Will current changes from OTAs affect hospitality brands?
Nowadays, the hospitality landscape has undergone a period of significant change. The entrance of tech-platforms like Airbnb, the dominance of online travel agencies such as Priceline.com and Expedia in the distribution chain, and major consolidation - as seen with Starwood and Fairmont Raffles Hotels International (FRHI) - are all having a profound impact on traditional hotel brands and their business models.
So what will be the next stage in the evolution of hotel brands?
- While most hotel brands are facing similar challenges and opportunities, there does not seem to be a single approach to dealing with these new dynamics and the big players are all responding differently.
- For example Marriott is going for scale with the acquisition of Starwood and is forming alliances with strategic partners like Alibaba;
- Accor is hedging its bets by acquiring hospitality-tech start-ups and platforms;
- Hilton is making specific investments into their own technological capabilities;
- IHG has invested heavily in the lifestyle space and has now the largest number of rooms in this segment.
This is not the first time that the industry has been forced to adapt to a rapidly changing industry landscape - there have been fundamental changes before and the most successful brands have succeeded in adapting to them.
The future business model is a direct result of these changes over the last decades as hotel companies have moved from an asset-heavy model to consumer brands.
The experience economy - growth module for hotel brands
The concept of the experience economy describes the transition from a product- and service-driven economy to an experiential one. Figures from Barclays and other economic research centers point to 2001 as the tipping point when consumers started to buy fewer products and consume more services. Eventually, the combination of advances in technology with the changing values of consumers led to the success of social media and sharing networks as commercial platforms.
The initial success of Airbnb was underpinned by the desire of a growing share of travelers to have experiences and share a sense of community with like-minded people. Since then, the company has announced its ambitions to become a global travel company and has started to offer travel experiences in selected cities. However, Airbnb and similar platforms offering experiences are limited as they do not control the actual delivery of the experience. Customers will also get a large number of uncurated offerings and the choice can be overwhelming.
This provides an opportunity for traditional hotel brands to offer a range of more focused services and experiences that go beyond hotel stays. Brands can focus on their customers and experience in service delivery to open up new revenue streams from a variety of sources and collect royalties through new collaborations.
Wherever a service and design element are key to the experience delivery, hospitality brands have a great chance to add and improve on the existing product. In turn, this allows hospitality brands to create significantly more customer touchpoints with their target markets and collect more insights to help them create an ecosystem of services that could leverage off each other. For the hotel brands, this can create a stickiness for their customers, drive value rather than benefit-driven loyalty, and a far more universal brand presence beyond hotel stays.