Boston Hospitality Review Summer 2015 Vol. 3 No. 2

www.bu.edu/bhr

Contents Summer 2015

History

Boston, the Booth Brothers, and the Parker House Susan Wilson 6

Development

Airport Hotels: Laying the Foundation for a Synergistic Relationship 10 Allison Fogarty

Research

The Pricing Effects of Heritage at an Iconic Hotel 18 Bradford Hudson

Interview

The Customer is Always Right, Right? A Look at How Yelp Has Taken 30 Hold of the Boston Restaurant Industry Rachel DeSimone

Marketing

Search Engine Marketing (SEM) Financial & Competitive Advantages 39 of an Effective Hotel SEM Strategy Leora Halpern Lanz and Jovanna Fazzini

Summer 2015 | Boston Hospitality Review 3 Executive Summaries Boston, the Booth Brothers, and the The Customer is Always Right, Right? A Parker House Look at How Yelp Has Taken By Susan Wilson Hold of the Boston Restaurant Industry By Rachel DeSimone April 14, 2015 was the 150th anniversary of the assassination of President Abraham The Internet and mobile availablility has Lincoln. This is the story of how that fateful changed the restaurant review game. Local day was linked to Boston, the Booth Boston chefs and restaurant managers re- Brothers, and the Parker House. flect on the pros and cons of such outlets, like Yelp, on their businesses and menus. Airport Hotels: Laying the Foundation for a Synergistic Relationship Search Engine Marketing (SEM) Financial By Allison Fogarty & Competitive Advantages of an Effective Hotel SEM Strategy This article presents a general overview of By Leora Halpern Lanz and Jovanna Fazzini the hotel development process and some critical decisions that must be taken by Search Engine Marketing and Optimiza- tion (SEO, SEM) are keystones of a hotels airport management teams pursuing hotel marketing strategy, in fact research shows developments. that 90% of travelers start their vacation planning with a Google search. Learn five The Pricing Effects of Heritage at an strategies that can enhance a hotels SEO Iconic Hotel and SEM strategies to boost bookings. By Bradford Hudson

Historic hotels are a recognized product type in the lodging industry and may be found in significant numbers throughout the globe. The purpose of this article is to validate the notion that heritage can be an important el- ement of the consumer value proposition for older hotels, by demonstrating that an iconic hotel with a distinct historical identity is able to attain a price premium over newer hotels with comparable operating characteristics. This exploratory study is based on qualita- tive field research conducted by the author, and quantitative analysis of pricing data that was collected by a regional hotel industry as- sociation over a five year period. The author concludes that heritage does indeed have a positive effect on the ability to attain a price premium at historic hotels, especially for lei- sure travelers.

4 Boston Hospitality Review | Summer 2015 Boston Hospitality Review

Volume 3 | Number 1 | Summer 2015

ISSN 2326-0351

Publisher Arun Upneja, Ph.D.

Editor Dr. Michael Oshins, Ed.D.

Contributing Editors Zoe Ho, Ph.D. Michael Kwag, Ph.D. Christopher Muller, Ph.D. Courtney Raeisinafchi, Ph.D. Peter Szende, Dr. oec. Erinn Tucker, Ph.D. Arun Upneja, Ph.D. Nicholas Washienko, Ph.D.

Layout Editor Ahlea Isabella

Published by School of Hospitality Administration Boston University

Summer 2015 | Boston Hospitality Review 5 Boston Hospitality Review History

Right, John Wilkes Booth

Boston, the Booth Brothers, and the Parker House Susan Wilson pril 14, 2015 was the 150th anniversary “I recall as vividly as if it were yes- Aof the assassination of President Abra- terday,” Brogan reminisced with a Boston ham Lincoln. This is the story of how that Globe reporter, “seeing [him] at breakfast fateful day was linked to Boston, the Booth with two other men in the ladies’ cafe on Brothers, and the Parker House. the School street and Chapman place corner Hotel personnel have always collect- [of the old Parker House] on the morning ed wondrous tales about the visiting celebri- of Thursday, April 6, 1865... The morning ties they’ve observed over decades of service. sunlight [was] streaming in through an east Few stories, however, titillated Bostonians window onto his rather marble-like face and as much as those told by longtime Parker luxuriant black glossy hair. He was a hand- House bellboy Bernard J. (“Barney”) Brogan some, kindly and good natured man. It was in 1925. his second day in Boston at the time and he

6 Boston Hospitality Review | Summer 2015 left the city that same day.” The man who came to breakfast was not only a popular actor from a famous theatrical family. He was also a charming matinée idol, an unabashed ladies’ man, an ardent Confederate sympathizer—and the man destined to assassinate President Lin- coln in Washington, D.C., only eight days later. “No one could have suspected then that he was capable of such a crime and was so near achieving infamous immortality,” pondered bellhop Brogan sixty years after the fact. Back in 1865, the illustrious Booth family meant far more to the Hub than to many other American cities. London-born Junius Brutus Booth had played on Boston Left, The Omni stages many times in his career, beginning Parker House at the old Federal Street Theatre, Boston’s located on Park St., first real playhouse. Three of his Ameri- Boston can-born children—Edwin, Junius Jr., and ented Bostonian who lived full-time at the John Wilkes —took up professional acting Parker House, was America’s first great ac- as well, though only Edwin (1833-93) be- tress and who gladly donned trousers to play came a world-class tragedian. It was Edwin, male roles). By 1860, Booth and Devlin had too, who held a special affection for Boston, married. And in1862, they made a home for finding both his theatrical footing and occa- themselves and infant daughter, Edwina, on sional homes in the welcoming Hub. Washington Street in Dorchester. Edwin’s theatrical debut was at the Though younger brother John Wil- Boston Museum on Tremont Street, on Sep- kes primarily played stages in the South tember 10, 1849. Though only fifteen years while Edwin conquered the Northeast and old and playing a minor part under his fa- Junius Jr. the Midwest, all three Booths peri- ther’s starring role as Richard III, young Ed- odically toured the states for work, pleasure, win was hooked. Eight years later, on April or familial obligation. John, for example, 20, 1857, Edwin headlined at the Boston happily joined Edwin and Mary for their Theater on Washington Street as Sir Giles wedding in 1860. Three years later, on Feb- Overreach. That victorious performance ruary 24, 1863, John joined Edwin for a sad proved the turning point of his career—pre- occasion—Mary’s burial at Mount Auburn paring him for the prestigious New York Cemetery in Cambridge. City stage, and officially beginning his thir- Following Mary’s untimely death, ty-year reign as the American actor of note. the distraught Edwin left Dorchester with his In 1858, Edwin met actress Mary daughter, retired briefly from performing, Devlin, who frequently played Juliet to his and moved his primary residence to New Romeo (curiously, Devlin also played Juliet York. But the boards continued to call the to the Romeo of Charlotte Cushman, a tal- Booths to work. In 1864, the same year all

Summer 2015 | Boston Hospitality Review 7 promised mother I would keep out of the quarrel, if possible, and I am sorry that I said so....’ “All his theatrical friends speak of [John] as a poor, crazy boy,” finished Edwin, “and such his family think of him.” Why John Wilkes Booth finally snapped—plotting first to abduct Lincoln, and finally to assassinate him—is the subject of numerous theories, books, and interpre- tations. We do know that on July 26, 1864 he had joined representatives of the Confed- erate Secret Service at the Parker House for a meeting meant to undermine the Lincoln administration. At the time, Booth was con- sidered a promising recruit for a conspiracy geared to kidnapping the President. Still, two facts are clear: the rest of the Booth family Right, Edwin Junius Jr. had no notion of John’s evolving plots, either Booth in 1864 or a year later, and were to suffer the consequences of his deed for decades there- three Booth brothers collaborated in a New after. York production of Julius Caesar, John Wil- By the time John Wilkes Booth was kes played the romantic hero of The Marble again seen at the Parker House in April of Heart at the Boston Museum. While Edwin 1865, eight days before the assassination, came to specialize in difficult dramatic roles the War Between the States was essentially like Hamlet and Richelieu, John tended to- ended. When he arrived, Boston was fairly wards fluffier stuff, enamoring female fans bursting with banners, parades, fireworks with his dashing swordplay, daring leaps, displays, and other public celebrations over flashing eyes, and impassioned gestures. the fall of the South and the ending of slav- During the early1860s, the Booths’ ery. Probably equally irksome to John was stage careers grew as the Civil War ravaged that black abolitionist Frederick Douglass the country. Edwin believed in the Union was a featured speaker at Faneuil Hall. cause, and proudly cast his first vote ever for What John did in Boston on April 5 Abraham Lincoln in the mid-war elections and 6, 1865, is not altogether clear. Perhaps of 1863. Southern-based John Wilkes, who he went to see brother Edwin, who was play- defended both States Rights and slavery, fer- ing a successful three-week engagement at vently disagreed. “When I told him I had the 3,000-seat Boston Theater. Perhaps, as re- voted for Lincoln’s re-election he expressed ported in the Boston Evening Transcript of deep regret, and declared his belief that Lin- April 15, he was practicing his aim: “[A man coln would be made king of America,” wrote named] Borland...stated that he saw Booth Edwin in an 1881 letter. “[T]his, I believe, after he came to Boston, and was in com- drove him beyond the limits of reason. I pany with him at Edwards’ shooting gallery asked [John] once why he did not join the [presumably Roland Edwards’ Pistol Gallery Confederate Army. To which he replied: ‘I at 4 Green Street], where Booth practiced

8 Boston Hospitality Review | Summer 2015 pistol firing in various difficult ways such as between his legs, over his shoulder and un- der his arms.” After the night of April 14, when Booth shot Lincoln at Ford’s Theatre in Washington, Boston could only speculate, and mourn. As a gesture of good will, good public relations, and personal safety—since death threats would certainly be levied against Booth and his family for months to come—manager Henry C. Jarrett closed the Boston Theater, and messaged Edwin of his action. Edwin heartily agreed, returning a note that spoke of his own “deepest sorrow and great agitation.” After suffering a pre- Left, President cautionary police search through his belong- Abraham Lincoln, ings, the actor lay low, then left Boston on a assassinated by John midnight train to join his mother. Since Bos- Wilkes Booth in 1865 ton so loved and trusted Edwin Booth, lo- Chestnut Street on Beacon Hill in his later cal papers immediately printed Jarrett’s and years. His grown daughter, Edwina, bought a Booth’s letters, and continued to run editori- flat on Beacon Street overlooking the Charles als in his defense over the ensuing weeks. River. And though the Booth family plot re- Boston’s love of Edwin Booth was mained in Baltimore, Edwin Booth chose, in returned in kind. Following nine months the end, to return to the woman and place of seclusion in New York, he resumed his he loved. On June 9,1893, amidst a stunning acting career, periodically returning to Bos- sunset, he was buried on Anemone Path at ton stages. He kept many influential friends Mount Auburn Cemetery, beside his favorite in the Hub, and maintained a home on 29 wife and co-star, Mary Devlin. ■

Susan Wilson is a writer and photographer living in Cambridge, Massachusetts. She is the House Historian of the Omni Parker House and the author of several books about Boston history, including Heaven, By Hotel Standards: The History of the Omni Parker House (2014). The book is available at Morsels, by the School Street entrance of the Omni Parker House, and on Amazon.com.

