Optimizing the Customer Experience An Opportunity for the Hotel and Hospitality Sector By Markus Mueller and Alvin

n Jackson Executive Summary More effective management of the customer experience is an opportunity area for operators in the hotel and hospitality sector to do more to differentiate their business through the customer experience. It has the potential to help customer retention, create better internal alignment of actions, identify cost savings, and drive incremental revenue growth. The practical first step towards achieving these goals is Customer Journey Mapping. Contact David Hicks, CEO of Mulberry Consulting at david.hicks@mulberryconsulting.com to schedule a no-obligation 30 minute online demonstration of how best practice customer experience companies are using Customer Journey Mapping to get ahead. See also the new paper from Forrester Research Inc, Mapping the Customer Journey Best Practices for Using an Important Customer Experience Tool which cites Customer Journey Mapping from Mulberry Consulting as a best-in-class example.

Context The recent recession was a sharp reminder for hotels to build loyal customer relationships with their guests. But a common response among hotels was to implement extensive operating cost reduction programs, without an understanding of the effect this would have on the customer experience and therefore on customer loyalty. This raises the question what is the right filter to determine what hotels should stop doing or do differently to optimise the customer journey? While competition has been higher than ever in the hotel sector, the proliferation of brands and branded hotels worldwide has led to a perceived commoditization of the hotel product. The sea of sameness is obvious and is supported by the fact that more and more individual design and boutique hotels are opening which try to be different. Big hotel chains are relaunching brands or creating life style segments for themselves, developing new service programs to appeal to the next generation of customers and trying to differentiate themselves from a commoditized hotel experience. A common factor both limiting companies ability to respond and to deliver a consistent brand experience across the estate and regions is the fact all hotels have a cyclical lifetime where physical condition and design do not help to deliver a consistent customer experience. A number of hotel brands have recognised this and started to develop distinct brand values and global communication strategies to differentiate their brand message but the truth from a customer perspective is, that, other than perhaps the advertising, the actual hotel experience has not changed that much (indeed advertising often increases service expectations that are then under-delivered). Nor has the customer journey become more consistent across the branded estate. In general it appears the bigger the brand the more potential for inconsistency within the individual hotels due to the physical condition hotel life cycle and the operational challenge of delivering a consistent service experience delivery. Whatever strategy a hotel brand might adopt to differentiate itself and deliver a consistent branded guest experience, we find three operational components which are absolutely essential to build customer trust: a coherent brand filter and positioning

Mulberry Consulting 2010

organisational alignment of all operational programs to minimize friction and enhance service delivery a superior execution of customer service programs, delivered consistently across all channels and touch points

Whats needed is not one or two of these in isolation its all three together. Anything less will not differentiate or create value over time and if developed in isolation increases dissonance and is likely to end up driving higher costs. . In the hotel industry, where there are inevitably large differences within the same hotel brands ( due to property age, physical condition, design, legacy staff and culture), a purposefully designed customer experience persistently and consistently delivered remains one of the few, cost effective sources of competitive advantage and differentiation. Industry Challenges A number of industry-wide challenges now face hotel companies seeking to build a consistent branded guest experience across their estate and differentiate the customer experience they deliver: Ownership alignment: It is a common business strategy for hotel management companies to franchise or manage hotels and not own the asset. This strategy provides many benefits, allowing companies to grow much faster and focusing on the things they can do best. However it also presents challenges in regards to delivering a consistent branded guest experience across a branded estate. Owners often do not provide extra funding for brand standards or hire new staff without a tangible return of investment. They obviously make decisions in the best interest of their asset return and are happy to make compromises with the overall brand promise or experience. Hotel management companies therefore have to spend time and money in extensive training programs to create and implement group culture and quality experiences. Financial Viability: Global hotel brands face the challenge of creating a consistent global hotel experiences while faced with different regional land and development costs as well as operating costs including employees and energy costs. Distribution versus consistent quality growth: How many brand compromises is a hotel company willing to make in order to get coverage in key locations? This obviously depends on the company strategy but can lead to a vast difference in brand delivery across regions and countries. Cyclical Lifetime of a hotel: The nature of a hotel business is that the physical condition of the asset, the design and furniture are getting older or outdated. Hotel companies have to decide where to draw the line where a hotel falls below brand expectations but which might not reflect its financial life cycle whilst depreciation and contribution figure large in financial statements, brand value is not reflected in the same way. Often inconsistent quality controls are in place. A lobby of a hotel could be outdated but in perfect physical condition. The question arises how do you measure outdated? Consumers today buy a new TV every 4-5 years. In a hotel a TV has to last 10 years from a financial perspective. Customer feedback scores can be also deceiving.

