white paper Deciding where to stay – what really goes on in our customers’ minds when choosing hotels
Oඞඍකඞඑඍඟ There seems no question in the minds of the hospitality opinionati that “today’s travelers are different from yesterday’s travelers.”
FROM THE POINT OF VIEW OF CONSUMERS, THE HOTEL WORLD HAS NEVER BEEN MORE EXCITING, BUT IT HAS ALSO NEVER BEEN MORE CONFUSING. Exciting because hotel brands are being forced, by increased competition, to deliver more value – in the lower and medium rate categories if not in the higher end. (See Hotel Paradox 1). Bathrooms have become more innovative, with attention being paid to the ergonomics and comfort of such previously ignored items as shower curtains. Room design has become a feature, with focus varying from form following function to form following form (see hotel paradox 2). The rooms themselves are better designed; amenities creep has resulted in more options available and service levels have improved markedly (including the introduction of automated check-in machines, non-stop checkout and interactive in-room video services). The hotel world is also more confusing because the marketplace is more than a little inconsistent: the proliferation of brands and sub brands makes it all but impossible to know what any of them stand for; and promotion and pricing systems have become so complex as to render even the most hardened traveler into a burbling idiot.
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Our consultancy undertook a proprie-
tary study of business travelers and combined it with learning from studies we have conducted recently on behalf of hospitality clients, the result is a consumers’ eye view of the hotel market. We have also developed a model, based on these consumer perceptions, of how to approach the marketplace to make it more navigable and understandable for post post millennial travelers.
The consumer eye view
There seems no question in the minds of the hospitality opinionati that “today’s travelers are different from yesterday’s travelers.” This may be true, but it is largely unprovable because very little understanding of the hotel guest was ever undertaken. That which was, tended to be behavioral or demographic, and never really tried to figure out the underlying wants and needs and motivations. It is therefore not surprising that “today’s travelers” appear to have different wants and needs, given that historically the approach has been that “hotel guests want and need what we give them.” Our personal theory is that travelers have always wanted the same things, and it is due to the fact that “today’s” travel-
ers are more vocal and “today’s” hotel marketers are more competitively threatened, that the guests’ voices are finally being heard. That said, here is a brief summary of what today’s travelers seem to think about the world they face as hotel guests. Hotel Paradox 1: it is a remarkable phenomenon that there is an inverse relationship between the cost of the room and the amenities provided: a budget property, in order to survive competitive thrusts, is likely to provide complimentary bottles of water, internet, coffee and possible breakfast. A luxury property will provide none of these, but will seemingly compete with its competition to see who can charge more the result is the $12 bottle of water with a tag around the neck helpfully informing the guest that this bottle of water is provided as a convenience, and a $12 charge will be added to their bill.
On the bright side While they are totally confused by pricing policies, they are willing to forgive hotels in principle for what they see as capri-
Business travelers have taken note of the effort hotel brands have taken to improve their product, and they suggest that the product has generally improved. They tell us that they definitely feel that large and small operators are more customers centric and try to accommodate their needs in a more intelligent, useful way. They trust hotels more than other components in the travel mix (such as airlines, car rental companies, etc.). This is probably not such an achievement and there is clearly still some ambivalence as to the trustworthiness of hotels; nevertheless there is a general sense that “they’re not after me or trying to rip me off.” Airlines, on the other hand, because of their historic price-perception issues, and the convoluted way in which they addressed them, coupled with the ever decreasing levels of service, are not given this assessment. They suggest that, in their belief, airlines and car rental companies are more likely to cause catastrophic problems (flight cancellations or cars not available) than hotels. While they are totally confused by pricing policies, they are willing to
forgive hotels in principle for what they see as capriciousness, on the basis that hotels are “a business.” However, this is only one half of a Faustian deal which we will discuss later. Remarkably, being “informed” consumers, they do not condemn hotels for inconsistency, providing they can see some logic in the inconsistency. And, they don’t get incensed if somebody is paying less than they are for the same room providing there is a clear reason for this (thanks to years of being trained by airlines, they understand the basics of early booking discounts. They don’t, however, fully understand the basics of the hotel version – early booking penalties or late booking discounts! – more on this later) The evil that one hotel does lives on… but not for the brand. Frequent travelers see hotels as individual business units and seem not to condemn the chain for the sins of an individual property, providing it is an isolated instance. They will allow that the brand cannot necessarily control all the physical variables, providing they don’t see a pattern: for instance, if they are given a small room in one property, they do not necessarily tarnish the brand with the small-room attribute (“The rooms are small”) but will assign this to the particular property. Unless, of course they experience this at several properties in the chain.