Summer 2015 | Boston Hospitality Review 9 Boston Hospitality Review Update

Right, Construction of the Westin Hotel at the Denver International Airport

Airports Hotels: Laying the Foundation for a Synergistic Relationship Allison Fogarty otels have always been located near distance transportation; fares declined and Htransportation hubs. Centuries ago, long trips to exotic destinations were sud- travelers sought accommodation and re- denly within reach of the masses. In 1960, freshment in inns strategically located 62.3 million people boarded flights within along the road network to provide a place the United States; 53 years later, 826 million for man and beast to recharge and refresh. people took off. With the growing number of As carriages and stagecoaches gave way to travelers, hotels sprang up around most air- railroads, and sail yielded to steam, hostel- ports, and airport hotels emerged as an im- ries sprang up around rail depots and the portant sub-segment in the lodging industry, docks. originally needed to provide accommoda- In the middle of the 20th centu- tion for airline crews and passengers and ry, flying became the favored mode of long later becoming an important convenience

10 Boston Hospitality Review | Summer 2015 offered near most airports. Several major many airport management teams have lim- international hotel brands were founded or ited experience in developing hotels. Other have been owned by airlines, including In- airport management teams benefit from (or terContinental (Pan Am), Hilton Interna- conversely struggle with) decisions taken by tional (TWA) and Westin (UAL). predecessors. To help avoid some pitfalls we The number and type of hotels that have observed in the past, we present gen- can be supported around airports varies eral guidance concerning critical decisions widely by market, and while airline passen- that must be taken by airport management ger movement is an important consider- teams during the hotel development process. ation, it is not the only hotel demand driver. Local and regional transportation patterns Feasibility: Does the project make also influence the need for accommodations. economic sense? Passengers with early morning flights fre- quently seek accommodation near the air- Determining whether the airport and the port to avoid traffic delays in congested -ur surrounding area generate enough lodging ban areas or in rural areas where long drives demand to support additional hotel devel- to the airport are common. In addition, ma- opment should be one of the first steps in jor airports frequently serve as central meet- the development process. Prior to commis- ing destinations for various groups. And of sioning engineering or design studies, a pre- course, airlines contract for rooms for their liminary market demand study should be crew and passengers stranded due to over- commissioned. Hotel consultants examine booking or mechanical delays. Unexpect- airport and area growth patterns, existing ed winter weather issues frequently benefit supply and demand patterns and the rates airport-area hotels, particularly in the north achieved by existing hotels in the area. Ulti- - notably, on average approximately 25 per- mately, the consultants present an overview cent of airlines’ annual cancellations occur of critical hotel performance metrics in the in January and February, sometimes leaving area and projections of growth. Critical hotel passengers scrambling for accommodations metrics include annual occupancy (the per- near the airport. centage of existing hotel rooms in the mar- While an airport may support many ket that were actually sold), Average Daily hotels, those located closest to the terminals Rate “ADR” (the average rate actually paid and with the easiest access have a clear lo- for each room sold, calculated by dividing cational advantage over their competitors in room revenue by total rooms sold for a giv- most markets. Thus many hotel developers en period) and Rooms revenue Per Available seek to develop hotels on the airport premis- Room “RevPAR” (total guest room revenue es, and prefer if possible to actually be linked divided by the total number of rooms avail- to airport terminals. Airport management able). If the market appears strong enough, teams have the responsibility of determining the consultant can provide an estimate of whether to allow the development of hotels the number of additional rooms that may on the airport grounds, where these hotels be supported or the performance and profit- should be located, how they should be linked ability of a hotel of a particular size. to the terminals and the business structure of Although occupancy levels in airport the hotel development. Because land around locations are frequently above the industry many airports is in short supply, and most average, the ADR in airport locations is fre- airports were developed many years ago, quently somewhat lower than downtown

Summer 2015 | Boston Hospitality Review 11 Occupany Comparison Average Daily Rate Comparison

80.0% $180.00

70.0% $160.00

$140.00 60.0%

$120.00 50.0% $100.00 40.0% $80.00 30.0% $60.00

20.0% $40.00

10.0% $20.00

0.0% $- 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Airport Hotels Urban US Hotels

locations or overall industry averages, as il- such as Four Seasons hotels, to upscale lustrated in the adjacent charts, which com- properties such as Marriott or Hilton hotels pares the occupancy and ADR performance to mid-market properties such as Holiday of all US hotels, airport hotels and urban ho- Inns. In recent years a hybrid product has tels over time. Data was provided by Smith emerged; many of the major lodging brands Travel Research (STR), which compiles hotel now offer a “select-service” offering that pro- industry performance data; STR’s database vides a comfortable room, smaller and fewer includes approximately 2,300 hotels located meeting rooms and a limited restaurant fa- at or near airports. cility that may not provide three meals on a Hotels may be classified in a num- daily basis. Examples of select service brands ber of ways, most commonly based upon include Hyatt Place, Courtyard by Marriott services offered, room rates and location. and Hilton Garden Inns. Full-service hotels include restaurant, lounge Hotel construction costs vary wide- and meeting facilities and have traditional- ly depending upon location, type of hotel, ly included bell service and room service. size and services offered. Excluding land Limited-service hotels traditionally provide and working capital, the average cost of per only a room and bath for a night, and do unit of developing a full-service hotel in the not provide food and beverage facilities, al- United States was approximately $236,900 though in recent years many limited-service in 2014. Based on 2013 figures, after all op- properties have adopted the practice of pro- erating expenses were paid, hotels in airport viding a free breakfast to patrons. Examples locations had 32.5 percent of revenue avail- of limited service brands include Days Inn, able to pay property taxes, insurance, ground SpringHill Suites by Marriott, Hampton Inn rental, mortgage interest, amortization, cap- and Comfort Inns. Full-service hotels are ital expenditures and a return on the own- more complicated and expensive to operate er’s investment. Hotel developers focus on than limited service facilities; traditionally performance metrics including profitability the rooms department of a hotel is far more of nearby properties and growth projections profitable than the food and beverage and to determine if the project is likely to meet other departments. Traditional full-service their return on investment objectives. hotel brands range from luxury brands

12 Boston Hospitality Review | Summer 2015 Location end of the lease term, the land and improve- ments revert to the airport. The advantage to Well-maintained hotels that are physical- airports of a ground lease structure are that ly connected to airport terminals generally the lessee bears the risk of development cost achieve higher occupancies and ADRs than overruns and operating shortfalls; however their off-site competitors. This performance the development team requires a substan- premium makes intuitive sense; if guests tial reward for the assumption of this risk. must board a shuttle bus to reach their hotel, In addition, the airport must relinquish con- an extra minute or two on a shuttle will be trol of the property for a lengthy period, and balanced against other issues such as brand financing sources require robust non-dis- preferences, loyalty program affiliations and turbance agreements. Hotel investors are internet reviews. Thus, if the airport is seek- concerned with ensuring that they can make ing to provide the most convenient travel an adequate return on their investment and experience possible, or maximize hotel rev- ensuring the marketability of the property so enues, a convenient, direct terminal con- that they will ultimately be able to sell the nection is clearly preferable. But potential property to another investor. Potential hotel hotel operating premiums must be weighed buyers and their financing sources always against possible future airport expansion – consider the remaining term of ground lease and the likelihood that a hotel site will be properties, thus lengthy initial terms fol- the best location for new terminal gates, lowed by several renewal terms are typical in runways or other priorities. Several air- ground lease structures. Typically, a term of ports proceeding with terminal or runway at least 50 years (which may consist of initial expansion projects have been forced to re- and renewal terms) ranging to 99 years is re- acquire hotel properties in the path of these quired. Renewal options tend to be negotiat- improvements (frequently at a premium), ed and exercised well in advance; the lease- through eminent domain or buyout negotia- holder requires certainty to maintain the tions; a process that is easier to contemplate marketability of their asset. In several cases, on a forty- or fifty-year-old structure than additional capital improvements to the hotel on one that is still relatively new. have been negotiated as part of the renewal Structure negotiations. Hotel developments can be struc- Hotel ground leases have been struc- tured in a number of different ways from an tured in a number of different ways. Rent ownership perspective; with ground leases structures vary very widely, frequently some and management contracts being the most form of base and percentage rent is negotiat- common. Each structure has both financial ed. Developers often require substantial rent and operational advantages and disadvan- concessions, particularly in the initial years tages. of operation to facilitate payment of debt service and provide some return on invest- Ground Leases ment as the hotel gains traction. Based on current market conditions, it is difficult for a Many hotel sites are leased by airports to private developer to pay substantial ground developers who build, operate and maintain rents and provide an acceptable return to the hotels; the airports continue to own the equity. Relatively few full-service hotels have land and collect a ground rent, while the been developed in recent years; the return developer owns the improvements. At the on most full-service hotel investments is

