FRAMINGHAM (08/15/2000) - Traditionally, hotels have measured performance the old-fashioned way: by how much money is made from each room. Even in the hospitality industry, revenues have come not from customers but from products.
But Marriott International Inc. has started to account for itself differently, using customer relationship management systems to build an income stream based on how much each guest spends--not just on one room in a single stay, but over time, in different cities, at a wide range of hotels, resorts and conference centers. And although Marriott will not be able to measure the bottom line on the changes for some time, it has put in place the mechanisms to do so and believes these changes will ultimately lead to greater profitability.
During the past two years, the world's largest hotel chain (measured by number of properties) has invested US$70 million in major information systems, including new sales-force automation software databases that support Marriott's customer loyalty programs. The point of all this effort is to put more information about customers and facilities in the hands of employees. Marriott is using this data for cross-selling to guests and meeting planners and smoothing transactions with the franchisees that run its hotels. It's also giving more personal service to both its corporate and individual clients.
These IT investments are expected to add up to more revenue from happier, hence more loyal, customers.
But unlike investments in accounting or supply-chain management systems, for which you can compute how much you save from automating a process or carrying a smaller inventory, it's hard to assign a specific return from each dollar spent on CRM technology. The financial contribution CRM makes often comes from new business practices without clear precedents; CRM depends on changing the behavior of customers whose purchasing patterns are also motivated by many external factors. So Marriott doesn't directly measure whether its new systems are saving or earning the company money. "What we measure are the programs we put in place that information technology supports," says Executive Vice President and CIO Carl Wilson.
Marriott is tracking how much more money guests spend at its resorts if they participate in a new vacation-planning program called Personal Planning Service. The program's database helps hotel employees set up golf tee times, dinner reservations or other activities for guests before they start their vacations.
Guests who sign up for the program work with a concierge who arranges an itinerary for the trip and records it in the database. The next time a traveler vacations at a Marriott resort, concierges there can use the information in the database to set up a similar set of activities, if that's what the guest wants.
Marriott has found that guests who participate in the program spend an average of $100 more per day at hotel golf courses, restaurants and on activities like guided tours for which Marriott gets commissions. Because guests don't use the database themselves, Marriott measures the additional revenue against what it spends on the entire program, not just its investment in the database.
Wilson says he considers the return on investment for information systems by itself only when guests are the end users. For example, he measures how much Marriott earns from offering high-speed Internet access in guests' rooms (at a charge of $9.95 a day for the service). Robert Shaw, a marketing professor at Cranfield University in Bedfordshire, England, whose 1998 book Improving Marketing Effectiveness is scheduled to be published in the United States, says companies that understand CRM technology won't generate returns on its own are on the right track. "Once you know how you've changed the way customers are behaving, you can quickly calculate the impact," Shaw says, by examining whether that new behavior has increased net revenues or profits. Often, however, companies don't pair new systems with new business practices that affect what customers do.
"We have hard evidence related to our business processes and the services we provide that tell us our customer relationship adds value," says Wilson.
Marriott asks customers, through informal and formal surveys, whether they received the treatment they wanted. It also measures the effectiveness of its sales force through test bookings. "Guests vote by every dollar they spend with us," Wilson says. The company logged $8.7 billion in sales last year, besting top rivals Hilton, Hyatt and Starwood.
Marriott operates eight hotel chains and 10 brands of residential properties in 56 countries and territories, including the Ritz-Carlton, itself famous for knowing its customers before CRM became a tech buzzword. Other Marriott hotels include the Renaissance, Residence Inn and Courtyard chains. But before the company installed new sales-force automation software from Siebel two years ago, its sales force logged information about the customers only at the hotels or hotel groups to which they were assigned. If a guest wanted to book a room or a meeting at a hotel that was full, Marriott's salespeople had no way of knowing whether a hotel belonging to another Marriott chain in the same city might be available. Tony Reid, vice president of sales information and planning systems, says he knows the system has made a difference because Marriott captured $55 million in cross-chain sales last year--a measurement it wasn't able to track before. "Prior to us having this system in place, customers would hang up and maybe go to a competitor," Reid says. What the company hasn't been able to measure is whether customers would have made some portion of those bookings anyway. "One of the toughest things is to say what we were doing before," says Reid. He adds that Marriott executives made "a leap of faith" that being able to send guests to sister hotels would keep at least some of them from going elsewhere. Marriott will have more evidence that the new systems are effective if cross-selling revenues continue to increase.
The new sales-force database also provides salespeople with a companywide view of customer accounts. "Most customers do business with multiple hotels," says Reid, and Marriott thinks that if its sales reps know everything about a customer, they'll understand better what each customer wants to buy, down to whether they like to serve bagels at a breakfast meeting. The company assumes that if customer satisfaction scores go up, it will be because employees had access to information that allowed them to deliver better service. But Reid says he'll also be looking at whether these happy meeting planners book more business with Marriott. If current customers give Marriott hotels a larger share of their business--a measure Marriott hasn't used before--Reid will know the customer-focused sales strategy, enabled by the new systems, is succeeding.
"The systems development on the SFA side was part of a bigger effort around the way we approached customers. The entire effort has an ROI around it."
Marriott won't have data on the impact of its new sales strategy until the end of the year, after it conducts surveys and focus groups with meeting planners this fall. But the experiences of some company salespeople suggest to Reid that the approach, and the systems that enable it, have had positive results. He tells of two salespeople for different Southern California hotels who were each chasing the same customer, a meeting planner at a large high-tech company.
