Checking In When the Algorithm Has Already Checked You Out

You are what you ordered from room service last time you stayed. JL

Craig Karmin reports in The Wall Street Journal:

While hotel operators typically organize their pricing around room inventory, a new hotelier is experimenting with a pricing system that uses an algorithm to set a different room rate and tailor promotions for each guest based on a variety of personal information. As it collects more information on guests, the algorithm is meant to refine the value of a guest’s personal profile, spending habits, social-media reach and other criteria. The system then adjusts each individual’s room rates and perks accordingly.
Not all hotel guests are created equal. A new boutique lodging company wants to capitalize on that.
While hotel operators typically organize their pricing around room inventory, the new hotelier, Life House, is experimenting with a pricing system that uses an algorithm to set a different room rate and tailor promotions for each guest based on a variety of personal information.

Here’s how the system works: After booking for the first time at a standard rate, Life House customers are asked to fill out an extensive questionnaire that covers personal information from how often they travel and visit the hotel bar to how many followers they have on Instagram. Customers who mention the hotel on social media can receive perks, like discounts at the hotel restaurant or reduced rates on their next trip.

“ “Most of the big hotel operating companies are focused on their best guests.” What Life House is doing “is next generation.” ”

—Scott Berman, principal of PricewaterhouseCoopers hospitality and lesiure group

To further build out its customer profile, Life House encourages guests to charge items to their room, collecting information about what they do while at the hotel in order target them with special offers and promotions.
“We can incentivize you to promote us more,” said Life House co-founder Rami Zeidan, 31 years old, who has spent about eight years in the real estate and hospitality world. With degrees in finance and economics from John Hopkins and the London School of Economics, Mr. Zeidan worked under private-equity investor and Starwood Hotels founder Barry Sternlicht and on Wall Street for Deutsche Bank AG and TPG.
The experiment is under way: Life House opened its first hotel Tuesday in Miami. It has plans for six more to begin operations by end of next year in Denver, Brooklyn, Los Angeles and two more Miami locations.
As it collects more information on guests, the Life House algorithm is meant to refine the value to Life House of a guest’s personal profile, spending habits, social-media reach and other criteria. The system then adjusts each individual’s room rates and perks accordingly.For example
Life House came across research that said that 100,000 Instagram followers are about as valuable as 1 million followers because an individual’s influence over his or her followers tends to fade fast after the 100,000 mark. It feeds this refined data into its computer system to take this account when rewarding guests for their for social-media outreach.
But it’s not all upside. Guests found to be less desirable may have to pay a higher [yes] rate if they book again. “If you’re a messy or disruptive guest, that will increase your price on a future stay,” Mr. Zeidan warned. Light spenders aren’t penalized with higher rates, but they won’t get as many discounts.
Both big lodging brands like Marriott International Inc. and smaller independent operators have offered perks and other incentives to their loyalty club members. But hotel analysts can’t recall any companies that made a science of it to the same degree as Life House.
Life House appears to be managing its inventory in large part around its guests—their attributes and spending habits—rather than starting with a common room rate and adjusting prices at the end, said Bjorn Hanson, a longtime consultant for the industry and an adjunct professor at New York University’s Jonathan M. Tisch Center of Hospitality. “This is a unique concept,” he said.
Mr. Hanson thinks Life House’s pricing process could be an advantage in attracting and retaining guests but there are pitfalls, too. If some guests believe they have been good customers but are not receiving the same perks or room discounts as friends, they may turn resentful. Life House would need to be clear with guests about why they are getting—or not getting—the perks they are.
As Life House works out the kinks and hones its algorithm, the hotel industry will be watching closely. “Most of the big hotel operating companies are focused on their best guests,” said Scott Berman, a principal of PricewaterhouseCoopers hospitality and leisure group. What Life House is doing “is next generation.”