Summer 2015 | Boston Hospitality Review 13 Right, The Grand Hyatt Hotel at the Dallas-Fort Worth Hotel is integrated into Terminal D simply not commercially acceptable. Inves- agement agreement terms and potentially tors generally require a return to equity of higher returns. If the hotel site is needed for between 12 to 20 percent; new development redevelopment, it will be far easier to rede- hotel projects are considered risky, and thus velop an airport-owned property without a would require returns in the mid to higher third-party hotel owner holding out for an end of the range. advantageous lease termination payment. Other issues that need to be consid- Airports that own hotels generally contract ered are how the airport management wants with a hotel operator to manage the day-to- to constrain the operator or developer. A ho- day operation of the hotel; the hotel brand tel lease should include definitions of accept- may come with the management agree- able standards of operation including brand, ment or may be contracted separately via facilities, services and maintenance/capital a franchise agreement. Hotel management improvement requirements – particularly in and franchise agreements can generally be properties that are connected to terminals negotiated for shorter terms than ground and thus reflect more directly on the airport. leases. Dealing with hotel operators can be challenging for airport management; few Airport Owned Hotels airports have the internal capability of eval- uating, and if necessary, challenging operat- A number of airports own terminal hotel ing budgets, capital improvement plans and properties, particularly properties that are marketing strategies. In general, we recom- attached to the terminal facilities. Some ad- mend that airports retain third party asset vantages of airport ownership include long- managers to oversee the operation and make term control over the asset, shorter man- recommendations with respect to budget ap-

14 Boston Hospitality Review | Summer 2015 Left, The completed Westin Hotel at the Denver International Airport provals, senior management appointments as hotel performance improves the manage- and financial statement review. ment company’s fees increase, and if a ho- Recent examples of airport-owned tel performs poorly, operator compensation hotels include Denver, which is constructing declines. Airports that finance through reve- a 519-unit Westin hotel as part of an expan- nue bonds are precluded from using the ho- sion project which includes a public pla- tel industry’s traditional structure and gen- za and train station connecting the airport erally negotiate a flat fee structure varying by to downtown Denver. Dallas-Fort Worth year based upon pre-construction pro-for- opened the 298-room Grand Hyatt, which is ma estimates; as a result operator compensa- integrated into International Terminal D in tion is not tied to actual hotel performance. 2005 and the 404-unit Westin Detroit Air- Of course the cash flow to the airport from a port opened in 2002. These projects were all hotel project is dependent on myriad factors. financed by the airports through revenue Aside from overall market forces and man- bonds, which require changes to traditional agement, returns will be influenced by con- hotel management agreements. Hotel op- struction costs and how it is financed. The erators are usually compensated based on advantage of using airport revenue bonds is revenue performance, usually in the range that debt service on the property will gener- of two to five percent of gross hotel reve- ally be lower, which enhances the feasibility nues, and compensation may also be par- of the project. tially contingent on the delivery of targeted operating profits. The traditional manage- Procurement Process ment fee structure emerged as an attempt to align ownership and operator objectives; Once the desired structure is determined,

Summer 2015 | Boston Hospitality Review 15 airports generally issue Requests For Pro- it is important for the airport to consider posals (RFPs) incorporating the airport’s the effect of changes to the deal structure on standard terms and requirements, along yield to the airport and perform sensitivity with a brief description of the project. Some analyses so that the implications to both par- RFPs provide the developers with very little ties are fully understood if the hotel is more information regarding the proposed project or less successful than anticipated. Airport and site and minimal guidance in structur- representatives need to be very wary of over- ing their proposals, and thus result in sub- ly optimistic projections, and avoid using missions that are difficult to compare and optimistic figures as the basis for downside evaluate. Although usual procurement pro- sensitivity projections. Rather, sensitivity cedures must be maintained, a Hotel RFP is analyses should use realistic figures (gener- somewhat different from many of the oth- ated internally or by independent consul- er projects completed by airports, and the tants retained by the airport) to realistically RFP should be carefully developed to ensure assess both upside and downside risk and that all developers understand the project return scenarios. and the airport’s requirements thoroughly and that all bidders are asked to provide the Contract negotiation same information. The airport must provide clear definition with respect to the site, in- Airports should recognize that the hotel frastructure, terminal linkages, height re- industry is relatively volatile, and hotel as- strictions, required facilities, parking and sets are frequently sold; thus the parties to any site-specific challenges. Background in- the deal are likely to change over time. In formation with respect to the city and air- addition airports themselves are constantly port should be provided and an abbreviated growing and evolving. We generally recom- market study (generally without operating mend that our clients seek specialist legal projections) may be included. The preferred advice with respect to hotel contracts as such operating structure should be outlined, and contracts are complicated and the implica- all submitters should be required to submit tions and risks associated with even seem- a basic package of qualifications, including ingly innocuous clauses should be carefully prior experience, financial wherewithal, and evaluated. It is important to ensure that leas- project team organization and resumes. es and management contracts specifically Proposals may be received that pro- address issues that may seem unlikely to be vide bids for either the requested structure contentious at the outset, but our experience or a proposed alternative approach, or in indicates are likely to arise over the years, some cases both. A creative alternative ap- including maintenance and operating stan- proach may provide additional flexibility, so dards, buy-out provisions if the hotel site all proposals should be carefully evaluated is required for redevelopment, exclusivity against the evaluation criteria focusing on radiuses and interpretation of rent adjust- the ability of the bidding team to deliver the ment provisions. Either the hotel operators desired results, the reasonableness of their or airport management may wish to devel- projections, and any suggestions they may op additional hotel facilities nearby over the have included. Ultimately, several teams lease term; consideration must be given to should be selected as a short-list for further development restrictions, and weather such clarification and ultimately negotiation of an clauses should expire prior to lease expira- agreement. During the negotiating process, tion. Overly restrictive or lengthy exclusivity

16 Boston Hospitality Review | Summer 2015 clauses or rights of first refusal could im- perience to question operating budgets, an- pede future development plans and should nual marketing plans and operating results. be carefully considered. Some airports have In addition, hotels require substantial main- tied renewal terms to capital expenditures, tenance and periodic upgrading; generally recognizing that as lease terms expire, ten- minor renovations will be required between ants have little incentive to maintain the fa- the fourth and fifth years and more exten- cility and are inclined to “run the property sive renovations will be require between the into the ground.” And the interpretation of ninth and 12th years of operation. An asset “market rate” in lease contracts is often con- manager can help to ensure that these funds tested. are spent most effectively on items that will maintain the hotels physical condition and Oversight market position rather than items that may be nice but not necessary. Once the hotel is up and operating the air- Hotel facilities are an important port is responsible for the oversight of the amenity around most major airports and project. Obviously if the property is leased, for those airports with on premise hotels, the airport is not responsible for direct over- overseeing their development and effective sight, but it is important to ensure that all operation can be a major challenge. Ensur- lease provisions, particularly with respect ing that the right team is in place to assist to maintenance and operating standards with market analysis, project development are enforced. Hotel profits can be inflated and finance, legal advice and asset oversight in the short term by reducing maintenance is a key issue to the short-term success of a and capital expenditures, but over time such project; however it is important to also con- neglect may have a negative impact on the sider unforeseen future needs of the airport, property’s and potentially the airport’s rep- and provide some flexibility if needs or con- utation. Such a strategy can also inflate the ditions change. ■ value of the property in a buy-out situation, thus the airport management should not al- low such a strategy to persist. If the airport owns the property, it is important for the airport to supervise the hotel management company effectively. The airport will need to either hire a staff member with the necessary experience or engage a third party asset man- agement firm specializing in hotels. Effective asset managers should have the skill and ex-

Allison Fogarty is the Managing Director of Pinnacle Advisory Group’s Florida and Caribbean Practice Group. Ms. Fogarty has extensive experience in hotel and resort development. Her activities have included site selection, prop- erty inspection, contract negotiation and review and due diligence. She has also been responsible for project plan- ning and directing the activities of architects and project engineers. As a consultant, she has directed and com- pleted market and financial analysis engagements for hotels, resorts and gaming companies in the eastern United States and the Caribbean, and has completed numerous consulting assignments for airports and airport hotels. She can be reached at [email protected]

Summer 2015 | Boston Hospitality Review 17 Boston Hospitality Review Research

The Pricing Effects of Heritage at an Iconic Hotel Bradford Hudson istoric hotels are a recognized product ed by the author, and quantitative analysis of Htype in the lodging industry and may pricing data that was collected by a regional be found in significant numbers throughout hotel industry association over a five year the globe. Much of the academic and pop- period. ular literature about these hotels focuses on their architectural, social, or business his- HERITAGE tory. Less has been written about how such history might represent a value proposition History may be defined as a record of the for consumers, or how history might affect past. As an academic pursuit, it involves the current marketing for these properties formal and systematic investigation of events The purpose of this article is to val- and evolving circumstances, using historical idate the notion that history can be an im- research methodology to deliver insights portant element of the consumer value prop- about the nature of people or institutions. osition for older hotels, by demonstrating History is traditionally understood to be a that an iconic hotel with a distinct historical factual endeavor, based on the collection of identity is able to maintain a price premium objective evidence from archival sources and over newer hotels with comparable operat- the subsequent validation of theory by com- ing characteristics. This exploratory study is parison against such evidence. In contrast, based on qualitative field research conduct- the postmodern approach regards history as

