Alpha Hotels Marketing Econometrics

Adding the Customer Service Dimension

Discussion Agenda• Purpose and Key Questions• Methodological Approach, Definitions and Context• A New Model Metric: Service Engagement Index (Service-Engagement)

I. Derivation of Service-Engagement MetricII. Service-Engagement & Other Customer Satisfaction MetricsIII. Service-Engagement Correlated with Revenue BookingsIV. Impact of Positive & Negative Service-Engagement on Revenue BookingsV. Service Engagement & Marketing Synergies

• Detailed FindingsI. Decomposing the Importance of Marketing & Service-Engagement DriversII. Marketing Variance & Influence of Service-Engagement DriverIII. Marketing Revenue Returns by Fund-Type, Media, Campaign & Media MessageIV. Marketing Spending Optimization

• Conclusions & Next Steps• Appendix

2

PurposeAdvance Alpha Resorts’s marketing optimization model by adding a variable on customer satisfaction.

1. For transient revenues, what were the key marketing drivers, and how did these contribute to Alpha Resorts performance? What role does the Service Engagement Index play in driving revenues.?

2. How does customer service interact with media in driving Alpha Resorts’s revenue and growth? Are there significant and measurable synergies between the Service-Engagement and Alpha Resorts media?

3. What are the revenue returns across media-fund types, media channels, campaigns and media messages? Does adding the Service-Engagement metric fundamentally change media revenue returns for Alpha Resorts?

4. What specific impact do positive and negative customer reviews have on Alpha Resorts revenues?

5. What is the optimal mix of marketing spending that will maximize revenue for Alpha Resorts in 2012?

Key Questions

3

Methodological ApproachThe journey continues. In this model, we add a metric that measures customer positive and negative reviews (Service Engagement Index) of each of Alpha Resorts’s properties. This metric was derived from online hotel review sites such as Trip Adviser.

4

Two total models were constructed: Total Full Service(MAPE +/- 2.0%) and Select (MAPE +/- 1.3%) transient bookings, 2008-2010 by week

Property Group: FS, & Select

Weeks

WEEKLYREVENUE

TOTAL Alpha Resorts

TRANSIENTS

1. National-Chain Media by Message (TV, Print, Radio,

OOH)2. Travel Card Offer Media

3.Coop Media

5. Room Capacity

8. Macro-Economy

9. Competitive Media (Key Competitive Chains)

6. Avg. Daily Rate (ADR)

7 Customer Service Engagement Index (Service-Engagement)

4. Local Media

5

DERIVING AND ADDING A SERVICE ENGAGEMENT INDEX TO THE ALPHA RESORTS MODELS

Developing the Service Engagement Index (Service-Engagement) from Online Hotel Reviews

6

Net Positive Service-Engagement Index

Positive Reviews

NegativeReviews

Positive Scores

NegativeScores

1. Mine online travel reviews for all Alpha Resorts properties

2. Parse into positive & negative review groups

3. Apply Service Engagement Index algorithm to “score” reviews

4. Time code by week & aggregate metrics

Service-Engagement & Alpha Resorts Satisfaction Metrics

• We use the Service-Engagement metric for customer satisfaction because it was found to be stronger than alternative metrics.

• We compared our Service Engagement Metric to Alpha Resorts’ own Customer Satisfaction tracking metrics* and found Service-Engagement with significantly higher correlations to revenue bookings

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  Full Service Select Service

Loyalty* 22.3% 21.8%

Willingness-to-Recommend* 22.3% 23.1%

Overall Customer Experience* 21.3% 22.1%

SEI Ratio 79.7% 76.9%

Revenue & Customer Service: Full-Service

12/31

/2007

2/15/2

008

4/1/20

08

5/17/2

008

7/2/20

08

8/17/2

008

10/2/

2008

11/17

/2008

1/2/20

09

2/17/2

009

4/4/20

09

5/20/2

009

7/5/20

09

8/20/2

009

10/5/

2009

11/20

/2009

1/5/20

10

2/20/2

010

4/7/20

10

5/23/2

010

7/8/20

10

8/23/2

010

10/8/

2010

11/23

/2010

-

20

40

60

80

100

120

140

-

2.0

4.0

6.0

8.0

10.0

12.0

Alpha Resorts Full-Service Revenues & Customer-Service Net Positive Ra-tio

Alpha-FS Rev SEI.Ratio

Boo

king

s In

dex

SEI P

os/N

eg R

atio

8

Correl = 84.7%

• The Service-Engagement Positive/Negative Ratio has about a 85% correlation with revenue bookings for Full-Service. This strong correlation suggests that customer service plays very important role in driving hotel demand.

