As a hotelier, you’re in a busy, demanding industry, always looking to improve performance and guest satisfaction. It’s easy to rely on ‘tried-and-true’ principles that have guided hotel management for years. But what if some of these beliefs are now ‘tired’ and even misleading?
I’ll challenge three outdated ideas that may impact your operations: the notion that hotels can create demand instead of capturing it, the myth of constant guest loyalty to a single property, and the over-reliance on room capacity metrics as the key to success. By debunking these, you can refine your approach, make better decisions, and build a stronger, more profitable hotel.
Misconception #1: Hotels Can Generate Demand
The Common Belief
It’s a tempting and often subtly perpetuated idea within the hotel industry: that an individual hotel, through savvy marketing, irresistible promotions, or sheer brand magnetism, can actually create new demand for accommodation. The underlying thought is that if you build a compelling enough offering, or shout loud enough, you can conjure guests who weren’t otherwise planning to travel or stay.
The Reality: Hotels Capture Existing Demand
While a hotel’s efforts are crucial, the reality is that hotels primarily capture existing demand, rather than generating it from scratch. Demand for travel to a specific destination is driven by a complex web of external factors, including the allure of the destination itself, seasonal attractions, major city-wide events or conferences, prevailing economic conditions, business travel needs, marketing efforts by the Destination Marketing Organization (DMO), and global travel trends.
If hotels could truly generate demand at will, “there would never be a low season or shoulder days because hotels could easily generate the extra demand they need to fill the hotel to 100% occupancy.” This simple but powerful observation cuts to the heart of the matter. The existence of fluctuating demand periods is clear evidence that hotels are primarily responding to, not creating, the primary desire or need to travel to their location.
The role of a hotel, therefore, is to position itself to attract and secure bookings from the pool of travelers already intending to visit its specific city or region. Hotels compete vigorously for their share of this pre-existing pie, differentiating themselves through service, amenities, price, and experience to win over guests who have already decided to travel.
Why This Distinction Matters
Understanding this distinction between generating and capturing demand isn’t just a semantic exercise; it has profound implications for how you manage your hotel:
- Impacts Marketing Strategies: Instead of the costly and often futile effort of trying to create primary demand for travel to your area, your marketing resources can be more effectively deployed. The focus shifts to sharp differentiation, understanding your target segments within the existing traveler pool, and crafting compelling messages that highlight why your hotel is the best choice for their pre-existing travel needs. It’s about market share, not market creation.
- Influences Revenue Management: Accurate demand forecasting is the cornerstone of successful revenue management. If you operate under the illusion of being able to “generate” demand, your forecasts can become overly optimistic and disconnected from market realities. Recognizing that you’re capturing existing demand leads to more realistic forecasting, allowing for more strategic pricing, better inventory control, and more effective channel management aligned with actual booking patterns and competitor behavior.
- Sets Realistic Expectations for Performance: Understanding this helps set achievable goals and evaluate success more accurately. Performance isn’t just about hitting an occupancy target in isolation; it’s about your hotel’s performance relative to the market (e.g., RevPAR index/RGI). It allows for more informed decisions during slow periods – perhaps focusing on cost control or targeted niche marketing rather than expensive, broad attempts to “create” guests who simply aren’t there.
By acknowledging that your hotel operates within a larger demand ecosystem, you can make more intelligent and targeted decisions that truly drive profitable business from the available market.
Misconception #2: Guests Return to the Same Hotel (Loyalty is High)
The Common Belief
One of the most cherished beliefs in the hotel industry is the idea of the loyal guest – the satisfied visitor who, having experienced your hospitality once, will eagerly return time and time again. This assumption often underpins customer service philosophies, marketing investments in loyalty programs, and the general expectation that good service naturally breeds repeat business.
The Reality: True Repeat Stays are Rarer Than You Think
However, sobering research and evolving traveler behavior paint a starkly different picture. Talking to Amadeus a while ago, for instance, revealed a startling statistic: on any given night, only about 2% of guests staying in a specific hotel have stayed in that exact same property before. This surprisingly low figure suggests that genuine, unwavering loyalty to a single, undifferentiated hotel is the exception rather than the rule.
Several influential factors contribute to this reality in today’s dynamic travel landscape:
- Transparency & Choice: The digital age has armed travelers with unprecedented transparency and choice. Online Travel Agencies (OTAs), comprehensive review sites, and sophisticated search engines allow guests to effortlessly compare a multitude of hotels on price, location, amenities, and peer experiences. Loyalty to one property often takes a backseat to the allure of a better perceived deal or a seemingly superior option just a click away.