18 Boston Hospitality Review | Summer 2015 a socially constructed phenomenon that, al- nals such as Annals of Tourism Research and though relying on evidence and aspiring to Journal of Heritage Tourism. Much of the objective validity, represents a narrative in- literature concerns topics related to cultur- fluenced by the subjective interpretation of al and ethnic identity, geography, history, each historian. Postmodernists suggest there political science and international relations, are many possible ways to analyze a given set venue and visitor management, interpreta- of data and therefore multiple realities that tion and education, historic preservation, may legitimately be constructed from our and environmental sustainability. Marketing convoluted past. is a relatively minor aspect of the literature Heritage refers narrowly to some- in heritage tourism, but has received some thing inherited from a previous generation, attention. Scholarship on heritage tourism and more broadly to ideas or cultural patterns has also appeared occasionally in marketing derived from the past. History and heritage journals. are obviously related, but the latter need not A related concept is architectural be entirely accurate. David Lowenthal has tourism, which describes travel behavior argued that heritage involves memory that motivated by a desire to experience the aes- is intentionally selective and unintentionally thetic nature of buildings or neighborhoods. imperfect, as well as the interpretation and Although the phenomena may also apply reconstruction of evidence from the past to to new or recently constructed buildings, create plausible narratives that reflect or de- architectural tourism to historic buildings fine the present. As such, heritage is a sub- shares many of the characteristics of heritage jective and socially constructed phenome- tourism. non consistent with postmodernism. It also represents a more useful perspective for Brand Heritage marketing by business organizations, which may have lower thresholds for the intellectu- Brand heritage is an emerging specialization al validity of historical narratives or design within the marketing discipline, which sug- elements. gests that the consumer appeal of products and services offered by older companies may Heritage Tourism be enhanced by the historical characters of their brands. Examples of marketing related The field of heritage tourism considers the to heritage include the citation of company influence of historical culture on supply and founding dates on packaging or in advertis- demand in travel consumption. Examples ing, the celebration of corporate anniversa- include travel to places where notable events ries, and the reprise of discontinued songs or have occurred, old buildings that have in- mascots. Such marketing may also involve trinsic aesthetic appeal, sites associated with references to a company in historical con- famous individuals, collections of historic text or to iconic artifacts in possession of the artifacts, ancient landscapes that relate to company. It could even include the creation the evolution of human civilization, or re- of updated products that incorporate visual productions of enclaves that represent life in elements from prior versions, or the design prior times. of new offerings that refer to idealized or ar- Publications on the topic of heritage tificial memories of historical reality. tourism have included textbooks, essay an- The idea that brands may have a her- thologies, and numerous articles in jour- itage dimension emerged several decades Summer 2015 | Boston Hospitality Review 19 ago, when it was suggested that the histor- and protecting that heritage through stew- ical approach could provide brand images ardship and attention to continuity. Older and themes for advertising. The term “brand brands have unique histories that cannot be heritage” was also mentioned in early schol- duplicated or appropriated by competitors, arship on brand equity by David Aaker, but and therefore brand heritage constitutes a the topic was not explored in any depth. point of differentiation that may contribute Since then, there has been a recurrent but to competitive advantage. steady stream of literature on topics relating to older companies and products. This in- Heritage in the Hotel Industry cludes articles on the evolutionary nature of brands and their lifecycles, the retrospective The concepts of heritage tourism and brand or ‘retro’ branding phenomenon, the inter- heritage become intermingled in the hotel action of brands and nostalgia, and histori- industry. Unlike the manufacturing sector, cal references in advertising. and even some parts of the service sector, Interest in brand heritage acceler- the hotel industry is geographically depen- ated after the publication of a conceptual dent. Consumers travel from many different article about corporate heritage brands by locations to a centralized production facili- Mats Urde, Stephen Greyser and John Balm- ty. Distribution involves an extended travel er. They suggested that older brands con- system and growth is often precluded by the stitute a distinct conceptual category and surrounding neighborhood or political con- require a different approach to brand man- text. agement than younger brands. Such market- Even hotel companies with multiple ing involves uncovering aspects of heritage units and global brands that transcend spe- through archival and consumer research, cific regional associations have operations activating that heritage through product that are geographically specific. Many in- design and marketing communications, dividual properties have their own distinct

20 Boston Hospitality Review | Summer 2015 names, especially historic hotels that predate The pricing effects of heritage in current management arrangements. For the brand context have been discussed at some hotels, these local property names are a conceptual level in prior literature. It has widely known and constitute brands in their been suggested that positioning based on own right. Many guests choose these hotels heritage creates a point of differentiation over competing alternatives because of their that enables older brands to achieve higher historic status, and some are even motivated prices and margins than competing younger to travel for the purpose of staying at these brands. However, there have been few em- famous hotels. pirical studies to validate this phenomenon. The hospitality sector not only tends A notable exception is a study of consum- toward geographic dependence, but also to- er attitudes toward various dimensions of ward property dependence, meaning that it brand heritage in the automobile industry is constrained by a commitment to partic- by Klaus-Peter Wiedmann and colleagues. ular structures. For a historic hotel whose Based on survey research and subsequent identity is inseparable from its architecture, statistical analysis, their study determined preserving the condition of the building and that brand heritage has a significant positive managing its relationship with the surround- influence on the ability to attain a price pre- ing built environment are important tasks. mium for new vehicles. Brand heritage in the hospitality in- The pricing effects of heritage in the dustry has received relatively little attention hotel industry have received almost no atten- in prior academic literature. The heritage tion in prior literature. There are few empir- phenomenon has been more widely recog- ical studies that compare pricing for historic nized in practice, as evidenced by the ex- hotels to pricing for modern alternatives, in istence of the ‘Historic Hotels of America’ a way that allows the pricing effects of heri- marketing consortium, which was created tage to be isolated. by the National Trust for Historic Preserva- Two prior studies regarding the range tion. of factors that could influence hotel pricing did find a correlation between the age of a Pricing Effects of Heritage hotel building and consumer pricing, with lower prices attained by older hotels, espe- The pricing effects of heritage in the tour- cially in higher price segments. However, the ism context have received some attention in operative factor in both instances was mate- prior literature. There are numerous publi- rial condition rather than historic status. In cations that consider the pricing of heritage the first study, by Marta Fernández-Barcala attractions related to venue management, and colleagues, the age of each hotel was financial viability, or social value. There is determined by the number of years since also some research regarding the pricing the last renovation. In the second study, by effects of cultural attractions of all types, Wei-Ting Hung and colleagues, the age of which suggests that higher levels of cultural each hotel was determined by the number of meaning correlate with reduced price sen- years the hotel had been operating, but the sitivity among potential visitors. However, authors attributed the price differential to there are few studies that directly compare expectations on the part of consumers, who the price of heritage attractions to the price were disappointed by hotels that had not of comparable alternatives without substan- been renovated recently. tial heritage. Summer 2015 | Boston Hospitality Review 21 APPROACH The first step in analyzing the data was to identify several objective attributes The purpose of this study was to determine that could be used to classify the hotels whether heritage has any effect on consumer along dimensions other than historic status, pricing at historic hotels. The basic approach and thereby create a reliable competitive set was to compare pricing data from older ho- for purposes of comparison. These criteria tels against pricing data for newer hotels included size, brand affiliation, ownership with similar operating characteristics. and management, ratings, and location. The All of the hotels studied were located latter was defined as the distance from a rec- in the same urban region, which is located ognized epicenter of demand generators that somewhere in Europe or North America. included restaurants, retail shops, corporate Although the city has a multi-dimensional and government offices, and historic attrac- economy and a diverse architectural land- tions. scape, it is widely recognized for its histor- The age of each hotel building was ic status and features a multitude of historic selected as a surrogate for heritage status. buildings. The competitive set was then divided into The source of pricing data was a re- two subsets based on the age of each hotel. gional hotel industry association, which col- The result is a typology that includes one lected and organized data from its member category of ‘historic hotels’ (which includes hotels and then returned performance re- the iconic hotel being studied) and another ports to these hotels in spreadsheet format. category of ‘modern hotels’ (which includes More than 20 hotels participated in the data the other hotels in the competitive set). sharing project, including the iconic hotel This typology allowed historical ef- being studied. The data set provides annu- fects to be isolated from other factors that al totals during the period 2004 to 2009 for typically influence pricing in the hotel in- the three most commonly used ratios related dustry. If all hotels in the competitive set to demand and pricing in the hotel industry demonstrate pricing results that are nearly (rooms occupancy percentage or occupancy, identical, then it is reasonable to conclude average daily rate or ADR, and revenue per that heritage had no effect. However, if the available room or REVPAR). historic hotel demonstrates pricing results The author was given permission to that are significantly different from the new- use the data under the conditions that publi- er hotels, it is reasonable to conclude that cation be delayed for five years, and that the heritage effects were a contributing factor. geographic region and the identities of the specific hotels are disguised. The details have The Hotels been revealed to the editor of this journal on a confidential basis. The hotel at the focal point of this project is Additional qualitative evidence was widely recognized for its historic status and collected from multiple sources using sever- has become symbolic of the cultural heri- al methods. These included site visits to the tage of its geographic region. It was built and properties, interviews with industry execu- opened during the late nineteenth century, tives and hotel guests, historical research at using an architectural revival style with de- libraries and archives, and evidence gath- sign elements that resemble those found in ered from a range of contemporary sources European palaces of prior eras. The hotel has including travel magazines and websites. been renovated periodically and at least one

22 Boston Hospitality Review | Summer 2015 Table 1 - Competitive Set Property Type Size Brand Ownership Management Rating Rating Distance Constructed Age Heritage Affiliation Source #1 Source #2 Epicenter Approx. 2005 Status

Hotel A Subject > 400 rooms Chain Not chain Chain 3 4 < 1 mile 1895 110 Historic (iconic/historic) Hotel B Control > 400 rooms Chain Not chain Chain 3 4 < 1 mile 1975 30 Modern (modern) Hotel C Control > 400 rooms Chain Not chain Chain 3 4 < 1 mile 1975 30 Modern (modern) new addition has been constructed, but the tract by the chain itself, rated three-star or interior decor and exterior architecture have the equivalent by rating services, and located been carefully orchestrated to reproduce the within one mile of the epicenter of travel de- appearance of the original structure. mand. Along the non-historical dimensions, In terms of the screening criteria these newer hotels are identical to the iconic defined above, this hotel can be classified hotel being studied. as large (more than 400 overnight guest Both hotels were built during the pe- rooms), affiliated with a major chain that has riod 1970 to 1980, in the same year or imme- a recognized brand, with daily operations diately adjacent years. Using the midpoint of handled under management contract by the this decade as the year of construction, both chain itself, rated three-star or the equiva- of these hotels were about 30 years old at the lent by rating services, and located within beginning of the period covered by the data one mile of the epicenter of travel demand. set. These hotels are identified as ‘Hotel B’ The original section of this hotel was and ‘Hotel C’ in Table 1. built during the period 1890 to 1900. Using the midpoint of this decade as the year of FINDINGS construction, the hotel was about 110 years old at the beginning of the period covered by Quantitative Evidence on Pricing the data set. This hotel is identified as ‘Hotel A’ in Table 1. Performance results for the competitive Of more than 20 hotels in the data set are displayed in Table 2. The detailed set, several had characteristics in common data provide further confirmation that the with the iconic property being studied. two modern hotels constitute an excellent However, only two other properties control group for purposes of comparison had characteristics identical to those of the against the historic hotel. Over the five year iconic hotel according to all five classifica- period, Hotel B generally performed better tion criteria. Both of these hotels were built than Hotel C, but the differences are mini- during the late twentieth century, using an mal. In occupancy, Hotel B achieved annual architectural style that could be described as advantages over Hotel C ranging from 0% to ‘mid-century modern.’ 4% with an overall advantage of 2%. In aver- In terms of the screening criteria age daily rate, Hotel B achieved annual ad- defined above, both modern hotels can be vantages over Hotel C ranging from -8% to classified as large (more than 400 overnight 6% with an overall advantage of 0%. In reve- guest rooms), affiliated with a major chain nue per available room, Hotel B achieved an- that has a recognized brand, with daily op- nual advantages over Hotel C ranging from erations handled under management con- -3% to 9% with an overall advantage of 3%.