Bookings & Customer Service: Select

12/31

/2007

2/11/2

008

3/24/2

008

5/5/20

08

6/16/2

008

7/28/2

008

9/8/20

08

10/20

/2008

12/1/

2008

1/12/2

009

2/23/2

009

4/6/20

09

5/18/2

009

6/29/2

009

8/10/2

009

9/21/2

009

11/2/

2009

12/14

/2009

1/25/2

010

3/8/20

10

4/19/2

010

5/31/2

010

7/12/2

010

8/23/2

010

10/4/

2010

11/15

/2010

-

20

40

60

80

100

120

140

- 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 10.0

Alpha Resorts Select Revenue & Customer-Service Engagement Index

Alpha-Select rev SEI.Ratio

Boo

king

s In

dex

SEI P

os/N

eg R

atio

9

Correl = 85.4%

• The Service-Engagement Positive/Negative Ratio likewise has about a 85% correlation with revenue bookings for Select.

Total Alpha Resorts Revenues and Service-Engagement Satisfaction Ratings

-60% -40% -20% 0% 20% 40% 60% 90

95

100

105

110

115

120

125

130

Positive RatingNegative.Rating

Sale

s In

dex

10

• Both the positive and negative Service-Engagement metrics have expected relationships with Alpha Resorts revenues. Negative customer engagement has a significantly larger absolute impact on revenue bookings.

Alpha Resorts Properties and Service-Engagement Satisfaction Ratings

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• The Service Engagement Index (Service-Engagement) was generated for each of the 412 individual Alpha Resorts properties

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Marketing Synergies

Separate Effect Combined Effect -

50

100

150

200

250

300

350

400

111

Chain Media & Service-Engagement Synergies

Combined Execution (Synergy)

50% Incr. Chain Media

50 % Incr SEI

Separate Effect Combined Effect -

50

100

150

200

250

300

350

98

Competitive Media & Service-Engagement Synergies

Combined Execu-tion (Synergy)

-50% Comptv Spend

50 % Incr SEI

49% lift

52% lift

Marketing synergies signifies that the simultaneous activation of 2 or more media. Marketing activities generate greater total revenues than when each activity is activated separately & independently. Synergies clearly underscore the importance of multiple touch-point marketing and the necessity for truly integrated marketing messaging & strategies. There were significant “synergies” between the Service-Engagement metric and various Alpha Resorts media.

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Marketing Synergies (continued)

Separate Effect Combined Effect -

50

100

150

200

250

300

350

87

Paid Search Media & Service-Engagement Synergies

Combined Execu-tion (Synergy)

50 % Incr Paid Search

50 % Incr SEI

Separate Effect Combined Effect -

100

200

300

400

500

600

135

Ecommerce, Online, and Service-Engagement Synergies

Combined Execu-tion (Synergy)

50 % Incr Online Media

50 % Incr E-Commerice

50 % Incr SEI

38% lift65% lift

Separate Effect Combined Effect -

50

100

150

200

250

300

350

400

450 145

Service-Engagement and Online Media Synergies

Combined Execution (Synergy)

50 % Incr Online Media

50 % Incr SEI

51% lift

Separate Effect Combined Effect -

100

200

300

400

500

600

84

Paid Search, Online and Service-Engagement Synergies

Combined Execution (Synergy)

50 % Incr Paid Search

50 % Incr Online Media

50 % Incr SEI

38% lift

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ALPHA RESORTS DETAILED RESULTS: CONTRIBUTIONS AND IMPACT

Decomposing 2009 Total Bookings

15

76.9%

4.4%

2.8%14.2%

0.4% 0.2% 1.2%

Total Select + FS

Base SEI Impact SEI x Media SynergyNational Chain Media Travel Card Offer Media Coop MediaLocal Media

By adding the Service Engagement Index (Service-Engagement) to the model, total marketing contribution expands from 22 to about 28%. Chain-funded media remains the dominant media driver.

Decomposing 2009 Bookings by Group

88.3%

4.1%

1.3%5.5%

0.2% 0.1% 0.5%

Full Service

Base SEI ImpactSEI x Media Synergy National Chain Media Travel Card Offer Media Coop Media Local Media

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The Select group shows a significantly greater dependence on marketing than theFull-Service group.

47.1%

5.1%6.8%

37.3%

0.9% 0.4% 2.4%

Select Service

Base SEI ImpactSEI x Media Synergy National Chain Media Travel Card Offer Media Coop Media Local Media

2010 v. 2009 Marketing Variance

Full Service

Select

Total

-10% -5% 0% 5% 10% 15% 20%

Base Momentum SEI Impact Media x SEI Synergy National Chain Media Travel Card Offer Media Coop Media Local Media Room CapADR Economy Competv.Media

+11.2%

+6.7%

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+3.8%

The Service Engagement Index (Service-Engagement) & its interaction or synergy with Alpha Resorts. Media was a significant positive growth driver of revenue bookings.

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ALPHA RESORTS DETAILED REVENUE RETURNS PER DOLLAR INVESTMENT

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Marketing Efficiency by MediaAverage Revenue Returns per Dollar

Direct Mail

Airport

Magazine

Ecomm

Paid Search

Newspaper

Outdoor

Online Banners

Social Media

Total Hotel

$0.00 $2.50 $5.00 $7.50 $10.00 $12.50 $15.00 $17.50

$0.95

$2.09

$4.36

$5.92

$6.78

$7.81

$8.02

$9.03

$9.23

$14.42MROI per $ Spend by Media

Due to the synergies across media, Alpha Resorts’s total marketing ROI is greater than the individual components. The addition of Service Engagement Index has changed the order on media returns, with Magazines and Online showing the strongest revenue per dollar.