- Desire for Novelty: Modern travelers, more than ever, are driven by a passion for new experiences. Even when returning to a familiar destination, many opt to try a different hotel, seeking a fresh perspective, unique amenities, or simply a change of scenery. The “experience economy” fuels this curiosity and reduces the likelihood of habitual repeats.
- Product Homogenization: Adding to this is the challenge of true differentiation. As you’ve noted, “most hotels in the same category offer almost the exact same product and service.” When offerings are largely undifferentiated, it becomes exceedingly difficult for guests to form a strong, distinct attachment that compels a repeat visit over exploring a comparable competitor.
- The “Exceptionally Fantastic” Bar: Consequently, the bar for securing a repeat stay is incredibly high. Unless a guest’s experience was truly “exceptionally fantastic” – memorable in a profoundly positive and distinct way that goes far beyond mere satisfaction, the temptation to try somewhere new next time often prevails, assuming they even return to the same destination. Good is no longer good enough for automatic loyalty.
Implications for Hoteliers
Given this landscape of nuanced guest loyalty, the strategic path forward for hoteliers requires a pragmatic and multifaceted approach:
Focus on Making Every First Stay Exceptional: The primary battleground is the first impression. With guaranteed repeat business to a specific property being a rarity for most, every effort must be made to ensure each guest’s initial stay is as close to perfect and as memorable as possible. This is your prime opportunity to not only satisfy them but also to generate positive word-of-mouth and those crucial online reviews.
The Paramount Importance of Consistent Positive Online Reviews and Reputation Management: If guests are constantly shopping around and comparing options for each trip, their decisions will be heavily influenced by what other travelers are saying. Maintaining a stellar online reputation through consistent positive reviews across all relevant OTAs, review sites, and social media is no longer a ‘nice-to-have’; it’s a fundamental necessity for attracting the vast majority of guests who will be first-timers at your property.
Strategic Role of Loyalty Programs in a Modern Context: This understanding doesn’t render loyalty programs obsolete, but it does reframe their primary impact, distinguishing between individual property loyalty and broader brand affinity.
- For a specific hotel, loyalty programs remain valuable for identifying and rewarding its most genuinely frequent direct bookers (that small but essential segment), gaining deeper customer insights from this committed group, and encouraging direct channel usage.
- More broadly, especially for hotel brands with a portfolio spanning multiple destinations, loyalty programs are crucial in fostering overall brand loyalty. A guest might not return to the exact same hotel, but if they are part of a brand’s loyalty program and their previous stays have been consistently exceptional, they are more likely to choose another hotel within that brand when visiting a new city or seeking a different experience. This brand-level loyalty, however, is highly conditional; a subpar experience at one property can easily lead them to try a competitor brand for their next trip, regardless of loyalty points.
- Therefore, while loyalty programs can support brand retention, the strategic imperative for any individual hotel must remain a relentless focus on effectively attracting, converting, and delighting new guests through outstanding first-time experiences. Your marketing, sales, and operational efforts should be heavily weighted towards winning that initial stay, making it a memorable one, because for many guests exploring their options, it may indeed be their only stay at your particular property.
In essence, while fostering brand loyalty through programs and consistently exceptional experiences across a portfolio is a key strategy for chains, each hotel must prioritize making every guest’s stay remarkable. The modern hotelier thrives by understanding that the majority of their guests on any given night are likely experiencing their specific property for the first time, making excellence in these initial encounters and a strong online presence the universal keys to sustained success.
The Old School View
For decades, the “holy trinity” of hotel performance metrics has been Occupancy (Occ%), Average Daily Rate (ADR), and, as a result, Revenue Per Available Room (RevPAR). This historical focus is certainly understandable. For many types of hotels, especially those with limited service offerings, room revenue is the core product and the primary driver of income. These KPIs provide a relatively straightforward snapshot of how effectively a hotel is filling its rooms and the average rate achieved for each.
The Evolving Reality: Hotels as Multifaceted Businesses
However, particularly for full-service hotels, resorts, and convention properties, this traditional, room-centric view is increasingly insufficient. Modern hotels operate as complex, multifaceted businesses with a diverse array of significant revenue streams that extend far beyond the bedroom door. These critical ancillary revenue centers include:
- Meetings & Events (M&E)
- Food & Beverage (F&B)
- Spa & Wellness
- Activities & Ancillary Services
Focusing solely on room-centric KPIs when such substantial revenue contributions come from these other departments provides an incomplete picture. More importantly, an overemphasis on capacity-based metrics can sometimes overshadow the fundamental element of hospitality: the individual guest experience and its direct link to sustained profitability.
