Hotels put a lot of time, effort, and money into amenities. Free wi-fi, designer shampoos, bottled water, fruit baskets—even fitness centers. All have become common enticements the hospitality industry uses to attract customers. Figuring out how well they actually work and what they add to the bottom line is another matter.
“Hotel brand managers are always telling the hotel owners that they need more or different amenities,” says Chekitan S. Dev, School of Hotel Administration. “Globally, owners are spending hundreds of millions of dollars on amenities, and they’re asking whether these amenities are of any value. Brand managers say they know what customers want, but they have no valid empirical data to support their assertions. The industry needs a better way of screening which amenities have the most impact.”
Free Wi-fi or Free Bottled Water?
Dev joined with Rebecca W. Hamilton ’91 of Georgetown University, as well as Roland Rust and Michel Wedel at the University of Maryland, on a research project to find out whether the amenities that bring customers in the first time are different from those that bring them back for a repeat stay. They first gathered data on 50 of the most common amenities at a large, multibrand, global hotel company. They used a combination of marketing and financial information on hotel guests, supplied by the company and pre- and post-stay customer surveys. Then they chose three amenities to focus on: free wi-fi, free use of a fitness center, and free bottled water in the room. “We chose these because they are popular with customers, and companies are interested in their significance,” Dev says. “In the end, we wanted to come up with a return-on-investment analysis, looking at costs and benefits.”
The customer survey was key in revealing customer usage and attraction to the various amenities. A week before their stay, customers were asked which amenities they thought they would be using. Then a week after their stay, they were asked which amenities they actually used. The researchers found that free wi-fi was the number one amenity that drove people to stay at a hotel the first time. Surprisingly, free bottled water was the amenity that brought them back for a repeat stay. The people with the highest consumption of bottled water had the highest retention rate. Dev has a theory about why that is: “We don’t know many people who would choose a hotel based on whether they have free bottled water,” he says. “Free wi-fi, though, is something people think they’ll need during their stay. But once they’re in the room and they sample the water, it leaves a pleasurable experience in their minds that makes them want to come back. Maybe the utilitarian amenities and features are more effective at bringing people in the first time, and the hedonic or pleasurable amenities and features are more effective at bringing people back.”
Dev and Hamilton’s research paper on amenities appeared in the Journal of Marketing Research in February 2017. The Cornell Center for Hospitality Research also published a version of it as a research report. “There have been more downloads of that research report than any paper published by the center in recent memory,” Dev says. “It’s been making a big impression.”
Hotel Branding and Re-branding
In another project, Dev joined with Pradeep K. Chintagunta of the University of Chicago, and Chintagunta’s graduate student, Yi-Lin Tsai, to discover the true value of brands to the hospitality industry. “We found that up to a third of all hotels have changed brand names at least once in their lives,” Dev says. “That’s clearly a real impactful issue for the industry. And no one had deeply studied this.”
“It’s much harder to get customers to buy into it when you say, ‘This used to be a mid-scale hotel and now we’re turning it into a luxury hotel.’ It’s much easier to say, ‘We’re turning it into an economy hotel.’”
The researchers looked at the three types of rebranding: from a free-standing independent hotel to a brand; from a brand to an independent hotel; and from a brand to another brand, within the brand family or outside of it. Using financial data from hundreds of hotels that had changed names, the researchers compared profitability before, during, and after the name change, then compared these data with a matched control sample of hotels that had not changed brand names. “We showed for the first time that it is possible to empirically estimate the cost and benefits of conversion and rebranding,” Dev says. “We put a number on it in terms of occupancy and room rate and other metrics relevant to the industry. The implications are in the hundreds of millions of dollars for the industry.”
Among multiple findings, Dev and his collaborators identified a positive rebranding effect. “When a hotel changes names, there’s generally a six percent increase in occupancy,” Dev says. “Sixty percent of that change can be attributed to the brand itself and forty percent to the fit of the brand with the physical property.” Fitting a brand to the physical property is crucial because customers expect certain tangible features from certain types of hotels. Dev gives the example of a misstep when a company wanted to create a stylish, intimate boutique hotel in a property that had previously been an office building with 700 offices. “It’s hard to create an intimate hotel experience with seven hundred rooms,” Dev says.
The researchers also discovered that when changing brand names, it’s easier for a property to take a step down in quality than to upscale. This may be because people have a perceived idea of the quality of the physical property that makes them more skeptical about the hotel management’s ability to increase quality. “Say you have a mid-scale hotel,” Dev says. “It’s much harder to get customers to buy into it when you say, ‘This used to be a mid-scale hotel and now we’re turning it into a luxury hotel.’ It’s much easier to say, ‘We’re turning it into an economy hotel.’”
In his many research endeavors, Dev says Cornell connections have been crucial. His recent collaborators have ties to the university. Chintagunta is a former Johnson Graduate School of Management faculty member and Hamilton is a Cornell Human Ecology undergraduate. Even the president of the consulting company, Mark Woodworth ’77, who gave Dev the data for his branding study, is a Hotel School graduate and frequent lecturer at Cornell. “Those ties are strong,” Dev says. “I would tell other researchers, look beyond your immediate department for collaborators. There are lots of people out there who care about Cornell and want to help the university fulfill its research mission.”