Cornell CHR Reports

The Billboard Effect: Online Travel Agent Impact on Non-OTA Reservation Volume

Tue, 27 Oct 2009 11:29:07 EST

Hotels that are listed on third-party distributors’ websites, commonly known as online travel agents (OTA), gain a reservation benefit in addition to direct sales. That benefit, often called the billboard effect, involves a boost in reservations through the hotel’s own distribution channels (including its website), due to the hotel’s being listed on the OTA website. This report provides a quantitative assessment of the incremental reservations through non-OTA distribution channels received as a result of being listed on an OTA site. To quantify the billboard effect, this pseudo experiment examined the effects for certain properties operated by JHM Hotels that are listed on Expedia.com. The study found that when the hotels were listed on Expedia, they saw an increase in reservations from their own distribution channels (that is, not through Expedia). The theory behind this phenomenon is that the would-be guest gains information about the hotel from its OTA listing, but then books the room through a channel controlled by the hotel or its chain family. The study estimates the incremental reservations from listing on Expedia (not including the reservations actually made at Expedia) at 7.5 to 26 percent for the four properties in this study.

Operational Hedging and Exchange Rate Risk: A Cross-sectional Examination of Canada’s Hotel Industry

Tue, 13 Oct 2009 15:45:12 EST

Rather than engage in expensive and complicated currency hedging, hotels operating in an international environment can gain similar benefits from their normal operations, including revenue management. An analysis of 1,032 Canadian hotels over a period of over two and one-half years shows that due to exhange rate interactions, ADR, occupancy, and RevPAR increase in weak currency environments, while they decrease in strong environments. As a local currency fluctuates in relation to the dollar, euro, or yen, changes in ADR, occupancy, and (thus) RevPAR offset losses from currency translation in weak environments and modify gains when the currency is strong. When a local currency loses value against the dollar, for instance, travelers consider hotels priced in that currency to be less expensive, even though the nominal price hasn’t changed. Additional travelers who are attracted by "bargain" prices increase occupancy and cause the hotel’s revenue management system to recommend higher rates. Even with higher rates, the hotel’s rates might still be favorable, and the hotel’s revenue per available room would be augmented by both higher room rates and higher occupancy. The implication is that multinational hotel chains have significantly less exposure to foreign exchange risk than implied by traditional hedging practices.

Product Tiers and ADR Clusters: Integrating Two Methods for Determining Hotel Competitive Sets

Wed, 16 Sep 2009 15:19:34 EST

Despite the importance of accurately identifying a hotel’s competitors, determining those competitors is not a simple task. A common and easily implemented approach is to categorize products in terms of product type, but competition may occur across different types of products depending on how consumers perceive goods as substitutes. As an alternative, we identify the competitive set using cluster analysis based on hotels’ average daily rate (ADR). A cluster analysis of the ADR of 49 hotels in one urban tract in the U.S. found five competitive clusters, in which upscale properties were in some cases competing directly with economy hotels. This analysis indicates that some properties have a discrepancy between their intended product type and their perceived competitive position, based on ADR. By integrating and comparing the results of the two methods for the purpose of performance evaluation, managers, owners, analysts, and investors can ascertain the market position of a hotel as determined by its guests, and make inferences regarding the hotel’s value proposition, property condition, service offerings, and management acumen. In particular, the analysis points out performance benchmarks for hotels that are underperforming their competitive set and those that are outperforming their competitors.

Safety and Security in U.S. Hotels

Tue, 15 Sep 2009 15:22:58 EST

An investigation of the physical attributes or features that signal safety and security in a sample of 5,487 U.S. hotels revealed significant differences in the distribution of these key amenities in various hotel price segments and geographical locations. Differences in these physical attributes were also found among hotels of various sizes, ages, and locations (e.g., urban, airport, small town). An analysis of hotel index scores across several different categories revealed an average safety-index score of 70 and a security index score of 64 out of a possible score of 100. Overall, luxury and upscale hotels, airport and urban hotels, large properties, and new hotels are most likely to maintain a high level of safety and security amenities. In contrast, old, small, and budget motels are the properties most challenged in providing those safety and security features.

