9. “One Size Does Not Need to Fit All”—Nor1 eStandby Upgrade Solution

by Liis Männamaa

A stay in a hotel room is a complex product.

A product that is answering the consumers’ needs to sleep and rest, being a blend of hardware (bed, furniture, bathroom), services (F&B, housekeeping, concierge), and many other aspects that help satisfying a guest’s requirements during the stay (i.e., location, view, space, entertainment solutions, quietness). For its consumers it can be a very emotional product, especially for those who choose to travel for leisure, not for business. For those selling the product it is highly perishable: If a room is not sold before the break of dawn, never again will they be able to create a contribution to their need for revenue for that very night. They may try to sell that room again the next night, but for the one that has just passed chances are gone forever if it had been left empty.

Burdened with fixed capacities and costs, operating in a highly competitive market with Online Travel Agencies that are controlling large chunks of consumer demand and are charging high commissions, hotels are struggling to put heads to beds while ensuring their guests have a great experience during their stay. Great enough to come back or to at least talk positively about it in social media channels and trip review sites—a main influencer to other guests’ trip preparations. Finding a solution to fill those perishable rooms, adding incremental revenue that goes straight to the bottom line, and increasing guest satisfaction is the mission of Nor1, a global travel merchandizing provider founded in 2004 with institutional investments from Accel Partners, Concur, and Goldman Sachs. Nor1 challenged the way upselling and merchandizing was performed so far by introducing an advanced, analytics-based upsell technology solution that brought a new spin to the actual buying process. Global brands such as Hilton, CarlsonRezidor, IHG, Accor, Fairmont, and Kempinski, to name a few, are using this unique technology-based standby buying process that created a brand new option of merchandizing hotel products by determining what consumers want and will pay for, thus improving the way those products and services are offered.

Nor1 proves that “one size does not need to fit all” and that customized, relevant upsell offers drive better results in terms of incremental revenue, guest satisfaction, and loyalty.

There is a high chance that many guests will respond positively to a chance to learn how paying a little extra could let them have a premium room category, and benefit from all those high-class room features, amenities, and add-ons that come along with such an upgrade. If the guest has already committed to the hotel by booking a room, why not use the opportunity and persuade them to spend even more during their stay? Hotel guests increasingly want to make choices about their stay and enhance their experience by making decisions over arrival and departure times, service levels, size of the room, decor, furniture, audio-visual facilities, amenities, and food and beverage options. It is suggested that the more adaptable a product is to consumers, the more valuable it becomes to them because it is no longer just an inanimate object, but an extension of themselves and their personality. In reality large groups of guests are often opting for a hotel’s base room categories, either because of their price sensitivity or because they are overwhelmed by the multitude of room-rate combinations and options they got exposed to, during the booking process. Let’s be honest: Who outside the hotel industry can clearly tell the difference between “Deluxe,” “Comfort,” “Superior,” or “Executive” categories? With the largest group of guests being interested in inexpensive standard room categories, we often observe hotels applying a strategy we came across already in airlines: They overbook their base product, for which they get most demand. It is often a hotel’s premium and luxury room inventory that sells last. The more expensive, the less likely such suites will find a guest staying there.

Overbooking standard room types allows capturing more business at lower rates, but it is assumed that each guest is adding to the contribution margin of a hotel, with extra spending expected in F&B outlets or the spa. At the same time, overbooking practice is eliminating revenue potential for a hotel’s suite inventory, as guests having reserved an overbooked room category are typically upgraded complimentary to a suite. The more dramatic the overbooking situation and the higher the displacement pressure from base room categories, the less likely it is that hotel front desk staff upsells a guest to a higher category. To avoid conflict and in order to balance the house, way too often guests get upgraded for free. This is where the new standby concept of Nor1’s upsell solution can unveil its true beauty, as described later.

With this, eStandby provides a solution that gives the hotel a safety net for perishable premium room and suite inventory: Hotels try to sell their expensive suites as long as they can, but shortly before arrival, if their suites are still empty and if it is unlikely that a full paying guest will request such premium room or suite, they can award such suite to a guest who opted in to be awarded such an upsell on a standby basis. Nor1 is creating a pipeline of extra demand for premium inventory, and hotels are left with a simple choice every day: In case suites are still empty, would they rather leave the suites empty or would they give them to someone who is willing to pay a reduced extra amount compared to the regular supplement?

With luxury suites being empty most times of the year it proves to be an interesting opportunity for hotels to drive extra revenue (for a room that otherwise would have remained empty) and enhance the guest experience in a unique way. Often this way guests get exposed to a suite product they may not have been choosing in the first place.