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Marketing Efficiency by CampaignAverage Revenue Returns per Dollar

Hotel Card

The Great Times

Business Traveller Campaign

BWB Campaign

Entertainment Campaign

Great Day Campaign

Awaken Senses Cmapagn

Total Hotel

$0.00

$2.50

$5.00

$7.50

$10.0

0$1

2.50

$15.0

0$1

7.50

$20.0

0$2

2.50

$0.48

$3.65

$4.07

$5.03

$7.39

$11.44

$19.41

$14.42

MROI per $ Spend by Campaign

The Awaken & Great Happens II campaigns generated high revenue returns. By contrast, Alpha Resorts Chase & the Great 10K were the weakest campaigns.

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Marketing Efficiency by Media MessageAverage Revenue Returns per Dollar

Bus.Traveller

Loyalty

Entertainment

Rewards & Value

Experiential

Family

Business. Productivity

Total Hotel

Brand

$0.00 $5.00 $10.00 $15.00 $20.00 $25.00 $30.00 $35.00

$4.51

$6.48

$7.37

$7.49

$9.15

$9.22

$11.44

$14.42

$31.67

Rev. Returns per $ Spend by Message

Business Productivity & Brand messages generate the highest revenue per dollar, while Rewards & Value messages tend to be the weakest.

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MARKETING SPENDING OPTIMIZATION

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Revenue $ Contribution Current Spend Optimized Spend0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Optimization by Fund Type

Spend Optimizations:By Fund Type

• Spending optimization moves dollars from less to more productive media in order to maximize revenue and growth. This solution has identified a plan which can boost Alpha Resorts’s revenues by +17% and calls for moving more dollars into chain-funded media.

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Revenue $ Contribution

Current Spend

Optimized Spend

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

The NBT Campaign

The Great Times

BWB Campaign

N/A

Hotel Card

Great Day

Awaken Senses

Revenue $ Contribution

Current Spend

Optimized Spend

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Paid Search

Outdoor

Online Banners

Newspaper

Social Media

Magazine

Ecomm

Direct Mail

Airport

Optimization by Campaign

Revenue $ Contribution

Current Spend

Optimized Spend

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%Reward & Value

Brand

Loyalty

Family

Experien-tial

Bus. Produc-tivity

Bus.-Traveller

Enter-tainment

Optimization by Media Optimization by Message

Spend Optimizations:By Campaign, Media and Message

• Across the campaigns, media & messages, more investment is indicated for Paid Search, the Great Day Promotion campaign and Brand/Business targeted media messages.

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ALPHA RESORTS DETAILED RESULTS: CONTRIBUTIONS AND IMPACT

• This model illustrates and demonstrates the relevance and importance of adding a customer service metric to Alpha Resorts’ marketing mix optimization models.,

• The metric used in this model is called the Service Engagement Index (Service-Engagement). This metric was found to be stronger than alternative service tracking metrics and is derived from a scoring algorithm applied to Online Review Sites individual hotel property reviews from 2008-2010. This metric was found to be highly correlated with Alpha Resorts revenues at 75% + and illustrates the importance that customer satisfaction plays in driving Alpha Resorts’ revenue.

• When including the Service-Engagement metric into our models, we found a significant interaction and synergy with Alpha Resorts & competitive media spending. The net effect of these interactions actually increased the overall impact of Alpha Resorts’ media and also increased revenue returns for media by over $3 per dollar invested.

• From a strategic standpoint, we have learned that:– Customer satisfaction is an important driver of Alpha Resorts’s business and plays a key role in driving

overall growth for the Alpha Resorts brand.– That improving customer satisfaction interacts and enhances the impact and productivity of media and

marketing.– Improving customer satisfaction also insulates Alpha Resorts from some competitive media effects.– That negative customer reviews have a larger absolute impact on Alpha Resorts’s revenues than positive

reviews and that minimizing the negative is an important task and strategy going forward 26

Conclusions & Next Steps

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APPENDIX

12/31/2007 7/1/2008 1/1/2009 7/1/2009 1/1/2010 7/1/2010$0

$20

$40

$60

$80

$100

$120

$140

$160

ModelActual

Total model R2= 96.6%. Total model holdout R2=96.6%. MeanAverage Percent Error (MAPE) = +/-2.0%.

Alpha Resorts Transient Full-Service Model Validation

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12/31/2007 7/1/2008 1/1/2009 7/1/2009 1/1/2010 7/1/2010$0

$20

$40

$60

$80

$100

$120

$140

ModelActual

Total model R2= 99.1%. Total model holdout R2=99.3%. MeanAverage Percent Error (MAPE) = +/-1.3%.

Alpha Resorts Transient Select Model Validation

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