Hotel Revenue Management in an Economic Downturn: Results from an International Study

Thu, 08 Oct 2009 09:58:45 EST

The sudden reversal in the lodging industry’s fortunes from 2008 to 2009 has brought a renewed focus on revenue and profitability for revenue managers. In a survey conducted in 2009, 291 revenue managers cited concerns about customer rate resistance, contract renegotiations, competition, and price wars as their top considerations. This contrasts with a 2008 study, where human resources and technology issues were ahead of economic concerns. Participants in the 2009 Revenue Management Roundtable, produced by the Cornell-Nanyang Institute of Hospitality Management, concurred with the study’s findings. In particular, the meeting participants pointed to the difficulty in maintaining pricing positioning, because the drop in demand has shifted considerable pricing power to the customer. Although many hotels can compete effectively on price (and others may have little choice), revenue managers may also draw on numerous non-price competitive techniques, including adding value. One pricing approach might be to create a set of targeted rate promotions that are protected by rate fences and designed to attract price-conscious guests. Another technique is to bundle services into packages that disguise room rates. Non-price techniques include competing on the basis of quality, creating strategic partnerships, taking advantage of your loyalty program, developing additional revenue sources, and developing additional market segments.

Wine List Characteristics Associated with Greater Wine Sales

Tue, 28 Jul 2009 08:28:13 EST

Wine lists can be powerful merchandising tools that should be thoughtfully designed. Restaurant operators and observers have offered many suggestions regarding how to present a wine list to improve sales, but few direct tests of these notions have been published. Based on design and content attributes extracted from 270 wine lists from restaurants in several major metropolitan areas across the United States, this study evaluated the extent to which thirty wine-list characteristics coincided with higher wine sales. Overall, restaurants with higher wine sales tend to have wine lists that (1) are included on the food menu, (2) do not include a dollar sign ($) in the price format, (3) include more mentions of wine from a specific set of wineries, and (4) include a “Reserve” category of wines. On the other hand, using “Wine Style” as a major organizational category was associated with reduced sales. For casual dining restaurants specifically, higher wine sales were related to extensive wine lists that have a length of approximately 150 bottles of wine as compared to lists with fewer or more bottles, and with wine lists that offer more low-cost wines. Neither of these factors showed any effect in fine-dining restaurants.

Research made possible by a grant from Southern Wine & Spirits of America, a senior partner of the Center for Hospitality Research.

Competitive Hotel Pricing in Uncertain Times

Tue, 07 Jul 2009 13:37:32 EST

This analysis of the pricing (ADR), demand (occupancy), and revenue (RevPAR) dynamics in the U.S. hotel industry for the period 2001 through 2007 demonstrates the potentially negative consequences of attempting to maintain market share by offering prices below those of direct competitors. This seven-year study examined the outcomes of pricing behavior on total rooms revenue and occupancy for hotels and their competitors in both bad times (2001-2003) and good (2004-2007). The results are the same in both periods. Hotels that offer average daily rates above those of their direct competitors experienced lower occupancies compared to those other hotels, but recorded higher relative RevPARs. For 67,008 hotel observations, this pattern of demand and revenue behavior was consistent for hotels in all market segments, from luxury to economy. Overall the results suggest that the best way to have better revenue performance than your competitors is to have higher average rates. The findings suggest that lodging demand may be inelastic in local markets, and hotel operators may wish to resist the pressure to undercut competitors when possible.