Summer 2015 | Boston Hospitality Review 23 Table 2 - Performance Results Property Occupancy Average daily rate (ADR) Revenue per available room (REVPAR) 2005 2006 2007 2008 2009 Total 2005 2006 2007 2008 2009 Total 2005 2006 2007 2008 2009 Total

Hotel A 62% 59% 59% 74% 68% 64% 240 243 233 253 213 236 149 143 138 187 144 152 (iconic/historic) Hotel B (modern) 72% 70% 73% 76% 69% 72% 146 143 145 165 136 147 105 101 106 126 94 106 Hotel C (modern) 70% 70% 71% 73% 65% 70% 138 139 145 170 148 148 96 98 102 124 96 103

Average competitive 68% 67% 68% 74% 67% 69% 175 175 174 196 166 177 117 114 115 145 111 121 set (A,B, and C) Average hotels 71% 70% 72% 75% 67% 71% 142 141 145 167 142 148 101 99 104 125 95 105 B+C only

Advantage hotel 8 4 0 -4 -12 -1 9 3 3 2 -3 3 B versus C Advantage hotel 2% 0% 2% 3% 4% 2% 6% 3% 0% -3% -8% 0% 9% 3% 3% 1% -3% 3% B versus C

Advantage hotel 98 102 88 85 70 89 48 44 34 62 49 47 A versus B+C Advantage hotel -9% -11% -13% -1% 1% -7% 69% 72% 61% 51% 50% 60% 48% 44% 33% 49% 51% 45% A versus B+C

ADR and REVPAR are reported in undisclosed currency (either American dollars, British pounds, Canadian dollars, or European Euros) In contrast, Hotel A achieved very tage in revenue per available room. significant advantages compared to the con- The ultimate goal of pricing strategy trol group, which is represented by the aver- in the hotel industry is to achieve the highest age of Hotels B and C combined. In average REVPAR, which represents the optimal mix- daily rate, Hotel A achieved annual advan- ture of rate and occupancy, rather than to tages over the control group ranging from maximize either measure individually. Rates 50% to 72% with an overall advantage of also influence competitive positioning, be- 60%. In revenue per available room, Hotel cause they create or support consumer per- A achieved annual advantages over the con- ceptions about the level of quality and desir- trol group ranging from 33% to 51% with an ability. Some hotel companies maintain high overall advantage of 45%. rates during periods of low demand, even if It should be noted that Hotel A rare- this approach results in reduced occupancy ly achieved an advantage in occupancy levels levels, in order preserve the integrity of their compared to the Hotels B and C. In occu- brand position. In this instance, interviews pancy percentage, Hotel A achieved annual confirmed that the relatively high rate and advantages over the control group ranging low occupancy of Hotel A resulted from an from -13% to 1% with an overall advantage explicit pricing strategy by its management, of -7%. This suggests that the rates were so intended to provide a signal to the market- high that they suppressed the quantity of place regarding its leadership position. demand. Nonetheless, the average daily rate At a conceptual level, if the rate were was so disproportionately high that Hotel A reduced with precision, then occupancy was still able to achieve a significant advan- levels would increase proportionately, but

24 Boston Hospitality Review | Summer 2015 REVPAR would remain unchanged. The – confirmed the findings of the observations. overall effect would bring the occupancy Without exception, every person strongly levels of Hotel A into alignment with Hotels identified the iconic hotel as historic and B and C, while reducing the average daily the two other hotels in the competitive set rate achieved by Hotel A. In other words, as modern. the comparatively weak occupancy levels A review of a variety of contemporary of Hotel A do not undermine conclusions sources of travel information also confirmed about the pricing effects of heritage. Hotel A the historical status of the hotels. In every would still achieve a 45% price premium as instance, the iconic hotel was described as expressed by the combined REVPAR mea- either ‘historic’ or as a ‘grande dame’. This sure. contrasts with the other two hotels in the competitive set. In most instances, they were Qualitative Evidence on Heritage described as ‘modern’ or ‘contemporary.’ Oc- casionally they were described without any The qualitative field research investi- reference to the age of the building or their gated two issues. The first was the degree to historic status. which consumers identified the iconic hotel Overall, the qualitative evidence as historic and the two other hotels in the strongly supports the methodological design competitive set as modern. of the study. It was universally believed that Observation by the author deter- the iconic hotel is historic, and that the other mined that the architecture and interiors of two hotels in the competitive set are not. the iconic hotel were unquestionably histor- ic, and that the historic status of the hotel Qualitative Evidence on Pricing was reinforced through a variety of decora- tive elements (including antique furniture The second issue investigated during the and vintage photographs) and marketing qualitative research was the degree to which communications (including signage and consumers were willing to pay a price pre- menus). The historic features were a mixture mium for the historic status of the iconic ho- of originals, reproductions, and revival ele- tel. Interviews conducted by the author with ments. overnight guests and restaurant customers at Observation by the author deter- all three hotels produced mixed results. mined that the architecture and interiors of Most people confirmed, either the other two hotels in the competitive set through direct experience or opinion based were not historic. Most elements reflected ei- on hearsay, that the prices at the iconic ho- ther current styles in hotel design consistent tel were higher. A minority of guests were with recent renovations, or the ‘mid-centu- ambivalent about the price differential, es- ry modern’ architectural style that was in pecially business travelers whose choice of vogue at the time of construction. Visually accommodation was made by an assistant these two hotels were obviously modern and or travel manager within their company. offered a clear contrast to the iconic hotel in Among the majority with an opinion, the re- terms of heritage. sponses were as follows. Numerous interviews subsequent- Several types of consumers agreed ly conducted by the author with a variety with the proposition that the higher price of stakeholders – ranging from guests and of the iconic hotel was worth the expense. tourists to hotel managers and local retailers

Summer 2015 | Boston Hospitality Review 25 produced mixed results. The vice president of marketing at the corporate headquarters of the chain managing the iconic hotel was dismissive of any heritage effect in pricing. He remarked: “There is no evidence to sug- gest that heritage provides a price advantage. In cases where our hotels are rate leaders, it is the service and the complex package of our [corporate] brand and management that produce the results, not the buildings.” This corporate executive also asserted: “Any advantage from history is balanced against the disadvantage in old buildings, [namely] problems like small bathrooms and guests worried that we will not have WiFi.” In contrast, the local managing di- rector of the iconic hotel disagreed quite strongly with the headquarters executive. He contended that the property brand was much stronger than the chain brand, that the hotel had iconic status as an important cul- These included every leisure traveler who tural landmark, and that the historic aspects had stayed at the iconic hotel and enjoyed of the hotel contributed to “unrivalled pres- their visit, and many leisure travelers who ence” in its marketplace. would have preferred to stay at the iconic The asset manager for the iconic ho- hotel but were unable to afford the addition- tel, who acts as an intermediary between al expense. the entity that owns the hotel and the hotel Several types of consumers did not chain that manages it, was even more sup- agree with the proposition that the higher portive of the theory that heritage has a pos- price of the iconic hotel was worth the ex- itive effect on pricing. He concluded: “Histo- pense. These included the majority of busi- ry is the strongest asset for the older hotels ness travelers at every hotel, and all of the in our portfolio. That alone is responsible for leisure travelers who had stayed at the iconic 95% of the revenue success of these heritage hotel but did not enjoy their visit. properties.” When asked to respond to the Among those with a negative opin- comments from the headquarters executive, ion of the iconic hotel, there were three types the asset manager was equally dismissive: of reasons cited. Some guests had complaints “Of course he would say that the success of about operations unrelated to heritage or the these hotels is due to brand and manage- age of the building, some guests had com- ment rather than the buildings. He is in the plaints related to the age of the building business of selling branded management (such as the size of bathrooms), and some services.” guests simply would have preferred a more An interview with the regional rev- modern design style. enue manager overseeing one of the two Interviews subsequently conduct- modern hotels in the control group also sup- ed by the author with hotel executives also ported the heritage thesis. He observed: “We

26 Boston Hospitality Review | Summer 2015 have one of the strongest brands and man- would be useful to have a much larger data agement programs in the world. History is set. Ideally, this would have pricing results the only advantage [the iconic hotel] has. from several hundred hotels of different Without that, they would not be ahead.” types and ages, across a broad range of geo- Although the qualitative evidence graphic regions, plus expanded information regarding pricing was mixed, it did gen- about expenses and profitability. If research erally support several conclusions. First, a about the consumer behavior effects of heri- price premium did exist at the iconic ho- tage is conducted prior to this broader study, tel. Second, a wide variety of stakeholders then the typology for identifying the com- were aware of this price premium. Third, a petitive set could be more exacting, and the majority of all travelers (and a vast majority subsequent statistical analysis could be more of leisure travelers) believed that the experi- revealing. ence did or would justify the price premium. Fourth, among those who believed that the IMPLICATIONS experience was or would be superior, every person agreed that heritage was the focal There are two ways for consumers and in- point of this experience. Overall, the quali- dustry practitioners to look at older hotels. tative evidence validates the notion that his- Either they are old or they are historic. The tory was an important element of the con- first viewpoint focuses on the disadvantages sumer value proposition for the iconic hotel of the building in terms of service delivery, and contributed in a significant way to the property maintenance, and fashion. In this ability to attain a price premium. study, the comments of the corporate hotel executive and the opinions of a significant LIMITATIONS proportion of business travelers are consis- tent with this viewpoint. This is also sup- This study was designed to be exploratory, ported by prior research by other authors, rather than conclusive. Readers should be which found a negative correlation between cautious about the certainty of these find- the age of hotel buildings and the ability to ings, especially when applying conclusions attain a price premium due to concerns that in practice. Beyond this, there are several older structures had not been updated or limitations in the methodology that must renovated. be noted, all of which present opportuni- The second viewpoint focuses on ties for additional research. First, the dy- the advantages of the building as an artifact namics of the consumer buying decision in of material culture, which induces histori- this instance are somewhat unclear, due to cal associations in guests that are powerful multiple dimensions of heritage at the icon- enough to generate incremental demand and ic hotel. Second, the size of the competitive justify a price premium. The quantitative ev- set is quite small, with data from only three idence on pricing in this study is highly con- hotels, all of which are located in the same sistent with such a viewpoint. Similarly, the neighborhood. Third, this study focused on qualitative research in this study, especially pricing and made no attempt to investigate interviews with managers and the intercepts the expenses associated with heritage or the with leisure travelers, supports this view- effect on profitability. point. It is also supported by a prior research During any subsequent studies about study by other authors, which found a posi- the financial effects of heritage for hotels, it tive correlation between brand heritage and

