Hotels have never operated in a more fragmented or competitive booking environment than they have today. Not only are hoteliers challenged to attract the right guest, at the right price, in markets that have seen large-scale hotel development over recent years, but they are also facing stiff competition from new players in the sharing economy.
Led by Silicon Valley technology giant Airbnb, sharing economy accommodation platforms linking private citizens with vacant rooms or properties have grown dramatically in popularity over recent years. In Australia alone, it is reported that one in every six people over the age of 18 have downloaded the Airbnb app and established an account, which poses a very real threat to today’s hotel sector.
With a dynamic new booking landscape, how can hotels continue to attract guests and compete with a sharing economy whose growth seems to be on an ever-upward trajectory?
Articulate value, not price
When faced with new competition from the sharing economy (or from more traditional accommodation providers), the worst thing a hotel can do is offer short-term discounts to gain a competitive edge. These discounts often mean a hotel was forced to accommodate for the price reduction by reducing services that differentiate its property from competitors. To fight the commoditisation brought about by an excessive focus on price, hotels must maintain unparalleled service levels with a strong brand focus. Every guest–new or loyal–that walks through the door needs to understand what makes that property and brand different and unique in the market.
If a hotelier is unable to convince customers that their product is worth more than an Airbnb property based on “soft” factors beyond price (assuming that location is equivalent), then they’ve become a commodity. Price then replaces brand, service standards and physical property as the key driver of purchase decisions.
The only way to operate at prices higher than other hotel competitors, or the sharing economy, is to deliver true value and experiences that competitors cannot match. If hoteliers do not effectively emphasise a hotel’s unique value, they are vulnerable to potential guests comparing their property prices against their competition – even if their product delivers a higher value.
But what is “value”? To answer that question, hoteliers need to understand their target market segment. Airbnb grew their business aggressively through effectively targeting family and leisure travellers, and is now working hard to sell their offering to business travellers as well. Hotels, on the other hand, have more complex market segments, including not only leisure and business travellers, but also groups. It is vital that hoteliers gain an in-depth understanding of their business mix to deliver value to their target market segments. By understanding their business mix, hoteliers can analyse customer behaviour such as booking pace, length-of-stay and room-type preference so their sales and marketing strategy can be targeted to promote value to different target markets.
To be positioned for success today, hoteliers must also ensure their reservations team is fully aware of the value their products offer, and can confidently sell these products to potential guests. Hoteliers also need to ensure their products are showcased on their various booking channels to highlight the clear value and experiential differentiators they bring to the market.
Discounting can mean long-term pain for short-term gain
Aggressive discounting used to stimulate demand from any loss of business related to Airbnb or other sharing economy platforms can have serious long-term consequences for hotels. Consumer behaviour research has shown that guests establish a reference price for a product or service, based on previous experience, and they use this reference price to evaluate whether a future price is reasonable or fair. The more often and longer hotel room rates are discounted, the more likely the discounted rate will impact the brand perception and turn into the reference price. This typically makes it extremely difficult for hotels to recover their true value in the minds of the consumer. The overuse of incentives to attract guests can also reduce the revenue coming into a particular venue, turning away higher-paying customers who are attracted to a hotel for its reputation or prestige.
In an increasingly competitive operating environment, it is vital that every hotel’s price and promotion strategy is carefully planned. Hoteliers should evaluate why pricing decisions are being made, and whether the promotion supports or grows the brand promise. If the decision is made strictly because Airbnb properties in the market are offering lower rates, then the hotel should re-evaluate their pricing strategy, incentives and value-added opportunities.
For Airbnb and other sharing economy players, price sensitivity may not be as much of a priority compared with traditional hoteliers. This is because sharing economy platforms don’t carry the risk of physical property investment. Sellers and buyers on these platforms will eventually work out a fair price and commission will be paid. On the other hand, hotels–which can often be developed with large-scale credit lines that require repayment–need to maximise revenue opportunities where they can. This means having a careful understanding of price elasticity is critical to driving valued business and returns on hotel asset investments.
Operate lean and mean in the face of new competition
One of the main competitive advantages that hotels have over sharing economy lodging options is their capability of providing comprehensive customer service, which includes room service, F&B, spa and fitness. It is therefore essential that hotels are properly staffed at all times to maximise guest experiences. However, while no hotelier wants to be caught short-staffed and face disgruntled guests who are dissatisfied with long wait times, it is also a waste of money for staff to sit around underutilised. The operational focus needs to be on maximising the guest’s experience, while keeping labour costs at efficient levels.
Accurate demand forecasting should be at the foundation of optimal labour scheduling. Through an integration of forecasts across a hotel’s operations, hoteliers can use the forecast data provided to inform their staffing decisions and account for periods of higher or lower demand. Staffing managers can use this information to determine which areas are most affected by the occupancy levels at the hotel. For example, how will high or low occupancy affect housekeeping needs, the staff needed for the front desk, and the servers needed in the restaurant? Check-in and check-out patterns should be included to schedule staff members at optimal times during the day.
In the same way that forecasting can be applied to achieving optimal staff levels, it can also be used to order supplies from external vendors and minimise wastage. Hoteliers should evaluate which services and perishable supplies are affected most by occupancy. For example, during peak periods, the number of sheets that need washing every day will increase. If the hotel’s laundry facilities don’t have enough capacity for peak periods, accurate demand forecasts will help hoteliers know when they need to contract out external laundry services ahead of time to manage any overspill.
Listen to what your customers say online
Sharing economy businesses like Airbnb are digitally savvy and use social media as a primary promotional tool. To compete effectively with this, hoteliers need to offer customised guest experiences, as well as maintain a strong presence across all relevant media and communication channels. With the rise in social media outlets like Instagram and Snapchat, there are more touch points than before for hotels to interact with and appeal to potential guests.
While some hoteliers are reluctant to fully engage with the wider community on social media, this does not mean that the conversation about their hotel is not going on without them. Hoteliers that monitor what is being said about their hotel online (and acting where appropriate) gain the benefits. For example, if common feedback on social media was that the check-in process at a particular hotel was tedious, the operations team at that hotel can provide a resolution that creates a better guest experience. In the same way, if a hotel is rated highly, and the majority of comments relate to the tastefully decorated rooms and comfortable beds, the marketing department will have the opportunity to build on these positive reviews. Revenue managers may also be able to consider strengthening the pricing position of their rooms irrespective of the additional competition from the sharing economy.
Studies demonstrate that any positive reputation increase will bring positive price change. Today, online rating sites and social media are important channels to collate hotel feedback and guest experience data that can help (along with ongoing competitor analysis) inform property pricing decisions.
Set your property apart
With the growth in popularity of Airbnb and other industry players, impulsive pricing decisions that benefit the short-term of a hotel should be replaced with strategic, consistent and long-term decisions. To survive in the face of new competition, hoteliers need to invest time and effort in targeting specific customers so they have a better chance of winning against sharing economy competitors. It is also critical hotels learn from the sharing economy and market themselves on unique factors such as unrivalled customer service, which differentiates their offering within an increasingly fragmented booking environment.
By Charles Wang, Regional Head of Advisory Services, IDeaS Revenue Solutions
Charles Wang is the Regional Head of Advisory Services, based in Beijing and working in Asia Pacific and Greater China for IDeaS – a leading provider of revenue management software, services and consulting. In his role at IDeaS, Charles leads a team of professional advisors to deliver trusted revenue management deployment services to hotels and selected industry clients across the region.