The Shift to Holistic and Guest-Centric Performance Measurement
Recognizing this, the industry needs to champion KPIs that reflect not only total operational profitability but also the value and satisfaction generated from each guest. After all, unhappy guests will not lead to sustainable business, regardless of how well rooms are filled in the short term.
Key metrics for a more comprehensive and guest-focused approach include:
- EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization): This remains a crucial indicator, offering a clear view of a hotel’s overall operational cash flow and profitability before financing and accounting decisions.
- Revenue per Guest (RevPG): Shifts focus to the value generated from each individual. It encourages teams to maximize the revenue contribution of every guest across all available products and services during their stay.
- Profit per Guest (ProPG): Taking it a step further, ProPG directly links guest activity to bottom-line results. A strong ProPG indicates that the hotel is not only generating revenue from its guests but is doing so efficiently and in a way that likely correlates with higher satisfaction (as value is delivered). This KPI inherently directs the team to enhance guest satisfaction as a cornerstone of long-term financial sustainability.
- TRevPAR (Total Revenue Per Available Room): This is an aggregated measure (Total Revenue / Number of Available Rooms) that indicates how effectively the hotel generates revenue across all its departments relative to its fixed capacity of rooms. While RevPAR focuses solely on room revenue per available room (PAR), TRevPAR provides a more comprehensive picture of total revenue generation efficiency against the same capacity.
Ultimately, from an owner’s or investor’s standpoint, the ROI (Return on Investment) is the paramount measure of success. Sustainable EBITDA, bolstered by a healthy Revenue and Profit per Guest, is a critical driver of this ROI. Focusing on departmental profitability in isolation should be approached with extreme caution, if at all, as it can often lead to suboptimization where individual departments prioritize their own metrics at the expense of total hotel profit and guest experience.
Why a Broader, Guest-Focused View of KPIs is Crucial
Adopting this broader, more guest-centric view of KPIs isn’t just about more comprehensive reporting; it’s fundamental to superior management, enhanced guest satisfaction, and long-term value creation:
- Better Decision-Making: Understanding revenue and profit per guest enables informed decisions on service enhancements, personalization efforts, and tailored offerings that increase guest value and satisfaction, ultimately impacting loyalty and advocacy.
- Accurate Valuation and Sustainable Profits: A hotel’s worth is increasingly tied to its ability to generate sustainable profits. A focus on guest satisfaction, as measured through metrics like Profit per Guest, signals a healthy business model that is less reliant on transient, potentially low-margin volume.
- Improved Operational Efficiency Focused on Guest Value: When performance is measured by the profitable value delivered to each guest, it encourages all team members to think holistically about the guest journey, breaking down departmental silos and fostering collaboration to enhance the overall experience.
- Long-Term Financial Sustainability: Happy, satisfied guests who feel they’ve received good value are more likely to return (even if infrequently), recommend the hotel to others, and are less price-sensitive. This creates a more stable and sustainable revenue base, directly driven by a commitment to guest well-being.
In today’s competitive environment, effective hotel management requires looking beyond traditional capacity metrics. It demands embracing KPIs that reflect the diverse revenue streams, the central importance of each guest, and the direct link between guest satisfaction and enduring profitability.
Conclusion
We’ve examined three outdated misconceptions that can negatively impact hotel management. It’s time to move beyond them:
- First, the notion that hotels can generate demand out of thin air. The reality is that successful hotels excel at capturing existing demand, understanding market drivers, and strategically positioning themselves to win their share of travelers already heading to their destination.
- Second, the deeply ingrained belief that guests will loyally return to the same hotel for future trips. While cherished, the data and evolving traveler behavior show that true, unwavering loyalty to a specific property is far less common than assumed, with novelty, choice, and exceptional value often guiding decisions.
- And third, the idea that the most important KPIs are solely related to room capacity. In truth, for many modern, multifaceted hotel operations, actual hotel performance and profitability are measured far beyond just room metrics, requiring a holistic view including total revenue and profit, such as TRevPAR and EBITDA.
The Bigger Picture
Moving past outdated beliefs isn’t just about correcting a few industry assumptions; it’s about finding a stronger, more realistic approach to managing hotels. By discarding outdated myths and focusing on alternative KPIs, hoteliers can develop more effective marketing campaigns, target guest acquisition and retention more precisely, and utilize performance metrics that accurately reflect their property’s financial health. This clarity leads to realistic expectations, more informed decisions, and a healthier, more adaptable, and genuinely innovative hotel industry, one that is agile enough to meet today’s informed and discerning travelers’ needs.