What though, if certain isolated features are only rarely spread in a hotel? Imagine a hotel with 350 rooms, and two of them have a daylight bathroom. One of the two rooms is a suite, another one is a Deluxe Room. How to monetize such features without creating another category? How about rooms on floor 1 versus rooms on floor 10? Lots of guests prefer a high floor and are willing to pay extra for that. How about a connecting room? How about a room with a balcony?

Again, the standby nature of Nor1’s upsell solution is allowing new selling opportunities. Detached from an actual room category the hotel can sell isolated features at a specific price point. That way, brand new revenue streams are created, allowing monetizing aspects of the hotel that were not considered before.

Guests can choose between different upsell options and select the ones they are interested in and make their requests by clicking on corresponding buttons. The offers are presented with a compelling image, brief bullet-pointed descriptions underlining the added value of the upgradable room categories and services.

Consider a hotel with a multitude of existing room categories, additional services in their restaurant, bar or spa, with room features like views, high floors or a balcony could easily be 15 to 30 different upsell offers. This is a challenge, as consumers are easily overwhelmed, not being able to properly decide when too many options are in hand. The dramatic explosion in choice—from the mundane to the profound challenges of balancing career, family, and individual needs—has already paradoxically been identified to become a problem instead of a solution. Nor1 actually found that conversion dropped significantly as soon as more than six offers were presented to a guest.

This represents an additional complexity for the upsell task: creating a relevant and targeted offer set that is optimized toward the highest potential revenue that is resonating with the guest.

But what offer to choose? At what price? With what combination of offers should they be presented with? And in what order should they get displayed?

Whether the price is too low or too high, both can influence the consumer behavior. Customers usually have a range of possible, tolerable prices in their mind and if there is a fluctuation in any direction, the business might be cut. If the price is too low, there is a good chance that some potential revenue would be lost, as the consumer would have been willing to pay more, or/and the product might be perceived as of low quality. On the other hand, if the price is too high, there is a risk of losing customers to competitors because the price went outside of their perceived boundaries.

Price is often used as an attractive call to action and can be such a crucial motivator that people find themselves buying things that they didn’t plan to buy—only because the price is “good.” As price is often described as a sacrifice one has to do in order to receive some value, a discount counts as a decrease in the sacrifice and therefore is perceived as a bargain and an increase in value. To be successful, the ultimate goal should be to meet the customer in the middle by applying a “good price” where both parties can benefit.

Technology allows hospitality organizations to know more about their customers by collecting and analyzing the information that can be provided, for example, by a hotel reservation. There are millions of bookings made every day. This means a lot of generic aggregated information about the customers such as gender, age, geographical location, interest patterns, and so forth. Nowadays, companies understand that such information is valuable but not every organization knows what to do with it and how to collect and utilize it. As a matter of fact, every booking provides the property important information, which can be used as a basis for targeted offers and could bring higher guest satisfaction. The key to success is the right offer, for the right price, at the right time, and to the right person.

But how could the tourism organization know when is the right time and how much exactly to ask for an offer? How should they realize the needs of the guests?

As technology advances, artificial intelligence and complex algorithms support and facilitate the decision-making process by analyzing and storing experiences, patterns, and information across different organizations, ultimately helping to better merchandize a company’s offering to the needs of their customers. To some extent, behavior-related information such as a travel arrangement may already be regarded as “Big Data”—too large of a dataset where regular processing tools fail to detect the right patterns from such information. Leveraging such information becomes key to the success of all companies involved in merchandizing a complex product such as a hotel stay experience.

Developing personalized offers through identifying unique needs is very time and resource consuming. Therefore, it is beneficial to outsource this task to third-parties who have the skills, personnel, and technologies for identifying the unique characteristics of consumers and match them with individually designed products. Nor1 is one of these companies helping the hotels to deepen their relationships with guests by contributing its knowledge, data, and technology, to help solve the problem of composing a right mix of offers, priced with a focus on maximum revenue capture. Not only did Nor1 challenge the way upscale services are presented and positioned (standby buying process), but also it challenges the guesswork in today’s hotel merchandizing practice, where experience of hotel marketers is the main driver for offer composition.

Unlike a mere recommendation engine, PRiME accurately identifies in real-time which products and pricing to show to a particular guest and then actually presents an offer set to the guest on behalf of the hotel. It is this “decision intelligence” that increases a property’s revenue and strengthens customer loyalty. PRiME also identifies which variables and interactions matter most when applying pricing and merchandising strategies to upsell offers. The data points that matter are typically a combination of booking-specific variables, guest-specific information, and information that’s specific to the property.

