Are we entering the "Ancillary Revenue Revolution" in the Hospitality Industry?

The greater opportunity lies not in what to sell, but in how to sell it. Whether we like it or not, there are some best-sellers that travelers prefer and that generate significant revenue and margin for hotels. It's quite hard to come up with new product ideas, but it's quite straightforward to design a better way of showcasing the products hotels already have. There's low-hanging fruit in something as simple as presenting the traveler with ancillary products at the right time, in a hyper-personalized way, at the different steps of the funnel: while booking, pre-stay, and during the stay.

The roadblock is in the implementation, which typically requires approval or integration hotel by hotel. If upselling is driven by the hotel's e-commerce team, deployment will happen faster and will be more profitable.

I'm forever surprised by hoteliers who seem to consider that the room booking is the culmination of the guest sales journey, and not, as it should be, the start! The honeymoon period for upselling is at the time of booking, so why not employ tools that are easily accessed by QR codes to advertise hotel amenities and services to help boost spend per customer? Consider a booking to be like a project: two IT companies get an order for the same value - 100. At the end of the project company A has made 140 but company B has made 400. Guess which company is still in business and which one went bust? (True story, I worked for one of them - contact me for details).

We interviewed a General Manager of one of our resort hotel customers recently. I thought he made an interesting comment "I am not in the business to sell a flower or chocolate deal!, yes it may delight the guest, but it's not really helping my bottomline, given the logistics involved to get it actually all to the guest". 

Don't get me wrong, this GM loves upselling, and is all for ancillary revenue, and I am also a great believer of it, but let's first exhaust the high margin items around room upsell, early arrival and late departures. 

Room upgrades until now can only be done by facilitating a guest moving up a room type. With ROOMDEX, using ABS (attribute based "up" selling) pricing and inventory technologies Hotels very soon will be able to monetize on guest movement within room types, by applying specific feature upselling within the room type, which will achieve 2 things, more revenue, and greater guest satisfaction (I really got what I wanted). 

Now hotels can exploit ancillary revenue from specific room features!     

I don't believe we are entering the ancillary revolution. 

Firstly, 'ancillary' is not  a true reflection. These are revenue centers and they have always existed. For the reason that when the investment is made to produce a product or service it follows that genuine effort will be made to merchandise the product. 

If anything, with the focus on room sales and the digitalization of this segment of the hospitality product over the past 20 years (think industry capacity), the remainder of the product and service offerings common to hospitality got lost or forgotten about in the process. Revenue growth and opportunity has brought this back to the forefront of industry attention. 

The 'ancillary' products have always existed. They have always required the rigor and discipline of selling to the customer. However, the systematic or digital effort has been slow to materialize. These products never made it on to the 'digital shelf'. 

Most hotels and resorts struggle to actively sell inventory beyond the room in real time. Almost all are not able to consolidate the buying experience to bring to life the range of the products available to the customer. I'm not referring to add-on's and packages as these are not true inventory based sales or real time decrementation. Nor do they measure demand and regularly do not have robust pricing mechanisms or channel management. The traditional add-on items speak to a technology environment that is unable to deliver the functionality described above. 

This is the capability that needs to be attained. Coupled with a digital or in person buying experience that brings the entire 'experience' together, extending into third party marketplaces. 

It is only recently that meeting spaces, tables, lifestyle experience such as spa, tickets, course, sporting activities and wellness or transportation etc. have converted in small ways to a systematic selling process with limited customer facing commerce capability. In most cases giving the house and customer away in the process (here we go again!). These products are core baseline hospitality products that need to be sold. The owner does not view these capital investments as ancillary.

Recognizing the opportunity will require investment in technology as well as a shift in the traditional view of the nature of hospitality operations and selling. I see the next generation of revenue operations as 'Experience Management'. Not in the way that is spoken about today from a purely guest or aspirational view. A meaningful operational expertise where the active matching of products and services across the spectrum to customer time and place availability, plus preference, interest and buying behavior result in a matched experienced = revenue capture. It will be manual initially and eventually enabled by technology when the capability emerges. It's not there yet, but some of us are working on it. 

Until this is achieved concepts like Total RevPAR and Lifetime/Total Customer Value as a driver of revenue and pricing will remain in the future. Along with unsold inventory. Not to mention revenue!

We need to look at this from the guest's point of view. To the hotel it's a 'cross-sell' but to the guest, it's an opportunity to have a better experience. Indeed, hotels offer a wonderful amount of scope to provide many things above and beyond a bed for the night.

One of the most important stages in the guest journey is post-booking and pre-arrival when guests are full of anticipation and looking forward to their trip.

