Betting on Customer Loyalty

Even as Reed was renegotiating his deal with Peterson, he was quietly working to streamline a company that he felt had diversified too much and made unwise cuts at its Opryland property. The year before he joined the company, customer dissatisfaction had hit a peak, and the company had suspended dividends after a loss of more than $153 million on revenue of $514.4 million.

Reed began to sell off Gaylord's holdings that were peripheral to its hotel and meeting businesses, and shifted its focus on that mark.

"It just cleaned up the story so they could go out and say, 'This is what we are,' " said Bear Stearns analyst Chris Woronka. "It made the company easier to follow, so investors didn't have to figure out how much was this part of the business worth or that. And at the end of day the highest valuation they could get would be being a hotel company, not an entertainment conglomerate."

In many ways, the strategy was similar to one that Reed had helped execute in his previous job at Harrah's. Battered by competition from other casinos, Harrah's turned its fortunes by divesting peripheral businesses and working to build customer loyalty.

Today, about 80 percent of Gaylord's business is composed of conference and convention groups, 80 percent of which are repeat customers. The groups typically rotate their meetings among the various properties, which means consistency of service is critical.

"A hotel will get three guests for every one that says they were highly satisfied . . . compared to one with an average experience," Hirneise said. "You just can't underestimate the value of an outstanding experience."

Another principle Reed brought from Harrah's was the idea that the more diversions you provide for guests on site, the more they will spend. So Gaylord locates its properties close to cities but not so close that guests will necessarily want to leave the hotel at the end of the day. Every Gaylord property offers a spa, nightclub and an assortment of restaurants, from a high-end steakhouse to a buffet-style cafe, changing the menus at each every day.

As a result, more than half of Gaylord's revenue comes from guest spending outside their rooms -- significantly higher than the industry average of 30 percent, according to Woronka.

Gaylord fills out the balance of its resorts' non-meeting business, about 20 percent, by hosting extravagant events during Christmas, Mother's Day and July Fourth holidays to bring in families and weekend travelers.

Winter festivals at its properties have become a signature event among locals. Each year, Gaylord brings in a group of artisans from northern China who carve frozen villages on the properties. Visitors don gold-colored parkas and wind their way through the sculptures, kept at 9 degrees under a 14,000-square-foot tent from mid-November to early January.

The end of the ice exhibit funnels into a gift shop that sells thousands of stuffed animals, hot chocolate, toys and other souvenirs. When guests leave the tent, they get a coupon for a free gingerbread cookie, which directs them back into the main hotel coffee shop, across from the boutique stores that sell upscale cowboy hats, golf wear and local crafts, and the signs that advertise the holiday brunch. (Gaylord officials said they plan to introduce the festival at the new National property in winter 2009.)

Reed recently flew from Nashville to the Gaylord Texan Resort and Convention Center, five minutes from the Dallas-Fort Worth airport, to meet with the staff and take management's pulse on the company's newest acquisition. He powers briskly through the warren of hallways hidden from the public areas of the hotel, popping his head into offices and employee lounges to say "Hullo" and "Happy Holidays!" He greets the sales staff -- all women, except for two -- with a warm "Hello, girls, how's it going?" and stops to shake hands with some landscapers eating lunch in the employee Chuck Wagon.

Later, in a meeting with the general manager and his team of top managers, Reed probes their reactions to Gaylord's announcement that it is purchasing the Westin La Cantera in San Antonio, about 300 miles southwest of the Texan. Gaylord plans to double the number of rooms at the hotel, to about 1,000, expand the meeting space and upgrade other amenities.

"Robert, what's your group saying about San Antonio?" he asked Robert McPherrin, vice president of sales and marketing for the Gaylord Texan.

"Would you want a similar sized hotel within three hours of your property?" McPherrin responded. "Probably not, but there may be some shared resources that could benefit both of us."

Reed noted the two popular golf courses at La Cantera, which will give the sales team a new amenity to market.

Later, he recalls a lesson he learned early in his career. As a young executive working for Holiday hotels in Europe, Reed realized that it wasn't always the properties with the nicest amenities that had the most loyal customers.

"At the end of the day it's not the size of the bed, the number of jets in the shower, not how many rashers of bacon are served," he said. "It's the people who work there, and the services they provide that are most important."