inevitably, fell into the former camp. Those in the industry familiar with the complicated way in which hotel inventory is distributed are wary of the difficulties attached with such an idea.

With a diagram chart to demonstrate, one question arises over yield management and occupancy on the Room 77 model.

NB: Editor’s note – this is the first of a new series where the Tnooz team and readers pose a question via video, with the intention of engaging our audience and those at the centre of an issue into a debate. Send your clips or ideas to Tnooz in the usual way.

 
 
Alex Bainbridge

About the Writer :: Alex Bainbridge

Alex is a contributing Node to Tnooz and writes about travel technology, travel startups, specialist tour operators and the tours & activities sector. He has previously led ecommerce, social media and reservation system projects for airlines, leading mainstream tour operators and hotel distribution companies in both leisure and business travel sectors.

He is the CEO of TourCMS, a web based software-as-a-service reservation system and distribution platform used by many specialist tour operators worldwide to take online bookings and distribute to 3rd parties.

He also moderates Small Fish Big Ocean, a community that welcomes small tour operators and niche travel agents to come and discuss travel ecommerce issues. Alex has a computing degree, is passionate about usability, speaks French and still writes and reviews code.

 

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  1. A blog is not a marketing brochure and other tweets from #smtravel11 | LoyaltyTraveler.com – Ric Garrido

    [...] could drive consumers asking for specific rooms and creating problems for hotel reservations. This Tnooz video explains the issue from the hotel booking [...]

     
  2. Sue Heilbronner

    May I just tip the hat to Room 77 for what might be the most highly promoted formal launch in my memory. I honestly can’t see where the major demand is for this added purchase flow feature on the consumer side absent the exceptions mentioned in other comments, but I can only assume these guys have done their research on both sides.

    Either way, props to Room 77 for being on the lips of everyone in the industry last week.

    Best of luck, but I’ll keep my head down thinking about how to drive the demand to those newly segmented hotels in the first place.

     
  3. Alex Bainbridge

    Thank you Brad and Room77 for answering!

     
  4. United 77 | 4lufarm

    [...] Tnooz Asks: Occupancy issues on Room 77 | Tnooz Uncategorized Comments are closed. [...]

     
  5. Timothy O'Neil-Dunne

    @Kevin – OK – I will bite.

    I am a firm believer in Newton’s Second Law.

    To be frank there is a huge amount of legacy process in the travel industry which is RIPE for disruption. The distribution process – particularly in hotels – has too many layers not to mention legacy based “inhibitors”. Just ask oh say a big OTA the number of properties that they have to communicate with using fax based technology. The process of purchasing a hotel product is pretty awful. Consumers have been trained to accept mediocre. So yes Room77 and Hipmunk Hotels are both to be applauded for going beyond the pale and stimulating change.

    I am all for disruption if there is corresponding value to either the supply or the user side. Heck done a little of it myself. There are still some of my old friends who feel that I sold them down the river… but I digress.

    In my view there is a change to the balance that Room77 brings to the equation. True it doesn’t change anything in the overall workflow that isn’t done today. We all know the cantankerous but cute little old lady who has been staying in room 3203 on the second week in June for the past 30 years. Or the movie star who always wants a view of the sunset and has it written into her contract. Or the nervous businessman who wants close to the elevator on no higher than the 5th floor. All true enough and usually these are accommodated. As exceptions. Where I am having a hard time is examining anything that adds value to either side of the equation (Consumer or Hotel) where the expectation or the delivery is compromised to such an extent if Room77 is to be successful. It goes against the grain unless there is a significant infrastructure change that enables better automation without huge cost to do so. Broad adoption requires a lot of people to make a lot of decisions. Hotels are like that.

    Hotels are starting to get there with fixing some of these legacy restraints. The first Hyatt Place I used offered to allow me SOME degree of room choice in the self service check in that I used. Hyatt is one of the few chains that have a strong Cenres to PMS linkage where some of this capability is theoretically possible on a broad scale.

    I am still struggling to come to terms with the broad adoption of Room77 and the downstream issues that it generates within the operation of an individual hotel. I am also struggling with the broad assumptions that Brad laid out earlier. Some have likened Room77 as the analogy of selecting a seat on an aircraft. I disagree.

    However as you have said this is a healthy debate. Let’s see what happens.

