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Abstract

This case study examines the challenges and opportunities faced by hoteliers in leveraging their sustainability to optimize their revenue. Although it has been shown that sustainability has several positive effects and is demanded by customers, it is not clear how it affects a hotel’s profit margins. This raises the question of how sustainability can positively impact revenue if hoteliers must, by definition, make significant investments to operate more sustainably. The solution may lie in effectively measuring and benchmarking their sustainability against their competition, and then using that information in the hotel’s marketing efforts. If done correctly, these strategies will allow hoteliers use the sustainability of their operations as a point of differentiation that could be used to achieve competitive advantage. In other words, raising the reputation of the hotel in the customers’ minds, could directly lead to increased revenue.

Keywords

hotel sustainability revenue management

Introduction

Sustainability is becoming an increasingly pressing topic in the hotel industry, as it can have a significant impact on the operations and stakeholders of hotels (Janković & Krivačić, 2014; Kim et al., 2019). Although sustainability has several definitions, it is generally understood as the process of taking actions that ensure future generations have the same quality of life as the current generations (Brundtland, 1987). Although sustainability encompasses three dimensions; environmental, social, and financial, the focus of this case is solely on the environmental dimension. According to Sloan et al. (2009), the hotel industry is a significant contributor to negative environmental impacts. This includes, but is not limited to, the utilization of natural resources and non-renewable energy, as well as the significant generation of waste and greenhouse gas emissions (Verma & Chandra, 2018). This is particularly disconcerting due to the current size and expected growth of the hotel industry in the near future (Facts and Factors, 2022).

Human consumption, driving the global carbon footprint, affects the environment before, during and after a hotel’s existence, including building construction, resource depletion, food and beverage, as well as employee and guest travel (Burton, 2012; Kadaei et al., 2021; Verma & Chandra, 2018). After the design and construction phase of a hotel, it is energy consumption, water usage, waste generation, and overall carbon footprint that have the largest impact on the environment. Given the significance of sustainable practices in the hotel industry, it is not surprising that all the major hotel organizations have implemented strategies to decrease their consumption of water and energy, lower their carbon footprint, and reduce the waste they generate (Ricaurte & Jagarajan, 2021).

Becoming more sustainable will certainly be a challenge for the industry, but it does not imply that the implementation of environmentally friendly practices and policies will negatively affect the bottom line of hotels. Although this is not a novel concept, it is crucial to distinguish between superficial corporate social responsibility (CSR) campaigns and the communication of genuine sustainability improvement to potential customers. In fact, CSR has historically been criticized as a disingenuous means for businesses to bolster their profits, potentially harming a company’s reputation in the long run (Lee, 2008). In contrast, authentic sustainability improvement is a testament to a company’s commitment to positive change. This is supported by recent studies, which have shown that genuine sustainability enhancements, when effectively communicated to hotel guests, can significantly improve a hotel’s value proposition (Becerra-Vicario et al., 2022; Moisescu & Gică, 2020; Yenidogan, et al., 2021).

Sustainability in the Hotel Industry

With rising affluence globally and the generally increasing recognition of the importance of sustainability, 70% to 78% of travelers have reported prioritizing hotels that implement sustainable practices (Booking.com, 2022; Liu, 2022). Due to this, the industry has started making actionable efforts to minimize its impact on the environment. In Singapore for example, the tourism board has driven sustainable hotel practices by setting specific targets, as part of the Singapore Hotel Sustainability Roadmap, implemented in 2022. Specifically, one of these targets is for at least 60% of hotel room stock in the country to attain internationally recognized hotel sustainability certifications by 2025 (Kruesi & Remy, 2023a). These certification requirements not only incentivize hotels to operate more sustainably, but also provide more options for eco-conscious travelers (Nelson et al., 2021). Internationally, similar trends can be observed, especially with respect to environmental sustainability, as it has been found that the industry tends to channel its sustainability efforts to focus on the global climate, with actions such as energy and water conservation for example (CBRE, 2023).

