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 White Papers Hotel Self-Administered Prepay Phone Cards. Applying the lessons of Consumer Telephony Revenue to Guest Telephony Revenue. Julie is a frequent guest at your hotel. Telephone companies and even retailers are capturing her guest telephone revenue and leaving you to pay the telephone bill. They are doing this through the sale of prepaid telephone calling cards. This whitepaper describes one way hoteliers can (re)capture guest telephone revenue associated with consumer calling cards. In this white paper, Julie's hotelier is selling self-administered prepaid calling cards without an outside telecommunications partner and is not sharing the guest revenue with third party vendors. Better yet, the hotel's prepaid card is "virtual" and requires no plastic. This paper explores the rationale for prepaid and other bundled pricing plans for hotel guest telephone services. It examines leading practices for how prepaid bundled telephone plans are most effectively (profitably) created and managed, and takes a quick look at the technology considerations in implementing such a program. **SDD's JAZZ Enterprise can enable the strategies outlined in this whitepaper. Would you like to discuss the content with the authors? Please contact us at sales@sddsystems.com Pay Anybody But The Hotelier. Julie, the international traveler, has arrived at the Road Warrior Hotel and has checked into her hotel room. She is hoping to get some work done before meeting with potential clients this evening. Like most travelers, she has begun the process of considering how to make a phone call without giving any money to the hotel. She cringes at the thought of paying the hotel's telephone charges for in-room long distance calls. Julie, along with most business travelers, can't even tell you what that hotel charge will be. She just knows that it will be way too much. Guests Will Even Walk Before They Pay. Julie finally decides that her best bet would be to purchase a calling card that she saw for sale in the hotel lobby. From prior use, Julie knows that international calling card rates are predictable and straightforward. Julie makes a mental note that in the future she should purchase a prepay card at the grocery store because they are cheaper there than the one sold in the hotel lobby. Julie will walk before she pays. She'll even plan some personal shopping in advance of arriving at the hotel to avoid the fees. Julie's planned use of prepaid phone cards transfers revenue to a phone company and leaves you the hotelier to pay a phone bill for her use of the phone service. Contrary to conventional wisdom, the hotel's telecom competitor is not simply the cell phone. An equal competitor is the pre-paid phone card typically for sale in the gift shop and even the card for sale at the convenience store up the block. However, the real competitor to guest room phone usage is the new and emerging pricing plans offered by cell phones and calling cards. Can the hotelier compete for Julie's cellular telephone carried minutes? Yes but first the hotel must be ready to compete on an equal footing by changing the pricing plans offered to guests. Wait! Don't Leave Yet. Imagine a slightly different scenario where Julie looks the room over. She notices a tent card next to her hotel room phone that describes a "Virtual Phone Card" for long distance and international calling. The tent card describes an easy process that will allow her to purchase a $20.00 phone card just by dialing a few digits on her handset, and it automatically posts to her guest folio upon checkout. Julie picks up the phone, dials **2387, and indeed the charge appears on her folio. She dials directly for the rest of her stay and gets to work with customers and clients. When the $20 card is used up, the virtual card is automatically recharged in $8 increments and those charges will again post automatically to her folio. The Emergence of Prepay Telephone In Hospitality Why did Julie buy the prepay card? More generally, what are the guest motivations for purchasing pre-paid telephone from the guest room? Guest Motivation # 1: Easier Than The Gift Shop Julie took this offer in part because of the convenience it offered - she did not have to leave her room. Guest Motivation # 2: Easy To Understand Julie purchased the Virtual Phone Card for another reason. She understood it. The virtual phone card provided phone service in a way she could understand and evaluate. Better yet she could actually predict the cost of her phone usage. It's called transparency. Julie could "see through" the plan and evaluate it concretely. Hotels encounter guests like Julie everyday - guests that are deathly afraid of the hotel room phone due to the unknowns. (See also the white paper: "Don't Touch That Phone" at www.sddsystems.com). The guest perception of price gouging limits phone use and as such hotel telecom revenues have suffered. Prepay plans put the hotel on an equal footing with cell phones and calling cards; both of which the guest understands and have already accepted. Both of which are based on pre-pay concepts. Guest Motivation # 3: Easy To Use Use of a prepay card purchased outside a hotel is difficult. The card-carrying guest