    Cheers

     
  6. Kevin Fliess

    @ Jim — absolutely it can shift share. If I want to book Economy Plus on United today, I have to do it on United. If I want to pick 17b on the bulkhead in Economy Plus today I have to it on United. So, yes hotels have the opportunity to provide a preference-based, premium service through their channel that only they can provide. Whether they charge for the room request is another matter. Hotels can decide whether this is a perk they provide through their loyalty program or something they want to charge for. In keeping with the airline analogy, if I’m a 1K on United, I always get an exit row / aisle if that’s what I want. If I’m a regular member, I have to pay for that privilege.

    @ Tim on Operations – to just build on Brad’s comments. Here are the facts.
    1. Consumers have always been able to request rooms and hotels work hard to ensure room requests are met — because the guest who requests a room cares. They are the kind of traveler the GM wants to get back on the hotel.
    2. Hotels assign rooms today. There’s a person inside every hotel who “balances the house” each night — slotting incoming guests into rooms.
    3. There’s a pecking order to how they are assigned. Elite loyalty members get first dibs. Those that book on a discount or name-your-own price end up in what’s left.
    4. There’s a time at which they are assigned — usually 12-24 hours prior to check-in.

    Room 77 isn’t forcing any operational changes whatsoever. What Room 77 does is provide consumers with more information. It’s up to them what they do with it.

    We’re working with hotels to pilot some low-tech, high-touch room request guarantee processes that will “close the loop” for the consumer. Again, there’s a window of time in which this is possible — probably 12-24 hours prior to check in.

    So imagine you make your reservation today for a hotel stay in 2 weeks. At the time of booking you could make your room request, which includes several rooms that you’d be happy with. 12-24 hours prior to arrival *at the time at which the Rooms Controller balances the house*, you’d get a notification saying, you’ve been assigned one of your preferred rooms.

    Very simple and in keeping with current hotel operations. No change to the PMS required.

    We totally get how this could profoundly change yield management, online reservations, check-in etc over time. But we’re absolutely adamant about taking an evolutionary approach to things and committed to working with our hotel partners to develop solutions that customers want and that benefit everyone.

    Great conversation… thanks for the comments. Let’s keep it going…

     
  7. Jim Kovarik

    This is an interesting dialogue around disruptive business model vs. legacy reservation and distribution systems. There’s likely tremendous inertia in the system so either the pain points and/or opportunities need to be sufficient to get the suppliers to move.

    There certainly seems to be plenty of opportunity on the revenue side if consumers embrace this (and at this point I don’t see why they wouldn’t).

    Regarding pain points I’m wondering if the tension between suppliers and distribution might be a factor here (can this model introduce differentiation that helps shift distribution share?)

    Regardless, the chess pieces are large here so its fun to think about what happens when you move them around the board.

     
  8. hotelmarketing@facebook.com

    not only will there be a lot of spare gaps left but as i mentioned in one of my comments before, if a guest extends, the same issue arises…

    for me, this issue is basically right up with the issue of booking engines that will return no availability for a request of a certain period even though only one day is not available, costing your property a loss of revenue… i have seen one booking engine that managed this issue quite well but it still requires reservation manhours.

     
  9. Timothy O'Neil-Dunne

    Brad

    I will add something to this debate. The assumption you make here is that 100% of the inventory is available 100% of the time. It isn’t. I went looking for some industry numbers on this and as its somewhat of a dark secret that no property manager wants anyone to know there are no stats. So anecdotal evidence points to the fact that there is a theoretical maximum of room occupancy for hotels.

    Having worked with Vegas hotels in the past this could work as they are strict about the checkout times and enforcing penalties for late check out. However for other domestic US hotels and in general international hotels where inbound flights are often morning based this does not work quite so well. The level of occupancy has to accommodate peaks and troughs as well as the scheduling issue that Alex outlined. (There are also yield management issues of Closed to Arrival and Closed to Departure dates). The theoretical maximum for individual hotels is – in my opinion – actually far below the 100%. Taking into consideration other factors that temporarily take rooms out of inventory (broken fixtures etc) the theoretical number if decidedly below this 100% level. The impact is that hotel pricing in general goes inelastic upwards above approx 75% and inelastic downwards below 60% occupancy levels. This phenomenon is often pointed to when looked at specific markets at certain times such as New York during Fashion Week.

    BTW this also applies to airlines in Load Factor above 89%.

    It would therefore be spurious to assume that the large macro numbers can work to support your thesis.