Energy consumption, which currently comes predominantly from non-renewable sources, is higher in hotels than other commercial and service buildings (Bohdanowicz & Martinac, 2007; Wen et al., 2020). This is the result of their 24/7 operation, the amenities, and services they offer, as well as the energy needed to operate their laundries and kitchens (Bohdanowicz & Martinac, 2007). Water usage is also especially high for hotels, resulting from the nature of the business and guest demands as well as the heavy usage of laundry services (Antonova et al., 2021). Moreover, hotels generate a significant amount of waste, including non-food waste as well as very high rates of food waste (Omidiani & Hashemi Hezaveh, 2016). Finally, hotels have a significant negative impact on climate change through their greenhouse gas emissions, which except for hospitals, are the highest of any comparably sized building (Bohdanowicz & Martinac, 2007; Wen et al., 2020), something which is exacerbated when also considering the “scope” these emissions, that is, Scope 1, 2, and 3. In the context of the hotel industry, Scope 1 emissions are released directly from sources owned/controlled by the hotel, while Scope 2 and 3 emissions are indirect in nature (National Grid, 2023). Specifically, Scope 2 emissions are from indirect sources that are procured by the hotel, such as purchased electricity for example. Scope 3 emissions on the other hand are from sources that are both indirect and not owned/controlled by the hotel, that is, not within their supply chain. These emissions result from all other activities related to the hotel’s operation not covered by Scope 1 and 2, such as the guest’s travel to the hotel for example (National Grid, 2023). This is a critical consideration for hotels that rely heavily on the natural environment, such as beaches, bodies of water, natural landscapes, and fresh air, to attract guests.

The negative impact that hotels have on the environment through their operations has therefore raised concerns that the industry is damaging the very foundation of their business model (Adams et al., 2022). Due to this, as well as increasing pressure from regulatory bodies and their competitors, hoteliers are increasingly making sustainability a part of their corporate strategy (Adams et al., 2022; Roxas et al., 2020). However, this has been a challenge because sustainability is a multifaceted and intricate subject, which is influenced by several interrelated components (Boyd et al., 2021).

If successful however, a hotel’s implementation of sustainable practices and policies can improve both the wellbeing of its staff and the value proposition for its guests, as well as the hotel’s long-term financial viability (Han et al., 2010; Wijesinghe, 2014). In terms of the hotel’s staff and guests, the cost savings could be channeled toward providing employees with higher wages or to offering a lower price point for their guest. Firstly, employees play a vital role in the guests’ experience and by financially incentivizing employees, they may more actively engage guests to do their part in being more environmentally friendly during their stay (Kruesi & Remy, 2023b). Secondly, the cost savings could be utilized to offer more competitive pricing or to enhance their amenities and services. As such hotels could potentially offer the same services at a lower price or additional services at the same price, increasing their competitive advantage (Remy & Kruesi, 2023). Conversely, in terms of long-term financial viability, the implementation of sustainable practices within the hotel industry can potentially lead to revenue maximization, if it is executed correctly (Becerra-Vicario et al., 2022; Yenidogan et al., 2021). Firstly, the incorporation of more sustainable practices could attract environmentally conscious consumers who have been shown in the literature to have a willingness of paying a premium for eco-friendly options (Kang et al., 2012; Legrand, 2021; Nelson et al., 2021). Secondly, many large corporations and government entities have established policies requiring sustainability in procurement and are inclined to work with companies that have strong sustainability programs. Therefore, hotels that can demonstrate their commitment to sustainability can win business from these organizations, further resulting in increased revenues (Pereira-Moliner et al., 2015). Finally, sustainable practices can also improve the reputations and the brand perceptions of hotel businesses, thereby attracting more customers (Barber & Deale, 2014; Grant, 2020; Peiró-Signes et al., 2014; Pereira-Moliner et al., 2015).

Online Reputation Management

Online reputation management (ORM) has become increasingly vital for hotels in the digital age (Ramgade, & Kumar, 2021). The proliferation of review websites and social media platforms has provided customers with more opportunities than ever before to share their experiences with others. As a result, hoteliers must be proactive in monitoring and managing their online reputation to maintain a positive image and attract new business (Ramgade & Kumar, 2021).

