MCLEAN, VA (Dec. 18, 2002) � While the hospitality industry generally operates on the assumption that the traditional value items such as price points, location and personal service continue to be the key drivers affecting customer choice, the changing paradigms in almost all facets of consumer behavior suggest that the value drivers for purchases of hospitality services may also have undergone a shift in recent years. 

To assess the new value drivers for hotel customers, the HSMAI Foundation, sponsored by its Corporate Membership Program, spearheaded a research project to provide a better understanding of the nature and evolution of the value drivers among business and leisure customers of the hotel industry in the United States.  The study�s secondary objective was to explore the customer perceptions related to travel and hotel safety following the terrorist attacks on Sept. 11, 2001 and subsequent events. 

Whereas the �core offering� of a hotel � price, room and location � still account for about 70% of the choice criteria, approximately 30% of the selection process is led by new value drivers such as technology, loyalty points and customization options. 

�In an era of high speed competition where hospitality services have become more or less commodities, and hotels are fast becoming indistinguishable from each other, hotels have to be quick to adapt to the new and changing requirements of their customers in order to win their business,� according to study researchers. 

�Sales and marketing executives can no longer take anything for granted in allocation of funds for customer acquisition or retention,� stated Cindy Estis Green, managing partner of The Estis Group and chair of the HSMAI Foundation. 

She added: �In this quickly changing landscape, understanding what drives customer behavior is crucial, and knowing it is a moving target makes its study even more important for the sales and marketing professional.  HSMAI corporate members strongly support the ongoing study of topical and timely issues like this.� 

Methodology: 

To address the project objectives, the research team � directed by Professor Rohit Verma (University of Utah), Professor Chekitan Dev (Cornell University) and Professor Gerhard Plaschka (DePaul University) � conducted an online national hotel choice survey to capture the individuals� (both business and leisure travelers) preferences with respect to value-added features offered by upscale, mid-range and economy hotels.  The survey questioned respondents� frequency of hotel stay during the last year, about their most recent trip, their views about technology, and a series of hotel choice scenarios.  Using experimental design procedures, a selected number of customized hotel scenarios were generated for each individual respondent. Each hotel choice scenario contained a list of features (i.e.: weekday and weekend price, loyalty program options, and various hotel facilities, technology and customization options) offered by three generic hotels � one upscale, one mid-range and one economy.  The respondent was asked to choose one of the three hotels (including the choice of �none�) described in each hotel offering. 

Changing Paradigms: 

To respond to changing market needs, an increasing number of hotels have either initiated or proposed offering a wide variety of �new� value drivers, such as Internet reservations, high-speed in-room Internet access, enhanced frequent user programs and customization. 

However, a hospitality operator cannot afford to implement all best practice initiatives in all areas of hotel management to be �everything to everybody,� nor use experimental learning approaches by utilizing �spray & pray� tactics. 

Therefore, to maximize the gain from the introduction of new value drivers, hospitality companies need to develop an understanding of market preferences prior to the addition of new services to their existing offerings.  It is important to examine whether the product and service offerings actually add value for customers while at the same time remain economically viable to the organization, the study concludes. 

HIGHLIGHTS: 

• Amenities are becoming important value drivers, especially to economy travelers 
• Loyalty programs are nice to have, but don�t drive choice, although they are more important for business travelers 
• Price is the most important value driver for upscale business and leisure travelers 
• Eating options are not highly valued by business travelers 
• Customization counts more for leisure travelers 
• Leisure travelers value technology just as much as business travelers 
• Boutique hotels are valued over traditional hotels by both segments 
• Leisure travelers value hotel points over air and retail 
• Hotel guests see value of in-room kitchen facilities 
• All travelers value childcare options 
• Business travelers value shuttle service as top amenity 
• Video surveillance and photo ID checks are highly desired 
• Hotel guests on average seem to be willing to pay about a 10% premium for security 

Value Drivers for Business Travelers: 
Core offerings along with price, amenities and loyalty programs account for 80% of the relative utilities in all three markets (economy, mid-range, upscale).  Core amenities, location, price and loyalty programs are the critical value drivers for the economy segment.  For the mid-range segment, the relative importance for various value drivers is similar to that in the economy segment except for a relatively higher utility for hotel location and type.  Price seems to be the primary value driver followed by type/location of the hotel for the upscale segment. 

Value Drivers for Leisure Travelers: 
Within the economy segment, the primary value drivers are the amenities available. Price becomes more important for the mid-range segment although the relative importance of other value drivers mostly remains unchanged compared to the economy segment. 

Loyalty Programs:
For business travelers, retail points and airline miles seem to be equally attractive choice drivers.  Leisure travelers, however, would prefer to accumulate hotel points over shopping or airline miles. 

Dining Options: 
Business travelers assign the greatest importance to restaurant facilities among the three types of eating options, while leisure travelers consider free breakfast and availability of in-room kitchen facilities more than the availability of restaurants. 

Office Facilities and Technology Options: 
Office facilities and technology options only account for 5-10% of the total weight in the decision-making process. 

Hotel Amenities: 
Hotel amenities account for 20-30% of the choice.  For business travelers, the most important feature seems to be shuttle service to and from airports, while swimming pool facilities and fitness centers are secondary, but equally important for them.  For leisure travelers, the two most important hotel amenities are a swimming pool and access to childcare facilities. 

Willingness to pay extra for enhanced security measures: 
 

CONCLUSION: 

The study recognizes that while being aware of some of the key value drivers for the hotel industry, it is only one part of the equation.  To be successful, firms need to understand their own distinctive competencies, operational strengths and limitations and choose the product/service delivery strategy that not only satisfies the customer but also is in line with their own capabilities and overall direction. 

The logical next step would be to tie in customer demands with the operational capabilities of a firm to determine the optimum mix of service delivery options to maximize its value both to the customer and to its stakeholders. 

A detailed recap and analysis of the report appears in the fall issue of the HSMAI Marketing Review.  Subscriptions are included in the HSMAI membership or are available for $65 annually.  HSMAI members can access additional copies for no charge through the online store at www.hsmai.org.  Non-members can purchase copies of the HSMAI Marketing Review recap for $10 via the HSMAI web site. 

Funding for this study was from the members of the 2001 HSMAI Foundation Corporate Membership Program, which include: Accor, American Golf Corporation, Bass Hotels and Resorts, Best Western International, Cendant Corporation, Choice Hotels International, Citicorp Diners Club, Disneyland Resort, Fairmont Hotels & Resorts, HotelRevMAX, International Association of Convention & Visitors Bureaus, Irma S. Mann Strategic Marketing, John Q. Hammons, Manhattan East Suite
Hotels, Marriott International, MeriStar Hotels and Resorts, Millennium Hotels and Resorts, Omni Hotels, Opryland Hotels, Passkey.com, Prime Hospitality, PriceWaterhouseCoopers, Radisson Hotels & Resorts, RealTime Hotel Reports, Ron Volper Group, Smith Travel Research, Sonesta Hotels, Resorts & Nile Cruises, Starwood Hotels & Resorts, TravelClick, Inc. and Wyndham International.  The HSMAI Foundation Corporate Membership Program is now open for 2003 membership. 

The HSMAI Foundation was established in 1983 to serve as the research and educational arm of the Hospitality Sales & Marketing Association International.  Its mission is to expand and enhance the educational opportunities available to hospitality sales and marketing executives and to increase the amount of in-depth research conducted on behalf of the profession.