Summer 2015 | Boston Hospitality Review 27 the ability to attain a price premium in the line of scholarship that describes the influ- automobile industry. ence of historical culture on supply and de- Owners and operators of older ho- mand in travel consumption. The study of tels cannot conceal the age of their proper- marketing for historic hotels as commercial ties, which is obvious to anyone entering the enterprises and travel destinations can be re- premises. Therefore two choices exist relat- garded as a hybrid between the two fields of ed to positioning strategy and promotional brand heritage and heritage tourism. tactics. Hotel managers can either engage in The purpose of this article was to attempts to obscure the age of the building validate the notion that history can be an and distract consumers by focusing on attri- important element of the consumer value butes of the facility that have been updated, proposition for older hotels, by demonstrat- or they can embrace the historic character ing that an iconic hotel with a distinct his- of the building as a point of differentiation torical identity is able to maintain a price and competitive advantage for appropriate premium over newer hotels with comparable market segments. The findings of this study operating characteristics. This exploratory suggest that the latter approach, with a pro- study was based on qualitative field research nounced strategic focus on heritage for cer- conducted by the author, and quantitative tain targeted consumers, may produce supe- analysis of pricing data that was collected by rior results in terms of pricing and revenue. a regional hotel industry association over a five year period. CONCLUSIONS The findings demonstrate that heri- tage has a significant positive effect on pric- Brand heritage is an emerging specialization ing for historic hotels, especially for leisure within the marketing discipline, which sug- travelers. This suggests that the topic of gests that the consumer appeal of products brand heritage should receive increased at- and services offered by older companies may tention from academic researchers in the be enhanced by the historical characters of disciplines of hospitality and tourism, as their brands. Heritage tourism is a parallel well as practitioners in the hotel industry. ■

Bradford T. Hudson, Ph.D. is Associate Professor of the Practice of Marketing in the Carroll School of Management at Boston College. He is also Assistant Chairperson of the Marketing Department at Boston College. Previously he was a faculty member at Boston University, with concurrent appointments as Associate Professor of the Practice of Marketing in the School of Hospitality Administration and Lecturer in Marketing at the Graduate School of Management. He holds a master’s degree in services marketing from the Cornell Hotel School and a Ph.D. in business history from Boston University. He is a former Fulbright Scholar. Email [email protected]

28 Boston Hospitality Review | Summer 2015 Boston Hospitality Review Interview

The Customer is Always Right, Right? A Look at How Yelp Has Taken Hold of the Boston Restaurant Industry Rachel DeSimone ormal restaurant reviews made their de- face.” This is the fictional Tweet that started Fbut back in 1941 when Duncan Hines, a war between feisty Chef Carl Casper and known today for his boxed-cake mix, put pompous critic, Michel Ramsey, in last sum- out his first restaurant guidebook, Adven- mer’s hit movie Chef. Using the Internet to tures in Good Eating. The intention was, “to amplify ones voice is not a far-fetched con- guide travelers and protect them from eating cept for the Commonwealth. After the in- poisonous food from unsanitary places,” ac- cident at Harvard Square’s Best of Boston cording to his biography by Louis Hatchett. restaurant, Alden & Harlow, burst into Bos- The network of reviewing is much ton’s food media this past February, the clash more complex today, as the Internet has between restaurant and Yelper was ripe. managed to become an integral part of the In response to two women who sat restaurant scene, as well as every second of themselves in the restaurant, sans reserva- many people’s days. “@RamseyMichel you tion and commenced to exploit the staff, wouldn’t know a good meal if it sat on your Chef-Owner Michael Scelfo captured an im-

Summer 2015 | Boston Hospitality Review 29 age of them and posted it on his Instagram when they search for a new restaurant to eat with the hashtag “wedontnegotiatewithyelp- at is check out the Yelp page, and it is hard ers.” As the pair remained perched in their to avoid as Yelp usually comes up first or spot, threatening to “Yelp” about the situa- second when a restaurant is searched on the tion, Chef Scelfo and his staff decided to kill Internet. Many times, people will put their them with kindness until they left, according trust in stranger’s opinions rather than just to Eater’s account of the event. But what’s the taking their friend’s word. real issue here? Is it the women? The chef? The majority of Yelp’s reviews are five Or even the platform? and four star reviews, 42% and 25% respec- Yelp and other online review sys- tively. Since most people are inclined to write tems such as TripAdvisor and OpenTable positive reviews, the negative ones have a became popular after the new millennium tendency to stick out like sore thumbs, main- with Yelp launching in 2004, TripAdvisor in taining the ability to bring down the overall 2000 and OpenTable in 1998. These systems, average star rating of an establishment. Sev- all unique in their approach, shared one col- eral well-known Boston restaurants, with lective goal—guide the customer in the right Yelp ratings spanning from 3.5 to 4.5 stars, direction and truthfully inform them about some of which can be found on Boston Mag- what they are getting. That being said, online azine’s 50 Best Boston Restaurants of 2014 reviewers are cut from many different cloths, list, have shared their sentiments on the each writing with different lenses and pref- matter. They are all aware of Yelp reviews to erences. varying extents, both positive and negative, Although reviewers are encouraged that are written about their restaurants and to speak candidly, the threat of using online the management teams deal with them pri- review systems as a tool for malice does not marily, sharing them with their staff when align with the values of these companies. The necessary. tension, posing review site against restau- “We are very much aware of Yelp re- rant, is just not how it was meant to turn out. views,” says Tom Borgia, Executive Chef of Yelp has become the forerunner in this issue, Russell House Tavern, “I have the app and as the threat to “Yelp” has become legitimate. use it as part of my morning routine. I don't Yelp was founded with one purpose get overly excited or bummed about any of in mind, “to connect people to great local them. We really just look for trends; if some- businesses by allowing folks to read and one says the tuna tartar is flavorless, we don't write reviews of their consumer experienc- pay much attention. But if we see that three es,” according to Damien Smith, Marketing or four times in a week we know there's a Director for Yelp Boston. “We wanted to problem.” enable folks to make smart purchasing deci- The goal for most restaurants in re- sions, on anything from fish tacos to a chiro- sponding to Yelp reviews is to improve the practor, and I think we’ve done a pretty good overall experience for guests and to give j o b.” them the sentiment of wanting to return. Yelp’s reach is growing, currently “Our General Manager actively responds to spanning across 29 countries. They report- both positive and negative feedback,” says ed 135 million unique monthly visitors to Jody Adams, Chef-Owner of Rialto and their site at the end of 2014 as well as 71 Trade, “we find all reviews help us to im- million cumulative reviews on the site since prove our overall experience for the guest. they began. The first thing most people do Their feedback is very important to us.” Ad-

30 Boston Hospitality Review | Summer 2015 ams does feel however, that reviews “would be more beneficial if we could actually have a conversation with the reviewer to get more detail about their experience and develop a relationship with them.” It is important to keep in mind that all Yelpers are not created equal. “I don't like being lumped in with the bad apples when a chef goes on a social media tear after being threatened with a bad review, but I hope that restaurants do appreciate the positive posts and are able to take constructive criticism when warranted,” says Emily G., a member of Boston’s Yelp Elite Squad since 2009. Yelp’s Elite Squad is a specially rec- Left, Tom Borgia, ognized group of their most credible and Executive Chef of frequent Yelpers. The perks of being in this Russell House Tavern group are that members get a special Elite badge on their Yelp profile along with get- ting frequent invites to free private events. Anyone can nominate themselves or their ing tools for the servers and cooks,” says Dan friends to be a part of this, “Exclusive in-the- Raia, Chef de Cuisine of Sweet Cheeks Q. know crew,” according to Yelp’s Elite homep- “Positive reinforcement works wonders for age. the morale of the staff. Pointing out specif- Emily joined with the intention of ic things that a Yelper will write is great for being able to “give some love to businesses them to see why we go the lengths we do to that maybe would have gone unnoticed…I make our guests happy.” like giving shout-outs to places that are do- On the opposite side of the spec- ing what they do well. I don't really find it trum, “for the negative reviews, we try to fun to talk about the bad places, they'll prob- use them to better ourselves, to better serve ably go away on their own if my negative ex- our customers, but sometimes people have perience wasn't an anomaly.” unrealistic expectations. An example of a Emily has written negative reviews directly helpful negative review would be before but admits that they aren’t much fun. people complaining about our fatty brisket. “There have been occasions when I decided In Texas, fatty brisket is king, but when we to write a negative review after management first opened, we received a lot of uneasiness was given the opportunity to rectify the sit- with the amount of fat we left on our brisket, uation, either at the time of dining or with that we changed the way we butchered our a follow-up email, and they chose not to. meat raw, and even trimmed it after it was I don't think it's fair to slam a place if you cooked.” don't give them a chance to make it right.” This seems like a pretty good sys- Boston restaurants certainly do take tem—reviews are written, positive ones these opportunities to grow from Yelp re- make everyone happy and negative ones pro- views they receive. “For positive reviews, we vide opportunities to improve the relation- love to print them out and use them as teach- ship with the guest. However, when things

Summer 2015 | Boston Hospitality Review 31 Right, The bar at the Russell House Tavern in Cambridge, MA

get out of hand is when concern might arise. dition when I read bad reviews, I take them The question must be asked, are with a grain of salt. I know people are more Boston restaurants and Yelpers on the same likely to complain than praise on online fo- team? Or are they on completely different rums.” teams? The glue that holds the two togeth- In the hospitality industry the age- er—“Mutual curiosity,” says Smith. “Yelp- old motto, “The customer is always right,” ers want to discover new and buzz-worthy has been echoed repeatedly. With online restaurants, and restaurant owners are cu- platforms in the mix, the customer may al- rious to hear about their customers’ experi- ways have a public voice, but the accuracy of ences. That said, Yelp is a platform for can- them always being right yearns to be exam- did reviews, and while almost 80% of them ined. are three, four and five stars, the constructive “The customer is not always right, criticisms can draw an emotional response. but the business is not always right either… At the end of the day, Yelp exists to shine a what matters is that you take care of each light on Boston’s best businesses.” situation and get the job done,” says Sara Some Yelpers even write with a con- Fetbroth, General Manager of Oleana. “It is scious effort to balance negative reviews very difficult to handle this notion in our in- with positive ones. “I'm very open with what dustry, and I imagine it is the same for any I write,” says Nick Barber, IDG New Service’s industry that centers around people…we try Boston-based multimedia correspondent to make people feel happy and taken care and casual Yelper. “After spending $25-100 a of.” Fetbroth finds the review sites at fault, person I feel like you have the credentials to “I think some online sites are looking to cre- write an honest opinion of service, food and ate drama by trying to make it about being atmosphere. I also try to be even-handed in right or wrong. But it is not just the sites, a my reviews. If I write a bad one I make sure lot of people do. The sites just give them a to write a good one of another restaurant at platform to do so.” some point. I wrote a one-star review just “The customer is not always right, last fall. I did it with the expectation of re- at least not outwardly,” says Borgia. “Online ceiving nothing in return. I wanted to help review platforms give people who firmly fellow diners avoid a bad experience. In ad- believe in this notion an amazing opportu-

