Industry Update
Opinion Article17 July 2018

The Secret Sauce to Profitability for All-Inclusives: Understanding Total Guest Value

By Dan Skodol, Vice President of Revenue Analytics

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The evolution of all-inclusive resorts reads a lot like the fairytale of Cinderella. From humble beginnings catering to a dollar-stretcher crowd - with mediocre buffet food, mid-level accommodations, and events centered around boisterous pool activities - to today's transformation into a bright, rising star in the hotel industry. From 2011 to 2014, demand for all-inclusives rose from 8 to 14 percent,1 and now they are one of the fastest growing segments in vacation lodging. Hundreds of all-inclusive resorts now span the globe, moving beyond beachside havens to include ski resorts, wellness retreats, and exotic cultural destinations. Fueled by improving economic conditions and shifting guest expectations, all-inclusives now offer posh accommodations, diverse cuisine, and an ever-expanding array of amenities and services for guests of all ages and preferences.

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Look Beyond Traditional KPIs

While occupancy and package revenues have traditionally been key performance indicators (KPIs) to monitor when seeking to boost profits at all-inclusive resorts, it's much more beneficial for hoteliers to focus on increasing their ratio of customers with higher Total Guest Values. Total Guest Value comprises the revenue a customer brings in from all resort profit centers, less all costs associated with that customer, including package and acquisition costs. With these insights at their fingertips, hotel revenue managers can more effectively target a resort's most valuable guests, as well as accurately forecast demand, optimize revenue, and drive higher profit margins across all customer segments.

When considering Total Guest Value, it's important to understand that the type of traveler vacationing at all-inclusive resorts has changed dramatically over the past 15 years. No longer made up of budget-conscious vacationers and party-seeking singles, the new all-inclusive clientele skews toward multigenerational families, adventure seekers, health-and-wellness aficionados, luxury vacationers, and Millennials - who are making all-inclusives one of their top choices for destination weddings and honeymoons.2

In the past, a primary disadvantage of all-inclusive resorts was the inability to upsell guests to generate additional revenue. All-inclusive vacationers were happy to lounge poolside and enjoy the standard one-size-fits-all menu of activities found at nearly every resort. Today's customer expectations have changed dramatically. All-inclusive resorts now offer a staggering array of ancillaries and luxury services to guests who are more willing to splurge on activities and experiences beyond their initial vacation package purchase. While traditional packages might include hotel, airfare, transportation, food, and beverage as fully covered, many all-inclusives are now adding upsell options such as entertainment, kids-zones or adults-only spaces, local excursions, and upscale restaurants. As a result, overall Total Guest Values are on the rise, and they're bringing all-inclusive resort profits right along with them.

Targeted On-Property Upsells Boost Total Guest Value

In order to improve profitability, it's important to capture data and analyze on-property guest shopping behavior at a granular level. Because guests typically pay for their packages several months before traveling, by the time they're on site, they feel comfortable indulging in ancillary purchases that will make their vacation more special. They're more likely to spend extra money on a nice bottle of wine, private dinner, personalized services, or even the work of local artisans on display, knowing they won't experience sticker shock at the end of their stay.

All-inclusives gain incremental revenue by offering air and land transfers, and higher value/higher margin packages, such as wedding packages. Length of stay is another metric to consider, because in general, the longer a guest stays the higher their Total Guest Value. Guests who stay longer may be more likely to leave the resort. And with the all-inclusive model, every missed meal, or drink that's not consumed, ends up positively impacting a hotel's bottom line.

One of the most notable changes between the old all-inclusive model and the modern one is the improvement in dining and drink offerings.3 Bland buffets have been replaced with high-end restaurants that partner with Michelin-star chefs. Today's resorts offer authentic, locally sourced cuisine, and premium spirits in handcrafted cocktails. "Foodie" guests can be tempted to pay additional for dining upgrades and special programs like chef-led trips to local markets, fishing with local fishermen, or learning the finer points of tequila making during a tequila tasting.