    If I may – I will take an opportunity to point out another issue you will content with. The resulting granularity of pricing that a successful adoption of Room77 would generate is probably not easily handled by the existing PMS systems. Most hotels struggle with fixed room pricing schemes and the different rate plans that come from their various distribution channels. To create an additional parameter of variable relative pricing by individual room is beyond the capability of most PMS systems.

    So I think that there should be a significant pushback from the hotel managers on such a concept. No matter how good the UX will be – the need to make it work to be of value to the hotel has to be clear. I hope that this can work.

    Cheers

    Timothy

     
    • Brad Gerstner

      Tim,

      It seems to me that you make good arguments against a wholesale shift by hotels to an airline or cruise line reservation model where the consumer picks their actual seat or room.

      We are not recommending such a model and agree with many of the points you make.

      We are making two far simpler points:

      1) Consumers – Room 77 exists to serve consumers. We KNOW because we have been using the product, that consumers will unquestionably be able to secure rooms that better serve their needs because they are informed. I recently stayed at the Westin River North in Chicago for a board meeting. I called and requested Room 1524. A fellow board member ended up in Room 721. I had a terrific night and she vowed to never stay at the hotel again. She said she felt like she was in a parking garage – it was loud and she was up all night. When you look at these on Room 77 this becomes self-evident (http://bit.ly/hS9dVk / http://bit.ly/hS9dVk). So there is little doubt this will benefit consumers in the same way that Tripadvisor, Zillow, and Kelly Blue Book benefit consumers – by making them more informed.

      2) Hotels – there is little doubt that hotels know that their current reservation / pricing mechanics work – but are NOT optimal. They know current web sites do a poor job of explaining differences between categories and rooms. 99% of hotel search today compares the lowest categories of rooms in hotels as if that is all consumers are shopping for and as if all “standard” categories are created equal.

      We help to highlight these differences by actually creating transparency in the search process. This will help consumers choose between hotels, between categories, and YES even between rooms.

      We don’t expect hotels to overhaul how they price every room – but it would be very easy for a hotel to take a small piece of their inventory and make it available for Room Guarantees for an extra fee. I would have happily paid an extra $20 for Room 1524 at the Westin – for two reasons, (1) it is a great room, and (2) the piece of mind of knowing exactly what I am getting as opposed to the front desk crap shoot.

      One big chain we know does 100 M room nights per year. If they introduced this for only 5% of their inventory, that is 5 M room nights at $20 extra or potentially an extra $100 M in pure profit. Not to mention, they might require a direct booking or membership in a loyalty program which would also be benefits to the hotel.

      So as opposed to focusing on why an overhaul of the PMS is unlikely, keep your eyes peeled for innovation around the core.

      You can expect that the Room 77 team is hard at work on the next round of innovations for both the consumer and the hotel!

       
  10. Claude

    Seems the model can run with hotel chain and good CRS/Yield System. Wondering how it can work for small hotels in fragmented market (the main market in fact)
    Anyway, bon courage for the Room 77 team

     
  11. Brad Gerstner

    Good question and well presented. And as you might expect, we have spent 100s of hours discussing these issues with hotels ranging from the small independents to the largest chains.

    A few thoughts:

    1) North American occupancy is just over 60% so on average 4 out of 10 beds are empty every night. In most hotels, on most nights, the problem you describe is not an issue. We are not suggesting that everyone will get their room request satisfied – but we think more informed consumers will make better decisions;

    2) Hotels already routinely block rooms for groups, room requests, etc – so the idea of taking “some” rooms out of circulation allows hotels to accommodate fixed needs while still having plenty of inventory in their flexible bucket to manage the situation that you describe;

    3) We believe that hotels are likely to start “charging” for Room Guarantees in the way that airlines charge for an aisle seat or window seat. A hotel could charge $20 extra per night for a Room Guarantee for 10% of its inventory with minimal impact to its room management. By creating transparency around the individual hotel rooms, Room 77 is helping to build a demand curve – if a consumer can’t see the difference between rooms 2907 and 605 why would they ever pay $20 extra?

    Net net, while we agree that a wholesale overhaul of the hotel revenue and room management is unlikely, we believe that transparency will always benefit the consumer. And hotels have the opportunity to drive higher guest loyalty and higher guest revenues by working with Room 77 to accommodate some portion of the Room Requests we generate.

     
 
 

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