A well-designed pre-stay communication, sent by email or text, can invite guests to enrich their itinerary by suggesting a room upgrade and a variety of products and services to enjoy. With no pushy hard-sell, this is simply the best time to showcase the hotel's amenities and what's on offer. It's also the best time for the guest to check-in and for the hotel to capture payment details, dietary preferences etc…

Once on property, messaging is often the most effective way to reach out to guests. Our own data reveals that one luxury hotel brand increased ancillary revenue by 90% amongst chat users, including a 15% increase in average order value for in-room dining. Our data also shows the optimal time to send a message to guests offering help with transport back home.

Hoteliers displayed great resilience and creativity during the pandemic by finding new sources of revenue, such as rooms for day-use, office facilities, and F&B click-and-collect or delivery services.

At a time of soaring input costs, hoteliers are still looking for new opportunities. Opening up the hotel to the needs of local people by providing services such as yoga classes, after-school tuition, or storage space could be another way of boosting revenue.

Airlines have perfected ancillary revenue strategies and hoteliers should study and learn from the airlines best practices in this respect.

Airlines' ancillary revenue ranges anywhere from 20 percent of total revenue for major airlines to 50 percent for low-cost carriers. According to IdeaWorksCompany, ancillary revenue totalled nearly $110 billion globally in 2019 and, despite dipping considerably in 2020, garnered more than $50 billion that year, rising to $68 billion in 2021. Most notably, ancillaries increased as a share of total global airline revenue in both pandemic years.

Actually, in 2020 for the first time four low-cost carriers — Allegiant, Spirit, VivaAerobus, and Wizz Air — generated more ancillary revenue, or income beyond standard airfares, than they did revenue from ticket sales.

There are significant revenue opportunities outside of room revenue and room upselling and upgrading:

1. Make your property the “hero of the destination”:

Bundling rooms with local places of interest into attractive hotel packages offers significant revenue opportunities. Hoteliers know their destination, local attractions and places of interest better than anybody else. This is where hoteliers can truly outwit the OTAs and Airbnb, and provide real value to their customers.

You can position your hotel as the “hero of the destination” by launching packages, special offers and campaigns that promote a more unique, local experience, such as places of interest and activities, tickets to local attractions and sporting events, local dining, local pub crawls (in future better times), visits to hidden boutiques and local hangouts, and complimentary passes for public transportation or Uber passes. Introduce “live like a local” messaging in your marketing efforts.

Even simple things like selling tickets to sought after museums or museum passes at the front desk or via the concierge can generate significant revenues. By buying museum passes at the front desk of my hotel in Paris I beat what was a minimum of three hour line to purchase museum tickets at the Louvre. The hotel was smart to promote this service on their website!

Do you offer hotel packages and bundled services to target your local, short-haul and drive-in feeder markets, such as:

• Family fun packages
• Activity packages
• Museum packages
• Theater packages
• Theme park packages
• Special occasion packages, etc.
• Weekend specials
• Coronavirus de-stressing packages
• Spa packages

2. F&B Ancillary Revenue:

Open to both hotel guests and locals, F&B can bring significant revenues to any full-service hotel. A few things to consider:

• Cooking classes
• Wine Tastings
• Chef's Menu Dinners
• Converting suites and hotel rooms for private dining.
• Coffee shop+WiFi in the lobby

3. Meeting Facilities and Hotel Spaces:

Opening the empty meeting facilities and hotel spaces to local customers and businesses can unlock great revenue opportunities.

• Co-Working Spaces
• Work-From-Hotel Daily Rates
• Rent-a-conference-room packages
• Pop-up Shops ( Roger Smith Hotel in New York City)
• Showrooms
• Art Galleries
• Book Signings

There is an ancillary revolution in the hospitality industry. A recent Oracle study found that 81% of hoteliers surveyed expect a big service model shift between now and 2025, and 49% strongly agreed that special amenities and upgrades are critical to their revenue strategy.

People often liken this shift to airlines, but perhaps a better analogy is retail. Retailers – from big box to social media sites – have trained consumers to not just accept upsell or ancillary offers, but to look out for them. For hoteliers, this is a good thing.  These companies, and others, make it possible for hoteliers to position upselling as a means of creating a better experience for their guests, not just hawking products and services.

But how are these retail companies upselling so successfully? And how can hoteliers emulate it?   Machine learning.  This form of artificial intelligence enables hotels to capture and apply data to present relevant offers to guests in real time and maximizing total revenue per guest.  This type of data isn't the usual sort that hoteliers tend to fall back on.  Historical data, especially in post-COVID times, is less valuable than it once was.  What's more valuable is data that illuminates why the guest is taking this trip right now, so a deep understanding of reservation data is critical – market segment, source of business, rate code, day-of-week check-in, etc. 