Personalized amenities and bespoke experiences appeal to travelers across multiple segments. Luxury-seeking guests will savor state-of-the-art spa treatments and personal butler service. The growing resort-within-a-resort concept4 has gained a solid foothold in the all-inclusive luxury category. Guests are willing to pay for more deluxe accommodations with special views and on-demand shuttle service, as well as exclusive access to private restaurants, lounges, and unique areas of the property.

Off-Property Experiences Meet Customer Desires

Back in the day, travelers were fine with staying put within the resort gates for a week. Now travelers want more from their vacations, wishing to explore their surroundings through uniquely local, experiential activities.5 These excursions are rarely included in the original package fare.

Sophisticated all-inclusive hotel operators are revamping activity offerings. Resorts can either create their own excursions or partner with off-property tour companies to bring in incremental revenue streams by providing culturally immersive excursions and outdoor adventure activities such as ziplining, scuba diving, and hiking.

In addition, a growing desire for deeper meaning from travel experiences has led to surging demand for volunteer tourism, or "voluntourism."6 According to a Conde Nast Traveler "Readers' Poll," 47 percent of respondents said they are interested in volunteer vacations and 98 percent of those who had volunteered were satisfied with their experience. All-inclusives that develop traveler philanthropy programs experience a win-win-win. They not only help their local communities and increase guest satisfaction, but earn repeat visits as well. Many voluntourism guests return each year, visiting local communities to witness the difference they're making.

The all-inclusive approach has shown that it consistently delivers strong ROI, with sector growth expected to increase between 5 and 7 percent per year.7 And when it comes to factoring Total Guest Value into the revenue optimization process, the impact on profits is clear. Today's all-inclusive guests are more than willing to make spontaneous travel purchase decisions for customized regional experiences and top-tier ancillaries.

Revenue Management and Marketing should closely partner to capitalize on these opportunities to bring in high-value guests. They can work together to segment their business by looking at factors such as point of origin, booking channel, lead time, room type, and any other indicator that helps identify their most valuable guests. Revenue management should forecast future demand from high-value segments and identify ways to ensure that these guests have access to inventory at any given time.

All-inclusive hotels can leverage their high-value demand by aligning amenities and services with guest preferences and spending habits to provide authentic traveler experiences that strengthen relationships with customers, inspire greater loyalty, and help to maximize bottom-line revenue.

SOURCES:

Dan Skodol

Dan Skodol is Vice President of Revenue Analytics at Rainmaker. Dan came to Rainmaker with over ten years of Revenue Management experience in gaming, hotels, multifamily real estate, and airlines. He is responsible for researching and designing enhancements and innovations within Rainmaker’s hospitality product suite, as well as supporting thought leadership topics and studies via analytics.

    More from Dan Skodol

    About Rainmaker

    The Rainmaker Group, a Cendyn company, is the premier provider of revenue and profit optimization solutions to the hospitality industry. Rainmaker's intelligent profit platform helps hotels, resorts and casinos optimize revenue, drive increased profitability, save valuable time & outperform competitors. As part of Cendyn, Rainmaker offers a complete set of software services for the industry, aligning marketing, sales and revenue teams to optimize their strategies and drive performance and loyalty across their business units. To learn more about Cendyn and its suite of hotel revenue management and profit optimization solutions, visit LetItRain.com or www.cendyn.com.

    About Cendyn

    Cendyn is the leading innovative cloud software and services provider for the hospitality industry. With a focus on integrated hotel CRM, hotel sales, and revenue strategy technology platforms, Cendyn drives sales, marketing and revenue performance for tens of thousands of hotels across the globe. The Cendyn Hospitality Cloud offers a complete set of software services for the industry, aligning marketing, sales and revenue teams to optimize their strategies and drive performance and loyalty across their business units. With offices in Boca Raton, Atlanta, Boston, San Diego, London, Munich, Singapore, Sydney, Bangkok and Tokyo, Cendyn proudly serves clients in 143 countries, delivering over 1.5 billion data-driven, personalized communications on behalf of their customers every year. For more information on Cendyn, visit www.cendyn.com.

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