Because one salesperson had already interviewed the meeting planner about her needs, his colleague didn't have to repeat the process (and annoy the customer by wasting her time). Instead, the two salespeople visited the meeting planner together and offered a joint proposal, which was accepted.
Robert Mandelbaum, director of research information services with the Hospitality Research Group in Atlanta, says there's not much growth potential in the lodging industry from building and renting more rooms, so hotels have to find ways to get customers to spend more when they visit. Industrywide, nonroom income accounted for 34 percent of hotel company revenues last year, according to Mandelbaum's research, and income from these sources, which include restaurants, grew faster than revenue from room rentals. In Marriott's case, "there aren't a lot of markets left where there isn't an existing Marriott hotel," he observes.
In addition to using CRM systems to help capture more business from corporate meeting planners, Marriott is also applying IT to create brand loyalty with individual vacationers and business travelers. Marriott executives hope that the Personal Planning Service, which is helping to generate more revenues from each guest's visit, will also result in repeat business because guests have better vacations.
"The guest experience starts when we're planning the itinerary, not when they arrive on the property," says Mike Dalton, senior vice president for lodging systems. If a guest has pleasant dealings with a hotel for three weeks before his vacation starts, "it's a more lasting memory." Although the company hasn't yet analyzed whether more customers are coming back to Marriott resorts because of the service, Dalton says satisfaction ratings are up.
One vacationer wrote the concierge at the Desert Springs Marriott in Palm Desert, Calif., that his Valentine's Day visit there with his wife "without a doubt will be the highlight of our year." Marriott employees had arranged restaurant reservations and golf tee times for the couple and even sent a car to pick them up at the San Diego airport, more than 100 miles away, when their flight was delayed.
Even though Marriott executives say they measure everything, there are still some CRM investments that don't lend themselves to clear financial metrics.
Last year Marriott deployed new systems that integrate all the account information from multiple corporate departments about the franchisees and property owners that develop and run hotels for the company. The system helps Marriott's corporate staff coordinate their work with hotel operators and keeps them up-to-date about business matters.
With information about contracts, construction schedules and other aspects of building and marketing its hotels at hand, Marriott employees can more easily answer questions about the status of projects or solve problems that its franchisees encounter. If construction delays mean a new hotel has to open two weeks late, the hotel operator can be more confident that this information gets passed on to employees staffing Marriott's reservation center. Dalton thinks that if his company is more responsive to its business partners, they'll "feel good about bringing us the next deal." But the company hasn't figured out how to measure whether the investment in the system will really result in more deals to open new properties.
Instead, Dalton expects a survey conducted in June to show that hotel owners are more satisfied with how Marriott works. "One measure of owner satisfaction is whether the owners think Marriott employees are communicating better with them. We're hoping that's an area [in which] we'll see a big improvement," Dalton says.
It's another case in which you just have to trust your instincts, adds Wilson.
He thinks hotel owners simply expect Marriott employees to have information about their accounts at their fingertips, making the investment in the new system a necessary cost of doing business.
Nevertheless, Wilson says, it's not that hard to figure out the value of most CRM investments if you stay focused on returns from the business processes the systems support. He offers this example:
Say you're heading to Atlanta next month and you want to stay at the Marriott Marquis hotel in Peachtree Center. With Marriott's integrated sales database, "we may be able to say, 'Sorry, the Marquis is filled up, but for the same rate we can get you in the Renaissance that is two blocks away,'" Wilson says. "If we didn't have that, the customer would be frustrated with Marriott and would very likely stay at a competitor's hotel. Those things are easy to measure."
Senior Writer Elana Varon would like hotels she visits to provide an espresso machine in her room. Tell her what makes you a loyal customer at firstname.lastname@example.org.
PROFILE: Marriott International Inc.
Location: Washington, D.C.
President & COO: William Shaw
Exec. VP & CIO: Carl Wilson
Revenues: $8.7B (sales)
The Keys to Success: Some dos and don'ts for measuring the return of CRM DO... Look for ways to measure how customer behavior should change once CRM systems are deployed. "What CRM systems are potentially quite good at is keeping track of behavior," says Robert Shaw, a marketing professor at Britain's Cranfield School of Management. When you know what customers are doing differently, it's easy to calculate how your company is gaining financially.
Take the long view. If you're using CRM to support activities you've never measured before, you may not be able to promise first-year returns from your investments, suggests Doug Holden, managing director for customer management solutions with KPMG Consulting. Do the project in phases and use initial results as a benchmark to justify the next installation. "Just acknowledge the fact that you don't have good historical data," he says, and decide what measures will reveal whether your project succeeds.
Focus on which of the problems CRM is supposed to fix. If you know what's not working, says Shaw, it's easy to come up with metrics that show whether your technology investments are improving your financial picture.
DON'T... Rely on cost savings to deliver value. They're not irrelevant, says Jonathan Copulsky, a partner with Deloitte Consulting in Chicago, but they're not the point. Focusing on efficiency doesn't help you get your customers to buy more, and cost-cutting measures might even turn customers off.
Equate past customer satisfaction with future customer value. "You can be delivering horrible value and recording 100 percent customer satisfaction," says Stephen Diorio, president of IMT Strategies, a marketing and technology research company affiliated with Meta Group. Emphasize measures that tell you whether the margin of revenue or profit of a customer increases because you used CRM technology.