Managing a Wine Cellar Using a Spreadsheet

Wed, 20 May 2009 15:34:57 EST

Using examples from a new Wine Cellar Management Tool, this report describes the many spreadsheet-based analyses in this tool that can assist an individual, restaurant, or bar to manage a wine cellar. If one is disciplined about recording the inflows and outflows to and from the cellar, the spreadsheet tool will provide several cellar analyses. In addition to providing insight into the key questions of what to consume and what to promote, the tool shows such interesting and informative analyses as appellations, vintages, and types of wine. In the tool described in this report, the spreadsheet itself incorporates form-based sets of data entry fields. The Wine Cellar Management Tool, which is available at no charge from The Center for Hospitality Research at Cornell University, does not require actual knowledge of how to construct a spreadsheet. It does require diligent data entry regarding wine purchases and withdrawals.

The Wine Cellar Management Tool
Download The Wine Cellar Management Tool

$ or Dollars: Effects of Menu-price Formats on Restaurant Checks

Tue, 28 Jul 2009 11:23:53 EST

Empirical research on menu design and price presentation has focused primarily on menus’ effects on consumers’ attitudes, and not necessarily on actual purchase behavior. This study examines how customers reacted to menus’ price formatting in terms of actual sales, as measured by check totals for lunch at St. Andrew’s, the restaurant at the Culinary Institute of America, in Hyde Park, New York. Price formats tested in the study were a dollars and cents numerical format with a dollar sign ($00.00), a numerical format without a dollar sign (00.), and scripted or written-out prices (zero dollars). While the numerical manipulation did not significantly affect total spending when compared to such non-menu factors as party size or length of time at the table, the price formats did show noticeable differences. Contrary to expectations, guests given the numeral-only menu spent significantly more than those who received a menu with prices showing a dollar sign or those whose menus had prices written out in words. Psychological theory, by contrast, predicted that the scripted format would draw higher sales. Although these findings may apply only to lunch at this particular restaurant, they indicate that menu-price formats do influence customers’ spending, both in terms of total check and spending per cover.

Customer Preferences for Restaurant Technology Innovations

Wed, 29 Apr 2009 11:22:01 EST

When restaurateurs evaluate whether to adopt technology-based service innovations, they must consider not only the costs and benefits of that technology, but also customers’ reactions to the procedural changes accompanying the innovation. Technology that damages customer satisfaction may not be worthwhile, no matter how much it reduces labor costs. In this report we present the results of a national survey on customers’ perceptions of eleven restaurant technologies, as well as whether respondents use those technologies and the value they see in them. The technologies are pagers for table management, handheld order taking while waiting in line, internet-based ordering, kiosk-based payment, kiosk-based food ordering, online reservations, payment via SMS or text message, payment via (RFID) smart card, payment via cell phone using NFC technology, virtual menus available tableside with nutritional information, and virtual menus online with nutritional information. These technologies are categorized in the following five categories: kiosk, menu, online usage, payment-based service innovations, and queuing. Using a research technique called best-worst choice analysis, the study found that the technologies used most commonly were pagers and online reservations, while cell-phone payment was used hardly at all. The results show that the perceived value of a specific technology increases after the customers have had the opportunity to use it, and different demographic segments valued the technologies differently. Frequent technology users visited restaurants more often than infrequent technology users did.

Fostering Service Excellence through Listening: What Hospitality Managers Need to Know

Mon, 06 Apr 2009 15:55:21 EST

Amid the “noise” created by increased use of computers and other technology, the ability to listen takes on increasing importance for hospitality employees. Listening is essential in the course of delivering personal, customized service. A survey of eighty-three hospitality managers found the highest agreement with the statement that effective listening is vital to business success. For hospitality organizations, that success is tightly linked to the quality of service produced by employees. At the same time, survey respondents gave their lowest agreement to the statement that most members of their organization listen well. Listening is the foundation of two organizational processes essential to service delivery, one involving the accurate exchange of information and the other facilitating the development of strong relationships. Employees who are good listeners have a willingness to listen and an awareness of their own listening ability (although that may be overestimated). While developing listening competencies is not easy, it is possible for managers to improve their service employees’ listening abilities through modeling effective listening and offering training that is then augmented in the workplace—all the while improving service delivery. In addition to the rapid pace of the hospitality industry and interference from technology, one other barrier to effective listening is the diversity of employees and guests. Not only cultural differences, but also gender and age differences influence listening styles and effectiveness.

