A recent report from JD Power and Associates, covering the results of their 16th annual (2012) lodging industry survey, revealed that overall guest satisfaction declined to 757 on a 1,000-point scale, down 7 index points from 2011.

If guest satisfaction levels continue to decline, there is a risk that desired unit-level profit growth in one the of the nation's rapidly recovering industries may not be reached.

Research findings indicate a direct relationship between hotel room rates and profitability; as one goes up, so does the other.

Logic tells us that there is likely an inverse relationship between guest satisfaction and profits: if a hotel manager charges more for their guest room, and does not change the product offering (thus leading to greater profits) the value received by customers declines, as does guest satisfaction.

How to Answer the Question

With the assistance of Hyatt Hotels & Resorts, InterContinental Hotels Group and Marriott International, we developed some initial empirical insights to the following questions:

• What management practices result in greater guest satisfaction? And if so,
• Do more satisfied guests lead to greater hotel profits?

In addressing these questions, five measures of guest satisfaction are studied:

• What is your overall satisfaction?
• Would you recommend to others?
• Would you return?
• Are you satisfied with the value received for the price you paid?
• Are you satisfied with the physical condition of the facility?

We then identify owner and/or management behaviors to uncover any linkage between levels of guest satisfaction and hotel profitability. Specific areas we study include selected management practices: dollars expended in maintaining the condition of the property, payroll dollars spent in high guest contact areas of the operation (i.e. front desk, housekeeping, bell staff, etc.), as well as total payroll spending throughout the property.

Also, we study the influence of ownership spending on the replacement of capital items, such as furniture, fixtures and equipment. All analyses include controls to allow for differences in property type and location.

The Answer

Within the study sample, we find that managers who spend above-average amounts on maintaining their hotels and staffing their properties, both in high guest contact areas as well as throughout the operation, achieve superior guest satisfaction scores across most measures studied. These same hotels realized greater levels of profitability relative to their comparable counterparts.

We also find that owners that achieved above average guest satisfaction scores are those that invest greater amounts of capital expenditures in maintaining the quality and condition of their hotels. These same properties realized superior operating profits.

Hotels that achieved superior levels of profitability realized higher guest scores in terms of overall guest satisfaction, willingness to both recommend the hotel to others and to return to the property, as well as higher levels of satisfaction with the condition of the building.

Not surprisingly, hotels that achieved superior levels of profitability did not score as high from the question of the value received from their hotel stay. This demonstrates the belief that as the guest pays more, the perceived value of the experience realized declines, and guest satisfaction is lower.

Implications

The outlook for the U.S. lodging industry remains favorable and well-above-average levels of profit growth are expected for the foreseeable future. To keep guests happy, owners and managers should:

• Appropriately staff their hotel
• Maintain the physical plant

Invest capital to replace longer lived assets, such as furniture, fixtures and equipment, before they wear out
Superior profits are likely to be realized from these management practices as indicated by the results of this study.

Note: The research conclusions were developed solely by PKF-HR. They may, or may not, reflect the views of the participating hotel companies.

To learn more about the relationship between guest satisfaction and hotel profits, please contact Jamie Lane at jamie.lane@pkfc.com, or (404) 809-3950.