Each of the variables have a certain weighting, and the weighting itself changes for each reservation based on the unique intersection of the booking, guest, and property—there is no one size fits all.

PRiME enables hoteliers to better predict how offers for similar bookings by similar guests at similar properties performed in the past, enables them to determine, in real time, which offer to make when a new booking comes through the system. Essentially, we can infer the likely product preferences and price sensitivities of the guest even if we have no historical data for the specific property or guest. The result is that PRiME produces excellent results right from the start.

PRiME can optimize offer sets to help channel demand to underutilized inventory, while ensuring it is in-line with consumer preferences. And that’s another key element of the intelligence in PRiME—choosing and setting prices that interact with each other to achieve the optimal outcome.

As we have seen before, there is a strong need for limiting upsell offers to a subset of all possible offers in any given point in time. Hence, with the support of PRiME, eStandby focuses on generating the most relevant offer set for any guest. According to research, the mind has a bandwidth in perception. “There is a limit to the ability of the mind to relate to among a large number of alternatives and accurately make a choice even if there is only one criterion” (based on Miller, “The magical number 7”). For instance, if a person has given the task to choose from 20 different options, he will give inaccurate answers because the range exceeds the bandwidth of his channel for perception. In most cases, seven alternatives are the approximate limit of a person’s channel capacity.

For the hotels we count incremental revenue, relief in overbooking situations, higher guest satisfaction, marketing effects for the hotel’s premium products and services, as well as loyalty effects on the plus side. Also the hotel team is provided with useful information about the guest upsell performance that facilitates the cooperation between the hotel and the Nor1 team. According to this information, changes in the pricing and offer set can be applied which help to continuously improve the performance beyond the effects of machine learning. All of this is provided with a performance-based revenue model, where only successful upsells are commissioned by Nor1, eliminating the risk to invest in a solution that is not bringing a distinct ROI.

When customers are confronted with relevant offers evoking their unconscious desires, instead of feeling “being sold to,” they feel motivated and attracted enough to buy the product. More than 2 million guests are exposed to eStandby offers every month, thus contributing to a 1 to 5 percent increase in a hotel’s average daily rate and resulting in up to a 32 percent average increase in original booking value for upgraded bookings. With the use of predictive data analytics Nor1 makes upselling personal and successful—and you may ask what would prevent any hotel with different room categories and upsell potential to apply Nor1’s new approach.

A challenge that Nor1 faces would be the spread of responsibilities and count of departments within the hotel organization that are touched with the eStandby Upgrade solution. Revenue Management appreciates the last minute yielding of perishable rooms; Front Desk Operations is affected with the house balancing task and the communication to the guests checking in; Sales is chartered to sell the hotels capacity best; Marketing has a word to say on the way guest communication shall look and feel; Hotel IT and e-commerce needs to support the technology integration—and all of them need to get involved! With so many different stakeholders it could take a while until all buy-in is organized and the solution gets launched.

In addition to the obstacles within the hotel organization there is the need to work with a multitude of other hotel technology solution providers to enable a seamless and secure transfer of guest booking data in line with most current data protection and privacy policy requirements. Only that data is fueling PRiME and eStandby Upgrades’ true potential. Keeping up to date with these vendors and their own innovations is a task of its own.

But when all is said and done, it is also a venture worthwhile: Hundreds of thousands of satisfied guests and thousands of hotels are supporting the quest for better services and differentiation while agreeing with Nor1—a stay in a hotel room is a complex product. All that counts is the experience the guest has in his/her room at the end of a day.

1. The purpose on which the company was founded; what is your (his) passion?

Nor1 was founded by serial entrepreneur Art Norins, who happened to travel a lot for his prior businesses. Passionate for people that he worked with and for, exposed to many different nations on different continents, he spends months of his life in airplanes, at airports, and in hotels. Value driven and equipped with an intense sense of fairness and good business practices he always wondered why specifically with airlines so many first and business class seats were left unsold shortly before takeoff, with lots of travelers boarding economy class having a distinct willingness to buy such high class, high service, and maximum legroom travel experience—just not at the original fare requested by the airline for such service! Why leaving those seats empty? Especially when cramped in a coach class seat you would immediately sense the value of such a premium seat.

The airline was more than aware of the perishable nature of its product—a fact certainly reflected it in their numbers when too many premium seats remained unsold. Why not offer such seats to travelers at the last minute that at least were willing to contribute, albeit a lower amount, to the revenue of the airline? Why not offer those premium seats on a standby basis, so that they are kept open as long as possible, yet guaranteed to be sold even if no one was willing to pay the full price?