32 Boston Hospitality Review | Summer 2015 Left, Oleana features on open kitchen where guests can watch their meal being made

nity to make complete fools of themselves.” match who we are, there can be a problem. If He followed up with an example of a recent they view this kind of experience as a failure Yelper who complained about missing in- on our part and they rate us on Yelp, we suf- gredients in a dish they were recently served fe r.” at the restaurant. As it turns out, the ingredi- “The customer is usually right unless ents in question were not even a part of the they are rude or mean,” Says Ana Sortun, dish originally. Chef-Owner of Oleana and Sarma. “I think “That sentiment has always meant that people who use Yelp as a resource to that no matter what, we will always do as measure a restaurant’s quality of experience much as we can do to make the customer need to remember that the credentials are happy, to an extent. It drives me crazy to read random…you have to search more within to something that just isn’t true,” says Raia. He be able to filter the constructive criticism or refers to times when someone has blatantly compliments.” written a review about the wrong restaurant. Yelp has been working hard to main- “The customer is not always right,” tain reliability in their reviewers, making a says Adams, “but we listen to make sure we concerted effort to check reviewer creden- are catering to the guests’ needs before all tials. “We have some of the brightest minds else. We work to find a solution for whatev- working tirelessly to ensure the recommen- er they are looking for; 99% of the time the dation software is effective so our site stays guest is open and we are successful. Every useful and reliable as possible,” says Smith. person who walks through our doors has As well, Yelp actually provides a two-way their own personal expectation of what kind communication system through their Yelp of experience they are looking for and who Business Page (biz.yelp.com), giving us- they think we are. When their expectation ers access to a suite of free tools, which is of who they think we are does not remotely something that most are not familiar with.

Summer 2015 | Boston Hospitality Review 33 Above, Two featured “Business owners can respond privately or ferrals and as of most recently, positive on- menu items from publicly to reviews, upload photos of their line reviews.” the Greek-inspired business, flip on check-in offers, ensure sea- “A very recent poll that was featured restaurant, Oleana sonal hours are correct, and other goodies, on Good Morning America established that including a completely free reservation sys- 86% of consumers make their decision by tem.” reading online reviews,” Malmgren shares. Another solution to improve custom- “Our solution is to manage, measure and er-restaurant relationships that have been set improve your online reviews with our satis- askew by online reviews comes in the form faction survey that typically has four to five of an online survey tool created by Strategic simple questions, which are based on how Business Communications (SBC). SBC is a the customer feels.” The survey only sets cus- San Diego Based company that strategically tomers back about 60 seconds and makes a helps organizations obtain their own visions big impact. “Should a customer have a prob- through meeting and event planning, train- lem with the food or service for example, ing and consulting, and consumer, employ- the complaint goes directly to the appoint- ee and market research. They have brought ed manager of that business establishment Ooze it to the market, which stands for: Op- so that it can be addressed immediately and timizing every opportunity with zealous en- discretely, instead of being posted on Yelp thusiasm. This tool essentially removes the and other review pages.” Negative reviews need for online review platforms at all. “This are addressed immediately with personal- unique survey tool focuses on consumer, ized contact, closing the gap for a disgrun- employee and/or market research,” says Lisa tled guest to be left stewing. Malmgren, one of SBC’s Regional Account “Customers become promoters and Managers. “The biggest factor in growing promoters are the best advertising platforms any business is actual customer loyalty, re- for your business which ultimately breed

34 Boston Hospitality Review | Summer 2015 customer loyalty,” says Malmgren. She be- feedback and individual preferences,” says lieves in the power of the positive online re- Fetbroth. view and that in a city where there is extreme These days so many aspects of every competition it is imperative for restaurants, day life are digital. Technology has even en- “to manage their online reviews, as too many croached on what the hospitality industry negative reviews can actually ruin a restau- has prided itself most on—face-to-face in- rant’s reputation for a very, very long time.” teractions and communication. “As a front- These tools can be put in place, but of-house professional, I take pride in our it is hard to avoid those reviewers that just talent of communicating with people,” says want to vent, and sometimes even take it too Fetbroth. “But when we are not able to use far. It is not just about maintaining business that talent what do we do?” but also keeping morale at an establishment Social media has played a significant up. “Some of my partners and staff had fol- role in digital interaction taking command, lowed Yelp in the past, taking the feedback and with more and more apps and technolo- pretty seriously,” says Sortun. She has seen gy being developed, this trend does not seem “a lot of devastation and creative interrup- to be going anywhere any time soon. “I think tion,” come from some of the more scathing social media has changed restaurants more reviews. “It’s hard to have filters for the feed- than review platforms, but maybe restau- back and not try to be everything for every- rants are more customer feedback friendly on e .” now,” says Raia. “I think some people are It is important for these seasoned proud that people don’t like them on Yelp, chefs to maintain a tough skin as they con- and that they stick to their guns on certain stantly face scrutiny. “As artists and crafts- menu items or policies. Others feel threat- men we put ourselves out there to be criti- ened and feel the need to change to make cized every day,” says Borgia. “It’s the nature every customer happy. I think there has to of what we do and you can't have thin skin.” be a middle ground where you realize you It is also imperative to keep things in per- need to bend sometimes, but overall sticking spective as a restaurant staff member. “At the to what you believe your restaurant should end of the day these reviews are opinions. b e .” ■ You have to look at them in a broader con- text and try your best to sort through useful

Rachel DeSimone, a native New Yorker, is passionate about unique food and it fuels her writing. She is currently Editor-in-Chief of Spoon University, an online food resource for college students made up of over 1,800 contribu- tors at more than 50 campuses. Rachel is a senior at Boston University in the School of Hospitality Administration and minoring in journalism. After graduation, she hopes to participate in the BU Gastronomy Masters program.

Summer 2015 | Boston Hospitality Review 35 Boston Hospitality Review Marketing

Search Engine Marketing (SEM): Financial & Competitive Advantages of an Effective Hotel SEM Strategy Leora Lanz and Jovanna Fazzini nefficient algorithms drove various search evolving strategy used by myriad industries Iengines throughout the 1990’s. Search re- worldwide. The hospitality industry, and ho- sults were at times unrelated to the proposed tels particularly, must adapt brand websites, query, and were cluttered with spam. Google promotional positioning tactics, and online soon devised a more organized and system- distribution channel strategies to meet and atic search result listing, and the relevance of exceed ever-evolving consumer demands search results improved exponentially. The and expectations. It is imperative to remodel plethora of data distributed on the web also SEM tactics, and implement new strategies inspired the emergence of an online indus- to remain competitive on a truly dynamic try to sell and exchange goods and services playing field that is the hospitality industry. between web users. In todays ‘internet economy’, online By 2000, with Google implement- purchases of hotel rooms and hospitality ing its advertising models, pay per click services increasingly dominate the market. emerged, and companies began to imple- SEM is now a necessary element of the hotel ment SEM strategies. SEM, including paid- marketing mix. search advertising and search engine opti- mization, revolutionized online marketing. Paid Search and Search Engine Optimization The Essentials The first component of successful SEM im- Search Engine Marketing (SEM) is a rapidly plementation is paid search, which typical-

36 Boston Hospitality Review | Summer 2015 ly occurs through a search engine such as SEARCH ENGINE & HOTEL BOOKINGS Google, and takes place on what is essential- 79% of guests that book on hotel websites specifically ly an auction market. The hotel bids on the searched for the Hotel on a Search Engine Pay-Per-Click (PPC) cost which it is willing to incur for the specific key words consum- 96% of travelers start planning a trip with a Google ers use to conduct a web search. Google has Search made available specific SEM opportunities for hotels with its Hotel Ads program. 63% of travelers say Search Engines are the “Go To” The financial benefits of paid search source of travel information are significant. According to a study con- ducted by Prognosis Digital, a hospitali- 45% of potential guests see brand listings and ads on ty-focused digital marketing firm based in the front page of a Google search and then proceed for a India, global hotel brands with the objective Statistics Provided by Prognosis Digital of increasing the number of online book- guests were paying, and where every reser- ings and targeting international tourists and vation came from.” business travelers invested in a PPC cam- Although paid search is an advan- paign and saw results within 10 months. tageous strategy, nearly every hotel has this The PPC campaign increased web traffic, in- opportunity. The ability to bid for the ideal creased conversion rates, and counteracted ‘key word’ and pay for a ‘click’ is largely de- tough competition from local players who pendent on the size of a hotel’s marketing had established strong presence for relat- budget. The Cost-Per-Click (CPC) can be ed key words. On average, these hotels in- as expensive as $6 per-click if not more – creased the number of bookings by over 300 costs which quickly accumulate particularly bookings per hotel, and decreased the cost for smaller, independent hotels. Bidding for per click incurred by 250%. large numbers and varying combinations Paid search is effective, results are of words can bring the average CPC down immediately visible, and efforts are easily to manageable levels, however, hotels using measured. Paid search extends to banner solely paid search are incurring unnecessar- space on other websites including online ily high online marketing costs. travel agency (OTA) websites. It can be shut Other aspects of paid search to be on and off whenever deemed necessary. For wary of include prospective guests’ emotive example, Marje Bennetts, General Manager responses to the word ‘sponsored’. Guests of the Beach House Hotel Hermosa Beach, seeking to book hotels online could be skep- California, a luxury 96-suite boutique hotel, tic and less trusting of the advertisements depicted the importance of paid search for paid for by hotels and other businesses. smaller independent hotel promotions. The second addend in the SEM equa- “Our hotel ran promotional packag- tion is Search Engine Optimization (SEO), es in January and February (2015) including which is completely organic, and essential- a discount package and a romance package ly free. Hotels and brands do not pay fees to for Valentines Day…and the paid placement Google or any other search engine. The only on trip advisor led the program to fill,” says fee is to the agency, which manages SEO ac- Bennetts. “We were able to immediately shut tivity. off the paid-search promotion as soon as this SEO requires continuous changes to occurred,” and Bennetts received “feedback source code in the hotel website, and link- on how each reservation was booked, what