Mulberry Consulting 2010

Customer Expectations: While a hotel from a specific hotel brand might be completely below brand expectations for their global customer the hotel might have built a new local customer base at a lower price point which is perfectly satisfied with the hotel experience and gives them high satisfaction scores. However a global customer of that brand might be shocked by the experience. Proliferation of brands and branded hotels worldwide that is leading to the commoditization of the hotel product. Underlining this trend is confirmed by the recent Holiday Inn brand relaunch and the rise of Boutique & design hotels like ALoft, Indigo, Armani Hotels and Bulgari Hotels. Instilling authenticity: Authentic and relevant brand experiences and standards which both deliver the brand promise and reflect local culture remains a challenge. Customer expectations and core needs arising from cultural differences are often not consistently addressed and are commonly handled by the best knowledge of the acting general manager (not of itself a bad thing) often, without a corporate framework to help ensuring the desired consistent branded guest experience. Human Resources Issues: Qualified and suitable people, in particular in developing countries, are hard to get. Big hotel companies have started to create their own hospitality schools to address this challenge. General Manager Stretch, lack of clarity: Hotel managers usually come from an operational background in a hotel. However, the required skills for hotel general managers have changed dramatically over recent years. Today a general manager needs to have well rounded leadership skills, to understand sales, revenue management and finance. They also need to have excellent relationship and communication skills to manage all stakeholders including hotel teams, hotel owners and must understand the branded guest experience and service delivery. Often numerous corporate programs and different priorities provide lack of clarity and focus for hotel general managers, which ultimately have an impact on the hotel performance. Business Segmentation: Hotels have operated with effectively the same customer segmentation model for at least over 30 years, which is a mixture of purpose of visit, rate segment and distribution channel. Not identified channels are grouped into Rack/ or Frequent Individual Traveler rate segments. These are customers who are not getting a specific price discount but who are usually the most profitable customers. The old segmentation model makes it very difficult to capitalize on new trends and potential new customer segments since hotels look at the data within the same framework, there is little evidence of a segmented customer experience being delivered.

A Practical Approach Optimizing the customer experience does NOT mean gold plating everything that the customer touches. Rather, it involves systematically measuring and understanding the rational and emotional drivers that customers care about most, and then operationalizing the consistent delivery of the intended experience persistently across the business. In simple terms, the key is to understand what matters most to customers and then to deliver the appropriate experience, consistently and persistently over time and across multiple touch points.

Mulberry Consulting 2010

 Our experience suggests the most practical and speediest method for addressing this is Customer Journey Mapping, which is a practical way to capture what customers experience when dealing with a company, looked at from the customers own perspective. Customer Journey Mapping provides a visualization of all the touch points and interactions between an organization and its customers. The process of mapping shows where service experience delivery is valued by the customer and where it matters less or falls short, allowing for the creation of an operational framework with descriptions of the actions needed to deliver a desired experience. In a new white paper Mapping the Customer Journey 1 Forrester Research notes that Mulberry Consulting has customers rate relationships in terms of importance and company performance to identify broken moments of truth which Forrester sees as a best-practice approach. A major challenge to delivering an optimized customer experience is ensuring that the whole organization acts in concert, and indeed one of the internal benefits of Customer Journey Mapping can be to achieve better operational alignment across functions. Getting Started For organizations considering a new or revised customer experience effort there are a number of pragmatic questions that will help establish the starting point: Have we defined who our customer is? What are their expectations and how do they want to interact with their hotel? Do we treat our customers equally or equitably? Do we have an effective customer segmentation framework in place that differentiates our offer? Has the hotel broken down its brand promise so that it is easy to see how the customer experience should support and enable the value proposition? Is there visibility as to which touch points have the greatest impact on customer retention, persistency and advocacy? Are the customer-facing capabilities across the organisation aligned to provide a seamless service experience regardless of product or channel? Does the hotel understand the rational and emotional components of its service proposition, and does it know what customers do and do not value? Is the business able to measure whether equity is being created or destroyed at key touch points? Do individual staff members understand the purpose of their individual role in delivering a component of the overall customer experience, and how that fits into the bigger picture? If the answer to many of these questions is no, then Customer Journey Mapping is a good way to start to get an objective and customer-centred view of what is currently in place, what is working and what is not.