However, with reputation being a key concern among hoteliers, some hotels have resorted to greenwashing and green hushing, both of which reduce transparency between the hotel and its stakeholders (Bell, 2023). On one hand, although there are several examples, a common greenwashing strategy involves engaging guests in contributing to the hotel’s sustainable efforts in a way that allows a hotel to save on costs, such as foregoing housekeeping services or using water. Although this does have a positive impact on the environment and some guests may indeed have the perception that the hotel is environmentally friendly, the hotel could also be criticized for just trying to save on costs (Garza, 2011). In fact, despite the strongly claimed emphasis of hoteliers about operating in an environmentally friendly manner, only approximately 77% of hotels worldwide have translated their words into actions (Rahman et al., 2015). On the other hand, hotels may engage in green hushing, that is, not publicizing or under-publicizing their sustainability efforts, to avoid being perceived by the public to be greenwashing (Visram, 2023). According to Font et al. (2016) only an estimated 30% of businesses publicize their sustainable endeavors, with the aim of protecting these businesses from the negative perceptions of the public.

Therefore, one key strategy for successful ORM in the hotel industry is to actively solicit and respond to customer feedback on review websites and on social media. This allows hoteliers to address any negative comments or concerns in a timely manner, and to demonstrate to potential customers that they value customer feedback and take it seriously (Proserpio & Zervas, 2017). Additionally, hotels can also use ORM to promote positive customer experiences and showcase their best features (Proserpio & Zervas, 2017). In terms of communicating the hotels’ sustainability efforts, hotels may back up their communications with objective measurements and data, as well as providing clear and specific goals, allowing stakeholders, including guests, to hold the hotels accountable (Guide, 2023). By effectively managing their online reputation, hoteliers can improve customer satisfaction, increase bookings and ultimately, drive revenue. This is supported by Anderson (2012), who found that an increased review score of 1 point on a five-point scale (e.g., from 2.8 to 3.8) enables a hotel to raise its price by 11.2%, while still maintaining the same occupancy and market share.

Sustainability is increasingly important for ORM as it allows organizations to maintain a positive image and foster strong relationships with customers. Ensuring that an organization’s online presence aligns with their values, particularly in relation to environmental consciousness and sustainability, is critical (Chladek, 2019). Therefore, by actively engaging with customers and communicating their sustainability efforts, hoteliers can improve their corporate image. Moreover, ORM can aid organizations in identifying areas for improvement to better achieve their sustainability goals. Finally, as outlined above, hotel guests are inclined to pay a premium and remain loyal to hotels that have a reputation for being sustainable (Kang et al., 2012). Therefore, there is a clear correlation between a strong online reputation for being sustainable and revenue optimization (Ardern, 2023).

Revenue Management

Revenue management is the practice implemented by companies to optimize their profits and maximize their revenue. The approach is based on the principles of supply and demand and is commonly utilized in service-based industries such as hotels, airlines, car rental companies, and cruise lines (Bowie et al., 2016). The main objective of revenue management is to increase revenue by understanding customer behaviors and preferences, forecasting variations in demand for a product or service, determining prices and adjusting availability accordingly (Ivanov & Zhechev, 2012).

The process of revenue management begins with forecasting customer demand. This involves analyzing past data, such as booking patterns and occupancy rates, to predict future trends and identify periods of high and low demand (Hayes et al., 2021). Once demand has been forecasted, prices can be determined, and availability can be adjusted to capitalize on periods of high demand. For example, during peak seasons, prices can be increased, and availability can be reduced, while during off-peak seasons, prices can be lowered, and availability can be increased (Hayes et al., 2021).

In addition to forecasting demand and determining prices, revenue management also involves monitoring the competition and implementing dynamic pricing strategies (Ivanov & Zhechev, 2012). This means that prices are constantly being adjusted in response to changes in demand and the actions of competitors (Bowie et al., 2016). By monitoring the competition, companies can ensure that they are not pricing themselves out of the market and that they are able to remain competitive (Bowie et al., 2016; Ivanov & Zhechev, 2012).