As guests move through the booking and pre-arrival phase, every additional guest interaction is valuable data. Did they click on the loyalty offer on the booking engine confirmation web page?  Did they ignore an upsell offer for a suite on the confirmation email?  Did they click on an early check-in offer on the pre-arrival email?  Did they pre-register on their mobile device?

As a system begins to receive data during the reservation life cycle, personalization – even for guests who have never booked with your hotel before – becomes possible. Personalization at this level identifies different things about a guest all at the same time to understand what combination of attributes that guest values, at what price, and at what point in their journey the guest will be most likely to upgrade or request services or products. 

When a guest checks in, the system can take into consideration what was already offered to the guest earlier in the reservation life cycle and how the guest reacted. The closest way to get to true personalization is using these buying signals specific to an individual guest.   With that knowledge, the system can present recommendations to the front desk/reception agent in real time to inform their upsell offers for each guest. 

Every guest wants a different experience. Some are willing to spend on a suite, some on food and beverage, and some on other offerings.  What hotels offer will vary widely; a hotel with an attached water park doesn't want guests to leave the property, so will offer park-view rooms, or pet passes, or pool-side cabanas.  A city-center property attached to a mall may have partnerships with retailers or entertainment providers in the mall or offer marked-up shipping services for all those packages bought at those retailing partners.  A hotel in a location with lots of outdoor activities may become a reseller for local tour and activities providers.

One of the greatest values of machine learning is the feedback loop; that is, writing the guest interaction with the offer back into the data so the machine can learn what guests accept – and just as importantly, what they reject – to make better offer decisions in the future.  The more buying signals the system can receive, the more targeted merchandising offers can become.

Ancillary vs. upselling vs. cross-selling – it's all the same: revenue generated by offering guests products and services relevant to their stay.  The only way to generate sustained and forecastable incremental revenue is to automate it using machine learning. 

In my view, a hotel can never be complacent in its revenue strategies no matter how strong revenue streams and positive finances they may have. It is always best to diversify the income channels of hotels to improve your overall hotel offering, boost innovation and protect your hotel's revenue from the unexpected. Ancillary revenues have also become increasingly popular post-pandemic offering benefits to hoteliers to recover lost profits. It acts as the perfect-backup strategy for hotels moving forward during stagnant periods like political or economic crises, off-tourist seasons and so on.   

It is time the hotel industry steps up to be even more competitive and think outside the box, providing products and services that will match their hotel theme or destination, beyond the usual guest enhancement services. Hotel Tech Report states the global hotel revenue dropped by 46% in 2020 compared to 2019 and a full recovery of this loss isn't expected until 2023. Services like facilitating sports technology or metaverse platforms for fans during seasonal events, creating co-working spaces for bleisure travellers, partnering with branded restaurants, leasing to cloud kitchens, electric charging vehicle stations and other upselling smart facilities will be an eye opener to bring in additional revenue to the hotel.  

Waterpark and other complementary entertainment facilities are also at the top of the list of successful ancillary strategies in many regions. In fact, research about hotels in Saudi Arabia revealed those with aquatic equipment generated 119.9% more Average Daily Rate (ADR) than those without and created RevPAR more than almost $100.   

On the other hand, this can be quite debatable as using ancillary revenue as their primary goal is not really going to help hotels to be competitive in the market.  

Further, the possibility of large hotel chains like Marriott implementing their media network for advertising purposes has been a brave move. However, does this mean that smaller hoteliers are at stake for not thinking out of the box? Or is this a matchless game in the industry?   

It is inevitable that the concept of ancillary revenue will disrupt certain sectors in the hotel industry. However, moving forward, hotels must take advantage of available resources to match the market trend and revolution. Revenue management has been considered vital in any industry as its the core of running a successful business. It enables the Management to constantly be aware of new ways to increase profits and strategically plan the cash flow which is much-needed in gaining a competitive edge. Leveraging the latest technologies to analyse valuable market insights—for example, CRM automation, centralised guest intelligence from POS, PMS and loyalty programs— are a few support solutions for a hotelier to identify the ideal opportunities for non-room revenue.  

The list of benefits of what ancillary services can do to hotels can be endless. However, it is a matter of time and situation that each hotel must implement based on the location and market conditions. Diversified revenue streams will enable hotel businesses to improve their guest engagement, brand loyalty, boost real estate revenue per square foot without incurring significant additional costs in today's inflationary environment, and safeguard the property's revenue-generating capabilities from unexpected events in the future.   

The pandemic has geared up the hotel industry to take adverse decisions to make additional revenue to recover profits. During the pandemic, I know of hotels that started providing dry cleaning and housekeeping services for select clientele in the same city. Some continue providing those services.

