ANN ARBOR, Michigan—On Tuesday, 18 June, the American Customer Satisfaction Index released new customer satisfaction results for several economic sectors and industries, including data for the Transportation & Warehousing sector (which includes the Airlines and Express Delivery industries), and the Accommodation & Food Services sector, which includes updated data for the Hotels industry.
ACSI measures satisfaction with eight of the largest hotel chains in terms of market share, plus an aggregate measure of smaller hotels not directly measured—an “all others” score. Together, they represent approximately 45% of the total U.S. hotel room supply and approximately 60 hotel brands.
As such, it is fair to say that customer satisfaction with these hotel companies is a fair representation of the consumer satisfaction with the hotel industry in general. While most individual hotel chains experienced stability or only slight changes in their customers’ satisfaction this year, two chains dropped significantly (with +/-3 points on the 0 to 100 ACSI scale representing the threshold for significant differences), as shown in the graph below:
As the data shows, Hilton Worldwide led the industry this year with a score of 80, two points ahead of nearest competitor Marriott International (78), and three ahead of InterContinental Hotels Group (77). This is the fifth consecutive year Hilton has either held sole ownership or shared the Hotels industry lead, according to ACSI data.
At the bottom of the industry was Wyndham Hotels Group, down three points to a score of 70, and Starwood Hotels & Resorts Worldwide, which dropped four points to a score of 75. While Wyndham was at the bottom of the industry last year and thus its decline is not too surprising, the drop for Starwood moves it from near the top to near the bottom of the industry—an unwelcome reversal of fortunes. It is difficult to pinpoint exact reasons for the larger-than-typical decline in satisfaction for these two chains over the past year, as both companies consider customers to be very significant assets and revenue drivers. However, some insights into their business models and certain events might provide a perspective to help interpret these results.
In the case of Wyndham, the company has more than 600,000 hotel rooms and 7,205 hotels in their system, which consists of 13 hotel brands primarily concentrated in the economy segment of the industry. Its portfolio concentration (more than 85%) is in “legacy” brands such as Days Inn, Super 8, Ramada, Howard Johnson, Knights Inn and Travelodge. These brands had their inception in the early-to-mid 1990s.
Wyndham operates a franchise model (88% of its revenues are from franchising) where the company typically grants the use of a brand name to owners of hotels that the company neither owns nor manages in exchange for royalty fees that are typically equal to a percentage of room sales. With this model, the franchise company has limited control over individual owners, a fact further compounded by brands that are old and might suffer from market and functional obsolescence. Franchise agreements are typically signed for 15 years to 20 years, and in most cases, owners are responsible for the brand’s required upgrades to their properties. However, in reality, fiscal constraints for the individual hotel owner sometimes make those decisions contentious, leading to erosion of brand value.
Wyndham has several strategies, tactics and programs in place to improve its customer experience. A conversion program allows franchisees to convert to a newer Wyndham brand in place of the older legacy brands. In addition, Wyndham is working on a program to refresh and energize its older brands such as Howard Johnson and Ramada. A major emphasis for Wyndham in the future is to grow its lifestyle brand portfolio, which will appeal to the growing younger generation of business and leisure traveler. Wyndham also is growing its portfolio of hotel brands with strategic acquisitions of new brands such as Tryp. Furthermore, Wyndham is aggressively repositioning and growing its Microtel Inn & Suites by Wyndham brand. Other service initiatives include the continued emphasis on greening the hotel company, promoting the “count on me” customer service culture and providing a “WynReview” platform that allows franchisees to manage their consumer reviews on TripAdvisor, Expedia, Orbitz and Travelocity.
As noted earlier, the four-point drop in Starwood’s satisfaction scores is more surprising for several reasons. Unlike Wyndham, Starwood is a relatively smaller company with more than 1,000 hotels and about 308,000 hotel rooms. Its greatest concentration of rooms is in the luxury and upscale segment, such as St Regis, The Luxury Collection, Westin Hotels & Resorts, W Hotels and Sheraton.
The company operates on a management contract, franchise and ownership model. A majority of its hotels (518) are under management contracts, with the rest franchised and owned (419 and 59, respectively). Furthermore, the company was a pioneer and innovator for several of the industries guest comfort initiatives (copied fairly quickly by competitors) such as “The Heavenly Bed” and “Heavenly Shower” programs. The company also has a growing presence in the lifestyle segment; its upscale W brand was one of the earliest entrants into the segment.
All of these factors make the drop in scores surprising. On the other hand, the company has some similarities with Wyndham in its business model, as its “legacy” brand Sheraton was introduced approximately 75 years ago and is primarily franchised. The company is finishing up a multibillion dollar upgrade and repositioning of the Sheraton properties, which comprise approximately 40% of its portfolio of hotels. This includes the removal from the system of the lowest performing (on brand compliance) 20% properties, adding high-tech lobbies and refreshing guestrooms and related amenities.
Another aspect to consider when interpreting the results for Starwood is its concentration in the luxury and upscale segment of the market. This market attracts a higher paying and more discriminating and discerning traveler. Several of the leading hotel companies, including market leader in ACSI scores, Hilton, are entering this segment with their own luxury brands. Yet, if Starwood is not able to match the increasing expectations of these travelers with its luxury brand offering, it might have had an adverse impact on satisfaction.
Looking into the future, Starwood is positioning its brands globally to attract the next wave of a new travel segment to the United States, namely the Chinese outbound traveler. The extent to which a hotel company can meet their needs also will determine satisfaction scores for several years. In this arena, Starwood will have competition from most of the other major hotel chains that also are customizing brand offerings to meet the needs of the emerging Asian travel segment.
Considering all of the above and because changes in consumer satisfaction will sometimes accumulate over time, it will be important to watch both Starwood and Wyndham in the near future, as these declines might reflect the beginning of a more substantial decline in satisfaction, which could lead to eroding customer loyalty and limited opportunities for revenue growth for these chains.
While only two hotels changed significantly this year, and both in a downward direction, the industry remained at an all-time high ACSI score for the second year in a row:
When first measured in 1994, the Hotels industry (an average of the company scores weighted by market share) debuted with an ACSI score of 75. Following three straight years of falling satisfaction, the industry settled into a score consistently ranging only from 71 to 73, until peaking at 75 in 2006. After plummeting to 71 in 2007, the industry has seen scores of 75 or better, with the last two years registering at records of 77.
Although difficult economic conditions and high unemployment like the U.S. economy is experiencing will typically produce consumers that have less disposable income to spend, it can somewhat paradoxically also lead to better customer satisfaction. Pricing discounts and special offers, lower occupancy and less “load” on customer service personnel, and greater attention to detail among customer service staff motivated to protect their jobs are all likely explanations for the increased and strong satisfaction in the Hotels industry the last two years.
The American Customer Satisfaction Index is a national economic indicator of customer evaluations of the quality of products and services available to household consumers in the United States. Data from interviews with approximately 70,000 customers annually are used as inputs into an econometric model to measure satisfaction with more than 225 companies in 47 industries and 10 economic sectors, along with over 200 services, programs, and websites of approximately 130 federal government agencies. The Index was founded at the University of Michigan’s Ross School of Business and is produced by ACSI LLC. ACSI can be found on the Web at www.theacsi.org.
Forrest V. Morgeson III (Ph.D., University of Pittsburgh) is Director of Research at the American Customer Satisfaction Index (ACSI) in Ann Arbor, Michigan.
A.J. Singh is the Professor of International Lodging, Finance and Real Estate Finance in The School of Hospitality Business. Dr. Singh's has more than 15 years of hospitality business experience in various management positions in the U.S. and India.
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