This anticipated win-win situation for the airline and the traveler was a key driver in arriving at the option to offer perishable services on a standby basis. This changed the traditional buying process toward one resembling an auction model, creating a value from uncertainty.

The founders were passionate to create a company that would solve that problem, improving the traveler’s experience and creating additional marginal revenue and loyalty for travel providers. Originally with an eye on the airline industry, it clearly deployed this powerful idea in the complex world of hospitality.

2. Its difference relative to incumbents; why is it strategically novel in your view?

Until today, there are really no true incumbents to the solution. The eStandby Upgrade product was and is truly unique, and its uniqueness was underlined in a patent granted for the buying process designed for the purpose of helping to sell perishable goods and services to customers at a discounted rate as well as for the merchandizing algorithm PRiME. The invention on the buying process consequently enabled the purchase of perishable objects by ascertaining and attaching a value to the certainty that the perishable object will be available and adjusting the value of the product or service for purchasers willing to pay the discounted value on the condition that the perishable object may not be available at the time of expiration. Rather than paying the certainty value, the prospective purchaser is given the opportunity to enroll in a pool for the perishable object. At a certain time the perishable is released to the pool of purchasers, who are then selected to purchase the item.

Specifically for the hotel industry which offers a complex service bundle (different room categories, dining options, spa options) that in most case combines into a (hopefully enjoyable and memorable) experience, such an approach was ground breaking—to capture revenue for suites and high-class rooms that otherwise would have been left empty. Unlike other solutions which dealt with the question of upselling travelers for higher value services than the one originally booked, the standby nature of Nor1’s approach allowed to unfold more power in creating custom built and custom priced options for the guest.

Speaking to the second novelty, PRiME: Nor1 took the guesswork out of guest satisfaction, by allowing data to speak for itself!

Not only was the unique buying process a strategic asset for the company’s success. The data gathered from millions of offers made to millions of guests enabled decision-making regarding what to offer at what price to what guest at what point in time. Truly solving the merchandizing puzzle became the clear mission going forward, with the eStandby Upgrade buying process being a means of successfully presenting the offers calculated and prepared by the PRiME platform.

Using predictive analytics was truly new for the business section it was applied to.

3. A quick tour of history; how did you and your colleagues in the company get here in terms of doing something differently? (What rules did you break, etc.?)

The team at Nor1 grouped around a simple yet brilliant business idea, and with most people initially not being from the travel or hospitality industry they were disruptive in their approach and perception for the task at hand: optimizing revenue for a complex set of possible additions to a service just booked by a traveler. PhDs in statistics and mathematics brought an unbiased analytical eye on the challenges of an emotional-, marketing-, and branding-driven industry, challenging merchandizing techniques performed by hotel marketers since decades.

With the perception of a start-up, all attention was focused on over-delivering compared to what was expected—not only providing high-tech, but as well a high-touch service. This included onsite training and implementation of the solution at hotel key customers, creating ambassadors for later rollout phases of that brand. It included decisions such as introducing own photographer teams to create better room imagery than those obtained by the marketing teams of the hotels. Not taking what is as granted, paired with the spirit of creating something new was fueling the passion and energy of a global team, working within and for the hospitality industry.

4. Future intent; what is the next opportunity and related challenges?

With all that was learned the next step is allowing the same merchandizing insights to perform while guests are at the property. The next consequential evolution of the service will allow for the customization of a guest’s stay and his experience with custom offers based on a blend of predictive analytics, business rules, and the hotel’s business needs.

Acknowledging that consumers are best reached using mobile solutions shaped new services that include exact time and location of the consumer into the mix, opening new opportunities for hotel marketers to promote their products and services.

5. Looking back from the future; why did what you have done matter, more broadly speaking (even beyond this particular company surviving or not)?

Sometimes it is hard to truly value what you do in your profession, not being a physician or involved in studies fighting cancer or world famine problems. So many businesses focus on small problems that eventually are part of another niche problem that eventually only affects selected industries. Still—many such businesses contribute to our world advancing to become a better place.

Introducing new ways of positioning and pricing perishable products and services led to more companies picking up the aspect of upselling, each in their own way. Beyond the boundaries of our company’s world a new practice was born that helped hotel operators to better merchandize their products and services. Thinking about upselling is a given these days, however now it is supported by data to support.

Having allowed thousands of couples to celebrate their wedding anniversary in a great hotel suite that they would not have dared request, also matters! Many guests have enhanced their stay in thousands of hotels, and what was planned to be a great holiday eventually became an even better holiday for all of them. Asking those travelers today, they would agree that what happened to them after getting exposed to an eStandby Upgrade offer truly mattered to them.