How Restaurant Customers View Online Reservations

Thu, 25 Jun 2009 16:25:04 EST

Restaurant customers appreciate the convenience of being able to make restaurant reservations online, but they also like the personal touch of telephone reservations. A study of 696 restaurant customers found that nearly one-third had made an online reservation. Those who made reservations online tended to be younger than those who did not, and online users also ate out more frequently. Those who made online reservations considered those reservations to be significantly more convenient than telephone reservations, and the online users also thought that websites gave more information about a restaurant than what they learned by calling on the telephone. At the same time, those online users felt that they had a better personal connection with the restaurant when they made telephone reservations. This tradeoff between efficiency and service perceptions points to a strategy of offering reservations via both methods. Emphasizing the convenience of online reservations may encourage customers to use the website, and that will give restaurant operators more information about their customers. Whether a restaurant uses a third-party reservation service or builds its own website, one key to ensuring a successful reservations process is to make the electronic process as straightforward as possible.

Key Issues of Concern in the Lodging Industry: What Worries Managers

Wed, 04 Mar 2009 14:07:17 EST

Human resources management is the most troubling issue of concern to managers and executives in the lodging industry worldwide, according to a survey of 243 managers taken during 2008. The study identified a common set of shared problems that impede the ability of industry leaders to manage effectively, with human resources issues being at the forefront. Over 60 percent of respondents from six different regions of the world in both general manager and executive positions reported that the human resource issues of attraction, retention, training, and morale were key areas of concern. Other problems include economic and environmental matters, understanding customer needs, rising operating costs, and thinking strategically in a competitive environment. The study provides an update to a similar study conducted in 2001. Certain issues identified in that earlier study, including information technology and branding, have dropped from hotel executives’ list of concerns.

Don’t Sit So Close to Me: Restaurant Table Characteristics and Guest Satisfaction

Tue, 27 Jan 2009 12:55:53 EST

Managing restaurant capacity effectively includes making sure that the dining room is equipped with sufficient tables of the appropriate size and type to meet expected demand. Restaurateurs usually make a point of seating parties at the right-size table to maximize seat utilization, and some restaurants set tables fairly close together to make the best use of the available floor space. We examined whether providing guests at a full-service restaurant in New York City with extra personal space improved their satisfaction and meant increased spending or longer lengths of stay. Guests seated at tables that were larger than necessary (that is, parties of two seated at four-tops) did not have significantly different perceptions of satisfaction or spending behavior from those seated at right-size tables (that is, at deuces). However, parties at closely spaced tables reported significantly reduced satisfaction, as well as lower spending per minute when compared with widely spaced tables. Patrons dining at this New York restaurant seemed uncomfortable when tables were set as close as seventeen inches apart, and were more satisfied when the distance was closer to a yard apart. These findings, which apply to the dinner period at a fine-dining restaurant, offer support for the practice of seating parties at appropriately sized tables, and suggest that restaurant operators give careful consideration to the spacing of tables in the dining room.

Compendium 2009

Wed, 11 Feb 2009 13:21:01 EST

The 2009 Compendium is an anthology of the more than 40 reports, tools, and white papers published by the center in 2007 and 2008. Authors include numerous faculty members of the Cornell School of Hotel Administration, as well as the University of Utah, the National University of Singapore, and Ohio State University. Contributing practitioners include the general manager of the Willard Hotel and the managing director of MindFolio. The compendium contains executive summaries of all reports, conveniently arranged by topic. Categories are communication, finance, human resources, marketing, and operations and management for both hotels and restaurants. All the reports, tools, and white papers described in the compendium, as well as the compendium itself, can be downloaded at no charge by following the simple registration instructions on this web site.