Business Benefits The business benefits for hotels of effectively mapping and optimizing the customer experience for key customer groups are significant and compelling: Return of Investment and Differentiation: Hotels are commonly categorised by a star rating depending on the product quality and general service levels. They often fail to deliver and communicate a different and/or distinguished experience from their competitors. A unique and

Copyright of Forrester Research 2010 Mulberry Consulting 2010 4

consistent service experience is an opportunity to strike away from the sea of sameness. A fully mapped and clear framework around the core brand proposition, translated into all customer touch points will increase the service focus resulting into clear and relevant product standards which have a greater customer impact and create more consistent, differentiated and satisfied guest experiences. Internal and External Alignment: Clear agreement on the desired customer experience and a comprehensive map of the customer journey are powerful tools for achieving internal alignment of functions, with a positive impact on staff morale, motivation and effectiveness. Hotel management companies and franchisors get the benefit of being able to clearly communicate the return of investment from following standards to hotel owners and why they are in place. Customer Satisfaction & Retention: Studies consistently show that there is a clear correlation between customer satisfaction and the impact on top line revenue of hotels. A positive service experience helps maintain customer retention, persistency rates, and conversely, a poor service experience drives these metrics down. Also, a business cannot up-sell or cross-sell customers who leave, so customer retention needs to be a strategic priority for any hotel company. Every company operates with a unique set of circumstances but our experience suggests that the financial business case for Customer Journey Mapping is very strong, with a single percentage point improvement in customer satisfaction adding significantly to the top line revenue. This holds true for cross-sell and up-sell opportunities. Cost Control: Delivering a poor customer experience is in fact significantly more expensive than optimizing it as money is often wasted in over-servicing areas not valued by customers. For example, it is a commonly known that hotels struggle to make money with their guest room minibars and from a customer perspective it is often a very disappointing experience, overpriced and a poor selection. Customer Journey Mapping can help businesses to identify the key areas in which to invest in order to make a difference, and to operationalize better models of customer behavior, thereby reducing costs over time. Again, we are talking about very significant sums of money in large organizations. Segmentation: Customer Journey Mapping can reveal the flaws in some segmentation models and can also provide data and insights leading to more nuanced strategies. For example, hotels tend to segment customers around purpose of visit and distribution channels, which can easily lead to a one size fits none outcome, even within a single customer segment.

Mulberry Consulting Since its start-up in 2002 Mulberry Consulting has been retained by senior management at some of the worlds largest organizations to provide advice on optimizing the customer experience and driving customer-centered change, a process we think of as helping our clients become more Customer Intelligent. Our proprietary tools and processes have been used successfully by many companies to develop frameworks within which disparate internal activities can be effectively connected and aligned behind a clear customer experience proposition. Headquartered in the UK, and with offices in New York and Toronto, Mulberry Consulting has significant experience in both Europe and North America. For more information please visit us at www.mulberryconsulting.com or contact David Hicks, Mulberry Consulting CEO, at david.hicks@mulberryconsulting.com to schedule a no-obligation 30 minute online demonstration of how banks and other best practice customer experience companies are using
Mulberry Consulting 2010

 Customer Journey Mapping to get ahead. Our existing clients are also available to talk directly about the impact this type of work has had on their businesses. ----------------------------------------About the authors: Markus Mueller is a marketing executive specialised in building brand love and consistent customer experiences helping organisations to increase sales and improve product performance with over 15 years experience throughout the hospitality & leisure industry spanning across Eastern Europe, Central Europe, The Middle East, India, China, The Caribbean, USA and Southern Asian regions. Alvin Jackson is a Director of Mulberry Consulting. He has consulted widely on customer experience strategies, design and implementation across a range of sectors. Alvin holds an MBA from the Imperial College Business School, London. ..

Mulberry Consulting would also like to gratefully acknowledge contributions to this paper from: Mike Ashton, formerly Chief Operating Officer, Hilton Hotel Group Michael Hobson, Chief Marketing Officer, Mandarin Hotel Group --------------------------------------------

Mulberry Consulting 2010