However, it can be questionable as how much of too much ancillary revenue must hotels implement? As this may be capable of taking away the concept of hospitality in the hotel industry. After all, every hotel must focus on providing the ultimate guest experience. The right balance of both will definitely enable hoteliers to take their businesses to the next level. 

Want to know my two cents on ancillary revenue?

Just look at your feet.

I mean it.

Picture that.

You get into a Converse shop and buy a pair of Chuck Taylor's.

You wear them. They're comfortable and match perfectly with your RAMONES T-Shirt.

However, they come with no laces.

You go back into the shop and ask for an explanation.

The clerk candidly tells you: "Hey, man, we make 2B$/year, so we don't even bother selling anything else then the shoes. I think we have shoelaces somewhere in the shop, but I get my sales bonus from our PRIMARY product, not from ANCILLARY revenue."

Where am I going with this?

In 2019, our industry made $550B in room revenue, and we were happy selling laceless shoes, no matter how anti-economic the main idea was.

In 2020, we dropped to $200B, and -oh boy!- shoelaces were all we could sell, as nobody was allowed to buy our sneakers. 

Bottom line? I don't even get why we're still discussing this.

If you're selling something, then it's a revenue center. No matter if it's a room, a dinner, a massage, or a shuttle to the airport. You may call it "Total Revenue Management." I just call it "common sense."

However, we're creatures of habit, and I won't be surprised if we'll be back to selling laceless shoes before we even know it. Probably, with a projection of over $700B in revenue in 2022, most RMs are already doing it...

I personally do not expect an ancillary revolution. We have been hearing about the importance and the opportunity that ancillaries' services bring to our industry: increasing revenue and boosting the personalization. Some companies have acquired desiccated ancillaries' platforms others signed join ventures or integration with dedicated platforms, trying to add more value (and revenue) to the guest full journey, including curated local experiences, adding more service to the room... But in one way or the other, despite being an important part of every hospitality strategy, no one of them has really succeed. However, in my opinion, thanks to the massive data and advanced algorithm we are able to develop and deploy, we have reached a break point. Particularly, It does not start from the need to upsell; it comes from the need to personalize every stay/experience and boost the business margins. Offering the proper service package by breaking down the old services in a micro-services. We are not offering and Standard Room with Breakfast, we will offer a room with a king bed, with a bathroom without tube, with and specific shampoo and a vegan breakfast. Don't get it wrong, this is much more than attribute base distribution, is about every single experience during the guest stay. And is much more to get more revenue, is about to getting the best margins to the business.

Although travel demand has been steadily increasing since the end of the pandemic, the hotel industry faces a new set of challenges (and opportunities!). Persistent labor shortages have highlighted the need to provide higher wages and benefits, while the industry itself faces increased competition from short-term rental providers like Airbnb. For their part, travelers are simultaneously demanding more personalization and enhanced service during their stay. Fortunately, technology offers hoteliers a clear path to success in this new environment. By leveraging a flexible and seamlessly integrated ecosystem of mobile platforms, hotels can adopt a more holistic approach to revenue generation, turning every space in their hotel and every touchpoint in the guest journey into an opportunity to earn revenue and enhance the guest experience. 

Adopting this approach starts with expanding your hotel's asset classes beyond the standard model of “one room for one night.” Offering day-use or hourly rates allows your brand to cater to busy airport travelers or remote workers in need of a change of pace from the monotony or distractions of working from home. Creating a short-term rental option 一 and then augmenting it with a staff-less check-in and a more communally-oriented lobby 一 is also a great way to compete directly with short-term rental properties. 

Of course, the way you offer ancillary revenue is as important as what you offer. The key is to deliver the right message at the right touchpoint to drive the conversion. A mobile PMS, for example, can send targeted, automated offers for room upgrades, amenities, and monetized early check-in/ late check-out directly to a guest's smartphone. With mobile upselling, Stayntouch customers benefit from conversion rates up to 18% for upsells and 10% for add-ons. These rates can be further boosted by integrating with a CRM and a smart upselling tool, which uses expanded guest profile information and advanced AI to optimize messaging and prices. 

Your hotel's physical space can also be used to generate revenue. Guest-facing kiosks can de-emphasize (or eliminate!) the need for a front desk, and help to transform your lobby from a glorified waiting room, to a guest-centric space for socializing, co-working, and dining. Integrating with a mobile guest messaging system and a mobile Point-of-Sale (PoS) system can ensure that the mobile experience you've created during the guest welcome can extend throughout the rest of their stay. 

Ancillary upselling does not serve as a be-all-end-all for maximizing a hotel's overall revenue picture, but when implemented intelligently and systemically incorporated into a guest's physical and digital travel journey, it can enhance a hotel's bottom line and guest experience.