Summer 2015 | Boston Hospitality Review 37 accounts for most booking revenue for your hotel? Are you using an integrative market- ing strategy, or relying on one or few chan- nels? What is your current online conver- sion rate? It is imperative to pinpoint exactly what your hotel’s marketing goal is. If the goal were a short-term one, for example a package to be promoted in the coming month, paid search would be most effective. When utilizing paid search, SE, or both, it is necessary to monitor progress and determine when it is appropriate to divest Above, Google’s ing it with others websites. The challenge from paid search. Once search results organ- HotelAds provides inherent in SEO is that’s its efforts may take ically appear with SEO, incurring high PPC marketing quite a while – perhaps as long as six to nine costs can be avoided. opportunities months – before resulting in significant on- within Google line presence. Conduct External Research Maps According to Sachin Suri, managing partner of Prognosis Digital, “Consumer External research involves investigating SEM behavior tells us that users have more con- strategies used by industry leaders. Compare fidence in organic links, which removes the and contrast brand websites and approaches skepticism some search engine users may of other hotels within your competitive set experience upon seeing the word ‘sponsored’ and beyond. Today, according to Suri, “90% above the search result.” of the hospitality world uses SEM, but most “SEO is also advantageous because are using it inefficiently.” as optimization causes online presence to be Marketing directors should be atten- more profound, the hotel does not need to tive to budget allocations for paid search. An invest as much of its marketing budget into independent hotel is unlikely to have the re- paid search,” Suri adds. “The key to success- sources to compete with a larger hotel cor- ful SEM is finding the balance between paid poration for a key word. On average “hotels search and SEO, which proportion of each spend 25-35% of their digital budget on paid yields the highest ROI, and converts the search” (Milestone Internet). Although it is most ‘lookers to bookers’.” nearly impossible for a small independent Hotels now have the ability to utilize hotel to compete with a large chain hotel SEM strategies- to position and differentiate in an auction for the highest position on a their products and services in a continuous- Google search, it is possible to gain and sus- ly expanding online marketplace. tain a competitive advantage through SEO. Effective SEM Strategies Ensure Websites Adapt to the Newer Technological Demands Evaluate Internal Strategy & Marketing Goals Regarding responsive website design, the hotel brand website must be visually appeal- Which online distribution channel currently ing and easily navigable on all tablet and

38 Boston Hospitality Review | Summer 2015 Left, Marketers can choose to save costs by investing in SEM and less in Online Travel Agency’s smartphone screens: hand, make more purchases online, and even • 68% of travelers recall ads viewed on those choosing to call the hotel have likely their smartphones and 59% who viewed on conducted online research beforehand. desktop (eMarketers) A newer SEM technique, Gmail • 71% of travelers who saw ads on a smart- Sponsored Promotions (GSPs), targets on- phone took action and 63% on desktop line users via email advertisements rather (eMarketers) than web searches. This is not to be confused with direct email marketing. Rather, GSP is a Hotel websites failing to adapt to the paid search technique by which online email needs of shoppers using smartphones are account providers place advertisements ignoring the opportunity to fully capture within the email account itself. According to the attention of this market. Budgets should Suri, “GSP is cheaper than other paid search allocate and account for responsive website tactics because it is very new and business- design. es are either unaware of it or using it inef- ficiently.” Bidding with other companies for Identify the SEM Strategy that Reaches key words may place your brand’s website on Your Target Guest the first page of search results, yet GSP places your banner and/or link directly into a target Position the site exactly where the target consumers email account. Segmenting and guest seeks the service. Gather market intel- differentiating opportunities are endless. ligence regarding behavioral characteristics and booking tendencies of this target mar- Monitor SEM Strategies to Determine the ket. Some segments tend to book reserva- Channels Yielding the Highest ROIs tions by calling the hotel directly or through the hotel website. Millennials, on the other The effectiveness of SEM lies in its flexibility

Summer 2015 | Boston Hospitality Review 39 and measurability. It is easy to pinpoint SEM managers and marketing departments can ROI. SEM places control of the budget in the choose to invest less in OTAs and more in hands of the company, as the budget can be SEM, thereby reducing OTA commissions revised at any time. If in one week the deci- and costs. sion is made to budget $100 on key words, While hotels of various sizes and tar- this budget can be implemented; the key get markets use SEM, there is currently no words can later be relinquished when the distinct method determining the appropri- short-term marketing goal is reached. ate percentages of paid search and SEO to When managing different marketing be used in digital marketing strategy. The channels and measuring the profitability of objective is to find the balance between paid each, paid search and SEO have proven ef- search, SEO, and other digital marketing fective in yielding high ROI’s, particularly intermediaries. Once obtained, this will al- as these offset a hotel’s dependency on third low a hotel of any size to gain and sustain party intermediaries (TPI). a competitive advantage through its online Previously, TPIs were the primary presence. ■ channels assisting hotels in increasing sales and occupancies, but now they are becom- ing more costly. Online travel agency (OTA) commissions can be as high as 35%. Hotel

Jovanna Fazzini is a student at Boston University’s School of Hospitality Administration (SHA). Her studies and areas of interest include finance, accounting, and revenue manage- ment for the hospitality industry. Jovanna is currently working with LHL Communications and as a Pricing and Competition Analyst at Road Scholar, an educational travel provider head- quartered in Boston. Beyond her studies at SHA, she also is minoring in Business Administra- tion at BU’s Questrom School of Business, and Dance at BU’s College of Fine Arts.

Leora Halpern Lanz is the president of LHL Communications, a hospitality content marketing, branding, and media relations advisory firm. LHL clients include hotels, hospitality investment conferences, leisure products, hotel management companies as well as other industry related services. Prior to founding LHL, Leora served for 15 years as global director of marketing and head of the marketing practice for hospitality consulting giant HVS. Previously, she served for 10 years as director of public relations and advertising for Sheraton Hotels of New York and for 5 years as director of public relations for the Greater Boston Convention & Visitors Bureau. She is currently also an adjunct professor at Boston University’s School of Hospitality Administration.

40 Boston Hospitality Review | Summer 2015 Information for Readers Approach itors from the creators or owners of the images, from the in- Boston Hospitality Review is an interdisciplinary journal ventories of stock image companies, or from historical sources devoted to scholarship and reflection about the theory and that are exempt from copyright. Readers should assume that practice of hospitality as a business activity and cultural phe- all images in this publication are protected by copyright. Cred- nomenon. It is published for the benefit of academics, indus- its for this issue are as follows. try practitioners, and the interested public by the School of Front Cover: Hyatt Hotels Corp. IPO, Bloomberg, Getty Hospitality Administration at Boston University. Images. Oleana Patio, Kristen Teig. Architectural Columns, Corbis Images. John Wilkes Booth, provided by author. Olea- Authors na Plate, Kristen Teig. Inside Cover: Spring tree, Chris Muller. Prospective contributors should review the author guide- Boston, the Booth Brothers, and the Parker House: All pho- lines on our website prior to submitting manuscripts. tos provided by author. Airport Hotels: Constructing DIA’s Hotel and Transit Center, Brent Lewis, Getty Images. Wall of Notices Glass by Pool at Hilton Hotel Heathrow, Corbis Images. Hy- Opinions expressed in Boston Hospitality Review are att Hotels IPO, Bloomberg, Getty Images. Upgrades to DIA, solely those of the authors. Boston University and the editors Joe Amon, Getty Images. The Pricing Effects of Heritage at an do not necessarily agree with, nor do they endorse, these opin- Iconic Hotel: Architectural Columns, Corbis Images. Classic ions. Boston University and the editors do not endorse com- White Balustrade, Corbis Images. Heraldic lion with crown, panies or products that may be mentioned in articles. The in- Florence, Italy, Corbis Images. The Customer is Always Right, clusion of such firms is solely at the discretion of the authors. Right? Yelp Review on iPad, Kristen Teig. Chef Borgia, Kris- Authors may have ownership interests, consulting arrange- ten Teig. Russell House Tavern bar, provided with permissions ments, or other business relationships with these companies. from Russell House Tavern. Oleana Open Kitchen, Kristen Copyright and Servicemark Teig. Cutting board with food at Oleana, Kristen Teig. Search Engine Marketing (SEM): Woman Using Her iPhone, Corbis © Copyright 2015 by Boston University. The name “Bos- Images. Search, Egor Culcea, The Noun Project. Accommo- ton Hospitality Review” and the multicolored logo are service- dation, Alex Kwa, The Noun Project. Compass, Ed Harrison, marks of Boston Hospitality Review and Boston University. The Noun Project. Search Engine, Wilson Joseph, The Noun Reproduction Project. Google HotelAds laptop and tablet, google.com/hote- lads. Expedia to purchase competitor Orbitz, Corbis Images. Readers are welcome to share articles within their profes- sional and personal networks. This means that individuals and organizations may reproduce and distribute unabridged arti- cles, without permission or royalty fee, provided that the ma- Offices terials are distributed without charge. This permission extends Boston Hospitality Review to text excerpts, provided that attribution is given to the jour- School of Hospitality Administration nal and the authors. However, this permission does not extend Boston University to visual excerpts of any type, such as photographs, which may 928 Commonwealth Avenue never be reproduced separately from the articles in which they Boston, MA 02215 are embedded. For situations in which articles or excerpts are USA resold for a charge, permission is required and a royalty fee 617-353-3261 may be imposed. These regulations apply to all forms of re- [email protected] production, distribution or transmission, in any form or by any means, electronic or mechanical, including photocopy, Website recording, digital representation, or any information storage www.bu.edu/bhr or retrieval system. ISSN 2326-0351 Image Credits Exhibits (tables, charts, and diagrams) are usually created by the authors and revised by the editors. Photographs and artwork may be suggested by the authors, but are selected by the editors. Photographs and artwork are obtained by the ed-

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42 Boston Hospitality Review | Summer 2015