In recent years, the importance of revenue management has grown significantly. With the advent of new technologies, such as big data and artificial intelligence, companies are now able to analyze vast amounts of data and make more accurate predictions about customer demand. Additionally, the rise of online booking platforms has made it easier for customers to compare prices and availability, which has increased the importance of dynamic pricing strategies (Bowie et al., 2016; Ivanov & Zhechev, 2012). From the perspective of hotels, online booking platforms can both benefit and limit the hotels’ ability to implement revenue management strategies. Firstly, online booking platforms allow hotels to raise their brand awareness and reach a larger customer base (Sheng, 2024). As a result, the number of potential hotel guests will increase, indirectly leading to a rise in the hotels’ revenues and even profits (Harvard Business Review, n.d.). Secondly, online booking platforms are also able to facilitate guest bookings for hotels, reducing the hotels’ operating costs (Sheng, 2024). Conversely however, hotels do have to pay these booking platforms a commission fee in return, which may threaten the hotels’ profitability if the hotels do not carefully manage their cost allocations toward the different booking channels (HotelREZ, 2019). Importantly, linking back to customer reach and ORM, hotels are unable to directly communicate with guests who book through these third-party booking platforms, as these platforms serve as a bridge between the hotels and the guests. As such, the ability for hotels to differentiate themselves from competitors is reduced, and the difficulty for hotels to maintain direct relations and even retain a loyal customer base will increase (Protel, 2020).

Revenue management can be utilized to identify and create opportunities for sustainable practices, such as value-based pricing for customers who use less energy or providing incentives for businesses that adopt eco-friendly practices. Additionally, revenue management can be used to track the financial benefits of sustainability initiatives, allowing businesses to measure their progress and make more informed decisions (Becerra-Vicario et al., 2022; Yenidogan et al., 2021). This is because sustainability considers the full externalities of the practices that hotels implement and evaluates how these actions may impact on future generations (Eidelwein et al., 2018). However, as further outlined below, it is essential to first assess and benchmark the organization’s current level of sustainability before implementing any strategies (Epstein & Roy, 2001). By doing so, implementing sustainable measures would align with Kimes and Wirtz’s (2015) explanation of revenue management, allocating the right capacity to the right customer at the right place and at the right time. Therefore, sustainability will become increasingly important for revenue management, and effective sustainability measurement and sustainability benchmarking will also become crucial.

Combing a Sustainable Reputation to Revenue Management

Suggesting a link between revenue management and sustainability may not seem evident at first, but these disciplines are related. In fact, it is well-established that revenue management is not a standalone practice but related to other disciplines (Wang et al., 2015). As outlined above, it has for example become widely accepted in recent years that ORM is related to revenue management, as it deals with managing a business’s online presence and that improving the organization’s reputation through this practice leads to increased revenue (Binesh et al., 2021; Varini & Sirsi 2012). A positive online reputation can lead to increased bookings and revenue, while a negative online reputation can lead to decreased bookings and revenue. Similarly, a business’s sustainability practices can have a significant impact on its revenue. A business that is seen as sustainable and environmentally friendly may attract more customers and increase its revenue. On the other hand, a business that is seen as unsustainable and environmentally unfriendly may lose customers and decrease its revenue (Becerra-Vicario et al., 2022; Remy & Kruesi, 2023; Yenidogan, et al., 2021).

In other words, while these two disciplines may seem unrelated at first glance, they are in fact closely related. Revenue management and sustainability both involve making decisions that balance short-term and long-term goals. For example, a hotel may be able to increase its revenue by raising room prices, but this could lead to a decrease in bookings in the long run if the prices are too high in relation to the hotel’s value proposition. Similarly, a hotel may be able to reduce its environmental impact by implementing sustainable practices, but this could lead to increased costs in the short-term.

Revenue management’s link to sustainability can be seen as adding value to the business, subsequently allowing for the optimization of its price points (Becerra-Vicario et al., 2022; Yenidogan et al., 2021). However, this is not so easily achieved, as measuring sustainability in the hotel industry is a complex task, since it encompasses a multitude of different and interconnected factors. Moreover, there is lack of standardization in reporting environmental performance, which makes it difficult for hotel organizations to assess, benchmark, and communicate their environmental performance to their stakeholders. This problem highlights the importance of standardized methods and metrics for measuring sustainability in the hotel industry, as well as for greater transparency and comparability in reporting sustainability performance. Moreover, every hotel organization may have different environmental practices and policies, making performance comparisons and benchmarking more challenging. This lack of comparability can undermine the trust and confidence that stakeholders have of the hotel industry’s commitment to sustainability.