dials a toll free number, then dials in a 10-digit code and finally the number they are calling. Having purchased the virtual phone card from the hotel, Julie simply dialed directly to her destination. Julie, when confronted with the Road Warrior Hotel's virtual prepay card, found a solution that was more convenient, simple to use, and as easy to understand as a traditional phone card. New Technology? No. New Strategy. The Road Warrior Hotel obviously has a new piece of technology to support pre-pay pricing and has embarked on a new guest telecommunications strategy. Or have they? The Hotel has actually implemented a premise-based guest communications accounting system capable of managing pre-paid telephone plans. More fundamentally, the hotel decided to repackage at least part of its telephone services (in this case long distance and international dialing) around a pre-pay bundle. Why? At minimum this hotelier has understood that the telephone is no longer a captive market - guests can choose their telecommunications provider even while in the guest room. Cell phones, calling cards and voice over Internet calling have redefined the business model for telephones. Hotelier Motivation # 1: New Revenue In a world of declining hotel telecom revenues, the Road Warrior is capturing new (or at least long ago lost) telecommunciations revenue. Is this Odd? Calling cards have over time placed an entire block of guest calling activity out of the hotelier's reach. Consumer prepay calling cards are exploding. Such cards represent a cost to the hotelier from which there is no revenue or profit. Specifically, the hotelier must carry that telephone traffic on its network for the benefit of the prepay cardholder and their provider. The Road Warrior Hotel's self-administered prepay card captures revenue traditionally owned by the carriers outside the hotel! Hotelier Motivation # 2: Margin Control Self-administered pre-paid cards represent a profit margin of which the hotel retains complete control. The pre-paid cards sold in the gift shop, the convenience store, and/or provided by vendor partners represent a sharing of profit that exists only because of limited alternatives. Hoteliers have lacked a billing and accounting mechanism to be the sole revenue holder. Hoteliers clearly have the phone infrastructure and telecommunications capacity for guest telephone service. Communications accounting systems are, once again, the strategic revenue-creating component of a telecommunications infrastructure. Such systems provide the ability to compete with direct consumer telephone pricing models while directly controlling price and margin. Hotelier Motivation # 3: Pre-established Consumer Acceptance Consumers have already decided - they buy bulk minutes from one-price plans. They already believe and continue to buy into the bundling and pricing practices set by cell phone providers and calling card plans. Hoteliers simply need to leverage practices already established within the market. Hoteliers attached to the "AT&T Operator Assisted" cost plus pricing are competing with a pricing plan that is increasingly discarded by consumers. Not paying attention to market trends is one of the cardinal sins from your introductory college marketing class. Our Road Warrior Hotel has not broken new ground with their prepay pricing - they have simply followed what the market dictates. Hotelier Motivation # 4: Control of Costs and Profits Guest behavior has long controlled the hotelier's telecommunications profits. A guest decision to "dial around" using corporate or prepay calling cards has left hoteliers in a passive position regarding telephone revenues (and cost management). Hoteliers are often paying for the guest's carried minute but there is no associated revenue. Also, from another perspective, recent decisions to implement flat fee "all you can use plans" leave the guest once again in control of hotel costs and profits. But it also leaves the hotelier in an even worse situation because it leaves the guest with an incentive for unlimited usage. Repackaging phone around prepaid blocks of time puts the hotelier in the position of controlling revenue, profits, and costs. There are fewer carried minutes on the network for which their cost is not offset with some revenue but most importantly; the hotelier is in a position to apply yield management principles for maximizing profitability. Hotelier Motivation # 5: Profitability Yield Management It's all about spoilage (and/or breakage). There's certainly margin to each carried minute. But Julie may have purchased $20 of international dialing. And she may have only used $15 of it. As such, pre-pay cards offer a new source of revenue in terms of spoilage. Prepay plans offer seemingly transparent pricing to guests while enabling the hotelier to apply yield management principles to the purchase pricing, the cost per minute charged to the guest, and the calling destinations covered. Hotelier Motivation # 6: Brand and Marketing Integration Third party pre-pay cards dilute your brand. Or at minimum they are more difficult to integrate for purposes of building your guest loyalty, guest experience, and overall marketing efforts. Hotel branded self-administered pre-pay cards enables complete integration with the hotel's marketing program. (See call out box "Clever ways to integrate Pre-pay into the guest experience.") Hotelier Motivation # 7: The Competitive Advantage of Convenience Julie encountered something new in the Road Warrior guest room. She got to make a choice about her telephone pricing plans. More importantly, as soon as Julie needed to make a phone call, she was presented with options. By assuming a transparent and understandable pre-pay plan, the hotel has balanced the playing field. From a level field, the convenience offered by the hotel gave it the advantage and essentially eliminated the competition in its guest rooms. By providing Julie with a choice, the hotel had the advantage in the competition between the cell phone and the calling card. For the first time in a long time, the hotel was competing with the cell phone and the calling card. And the hotel actually had the advantage. Hotelier Motivation # 8: Credibility Hoteliers admit that telephone is no longer a captive market for them. Guest perception of a hotel's telephone rates have the unfortunate effect of both limiting phone use (and therefore revenues) while at the same time labeling the hotelier as a "highway robber". Pre-pay and other pricing models that align the hotelier to more accepted consumer pricing plans is a foundation for recovery of a hoteliers past pricing indiscretions. They are foundation from which to escape the title "highway telephone robber" as they provide a restructuring of pricing instead of reduction of pricing. Select Technology That Enables Competitiveness Virtual pre-pay cards represent a fundamental shift in how hoteliers package the guest in-room telephone. This rearrangement requires that communications (call) accounting software providers have foreseen this move and have already made technology investments to support these packages. Alas, few have foreseen the change. Even fewer have made the investments. Alternative pricing models such as pre-pay forces you to junk traditional call accounting systems, especially from vendors without a forward looking product development strategy. Communications accounting systems are your strategic investment for pursuing every motivation described in this white paper. There are several tests in evaluating communications accounting technology providers that will enlighten their ability to provide you a competitive platform. 1. Can the system enable alternative pricing models? Is pre-pay capability already in the product? The shift to pre-pay represents a fundamental shift in the software architecture. 2. Is the product architected for centralized multi-property, multi-revenue center capabilities? Pre-pay cards could be issued and remain valid across multiple properties. So a system capable of retaining card balances across those properties is critical. Again mult-property, multi-revenue center represents a fundamental restructuring of the call accounting technology. It also requires different skills and talents from your vendor. Ultimately, a set of small-distributed systems capable of centralized consolidation of data is at an architectural disadvantage from one operating in real time from a single integrated enterprise database. 3. Are guest and group centric pricing methods already in the product? Again, pricing plans like pre-pay packages that can be dynamically assigned upon guest check-in represents a fundamental shift in software architecture for call accounting vendors. Look for a history of guest centric pricing capabilities. 4. Can your vendor support you in assessing profitability yield management on prepay plans? Does your vendor have a track record in cost and revenue analysis from which to continuously tune your pricing and package? The vendors that have not already made investments in all the above areas are not likely to start at this late date given the maturity of their products and the marketplace. Competing in Turbulent Times The fierce competition for consumer and guest telephone usage will continue. It will be driven by many factors outside the control of you or any other hotelier. But there is something within your control: the ability to repackage phone in acceptable and competitive ways using technology that actual gives you some competitive options. Welcome back into the game. Telephone services are an integral part of the hotel's guest services offerings. The challenge is clear - integrate and turn the resale of profitable carried minutes as a part of the guest experience. One's reputation is on the line again! Shervaughn Mitchell is the Marketing Manager for SDD, Inc. (www.sddsystems.com) SDD is a telecommunications accounting software company based in Delray Beach, Florida. SDD's customers include many/most of the most prominent hospitality companies in the world. Ron Tarro is President/CEO of SDD, Inc. Mr. Tarro was formerly a senior member of Ernst & Young's Management Consulting's Internet and telecommunications strategy group. Mr. Tarro's perspectives on technology and business strategy have been published and quoted in a variety of industry publications inlcuding CIO Magazine, Wired Magazine, Information Week and numerous hospitality journals. |
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