The Case

Doug Master is the owner of a resort hotel in Austria that targets both leisure and corporate travelers. He has been working in the hotel industry for several years and is a seasoned revenue management practitioner. Recently, Doug has started to incorporate sustainability into his hotel operations. Although these efforts initially put a strain on the hotel through the investments needed to implement them, it has also enabled the hotel to achieve significant cost savings after their implementation. In fact, the hotel’s gross operating profits increased slightly, and the hotel’s revenue has also been positively influenced, as seen by a slight increase in its Revenue Per Available Room (RevPAR). However, Doug has not actively promoted the hotel’s implementation of these sustainability efforts, as he is not sure of how sustainable his hotel actually is, relative to the market. In fact, he has been struggling to find adequate measures and benchmarks to objectively assess his sustainability performance.

At a recent conference, Doug attended a panel discussion of top leaders in the hotel industry and learned about a pilot project in place that promotes sustainability based on measures such as energy and water ranking, which would allow hotels to use this information for marketing and promotion efforts. This caught Doug’s attention and made him think about the significant potential of promoting the sustainability of his hotel. He realized that by establishing a rigorous measurement system, he could compare against industry standards and competition, and determine how well his hotel is doing in the realm of sustainability.

He found that many hotels use certifications, such as Energy Star and LEED, to demonstrate their commitment to sustainability and to attract more environmentally conscious customers. However, although Doug sees value in these certifications and plans on eventually obtaining them, he realized that these certifications can be costly and time-consuming to obtain, and they may not entirely be relevant to his specific hotel operations.

Therefore, Doug decided to initially focus on measuring his hotel’s energy consumption, water usage, and waste production. He then set targets for reducing these environmental impacts and implemented actions to achieve them. For example, he installed energy-efficient lighting, heating, and cooling systems, and implemented water conservation measures, such as low-flow showerheads and toilets. He also started a recycling and composting program, and began sourcing sustainable products, such as organic food and locally produced goods.

Once Doug had established effective sustainability measurement tactics and had implemented actions to reduce his hotel’s environmental impact, he wanted to leverage these efforts to improve his bottom line, however he didn’t know how to achieve this. More, specifically, he was keen to learn and understand to what extent he was doing well or needed to improve his sustainability efforts. Especially as he just learned that corporate travel agencies plan to request carbon certificates from participating hotels to demonstrate their commitment to good practice as well as the fact that he could attract environmentally conscious guests who may pay more for a sustainably operated hotel.

Not wanting his efforts to go to waste, he gathered his managers and began discussing how he could promote the hotel’s sustainability to maximize his revenue. One of his managers came up with the idea of contacting a new start-up company that he had heard of, which specializes in technology-based sustainability solutions. This would then allow for exchanging the hotel’s sustainability data for benchmark data, and subsequently, based on the ranking of the hotels, promoting its (good) standing in terms of sustainability.

Discussion Questions

How can Doug effectively communicate his hotel’s sustainability efforts to his guests and potential customers?

How can Doug effectively communicate the value of his hotel’s sustainability efforts to his corporate clients and target market?

What are the best ways to market and promote his hotel’s sustainable practices to attract environmentally conscious guests and increase bookings?

How can Doug measure the impact of his hotel’s sustainability efforts on customer satisfaction, bookings, and revenue?

How can Doug use his hotel’s sustainability efforts as a competitive advantage in the marketplace?

How can Doug objectively assess his hotel’s sustainability performance and compare it to industry standards and competition?

How can Doug use the data and metrics collected from his hotel’s sustainability efforts to optimize revenue management and pricing strategy?

If you are an ICHRIE member, you can access the Teaching Notes for this case study here: https://ichrie.memberclicks.net/jhtc. If you are not an ICHRIE member, the Teaching Notes will be published in a future Sage Business Cases (SBC) annual collection: https://sk.sagepub.com/cases. For more information, please contact info@sagepub.com.

Footnotes

Declaration of Conflicting Interests

The author(s) declared no potential conflicts of interest with respect to the research, authorship, -and/or publication of this article.

Funding

The author(s) received no financial support for the research, authorship, and/or publication of this article.

ORCID iD

Michael A. Kruesi

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Green is the New Black in the Hotel Industry: Optimizing Revenue Through Promoting Sustainability

Abstract

Keywords

Introduction

Sustainability in the Hotel Industry

Online Reputation Management

Revenue Management

Combing a Sustainable Reputation to Revenue Management

The Case

Discussion Questions

Footnotes

Declaration of Conflicting Interests

Funding

ORCID iD

References