The bad news
Given the seemingly obsessive focus of hotel brands on the internet, it is remarkable to notice the difference between their idea of what is going on on-line and the view of the customers. The first take away we heard about hotel sites is…confusion. It is hard to judge the value of the room when the visible pricing is so diffuse. Multiple rates for what appear to be exactly the same room; disproportionate rate differentials based on minor amenity Page 2
or service options (for instance, $25 rate saving on a room with breakfast as compared to the same room without breakfast). While people told us that they accept rate differentials when they understand them, such inclusions as booking conditions (which are in fact cancellation terms) are not presented clearly (more about this later). Hotel Paradox 2: the more contemporary the hotel sees itself as being, the less functional the facilities become. It might even seem that brands take pride in making their rooms entirely non-functional! W Hotels, and their ilk, following hard on the heels of Mr. Schreiger’s boutiques, have managed to turn the bathroom into an adventure in discomfort, the television into a noisy device that cannot actually be viewed form any point in the room, and the headboard a reminder of ancient torture devices.
If travelers see the same room at two significantly different prices on the same night, it is impossible for them to establish a value for the brand
Thus, the internet makes the booking process more complicated; but, of greater concern, it dilutes the value of the brand. If travelers see the same room at two significantly different prices on the same night, it is impossible for them to establish a value proposition for the brand in their own minds. Relative value (which is the way consumers evaluate price, and is often termed the value proposition) is one of the three important pillars on which brands exist1. By removing this pillar, consumers are having increasing difficulty in establishing a strong sense of brands, and are defaulting to the “no -brand” option – in other words, hotels are becoming commodities. This has numerous effects – “amenities creep2” as brands try to differentiate themselves, increasingly expensive loyalty programmes and other bribes -- but, most pertinent to this discussion, it causes on-line potential customers to check out other sites. Not only are hotels devaluing their brands, but they are almost forcing their potential customers to go to their competitors’ sites. In the
end the decision is made – where no overriding external factor such as location or company policy intervenes – based on how to get the transaction completed as quickly as possible. This, our respondents suggested, means going with the last site chosen
Zero Reward
There is also considerable confusion as to the logic of hotel rates. Travelers pointed out that they have a general sense that the longer you wait to book a room, the lower the rate will be – as opposed to airlines, where the rates go up as the departure date gets closer. Frankly, they find this annoying. They see no value to booking far in advance: in fact, they see it as a disadvantage
Cancellation fees could be relationship killers None of the people we spoke to had ever paid a cancellation fee, but they suggested they would be outraged if they had to. They did not, for the most part, have any knowledge of cancellation penalties, and were concerned as a matter of principle that these could exist. As frequent travelers they see themselves as frequently needing to change their plans at the last minute. A case could be made that they would opt for the higher rate with no cancellation penalties, if this were clearly laid out in the booking options.
They want to believe hotels are doing their best to deliver value, but they find it hard to align this belief with the reality of price fluctuations. Multiple prices for the same room on the same stay (price changes between Wednesday and Thursday night, for instance), are completely incomprehensible and sow seeds of distrust. They just can’t help feeling slightly cheated. The same sense of confusion, irritation and disappointment is experi-
1. The other two are: differentiation and relevance 2. Amenities creep is the escalation of in-room amenities that occurs as hotels try to compete with one another. Generally this results in lower margins, higher macro levels of customer satisfaction and no competitive advantage Page 3
A huge opportunity for hotel brands lies in the care and nurturing of small business travelers
enced when they stay at a hotel one week and return the next week only to find the rate has increased 30% or 40%. In this particular case the feeling is personalised, and it seems they get a sense of being downgraded, made somehow less important than they were the previous week. They feel hurt. They see the hotel – a trusted lodging last week – as an opportunistic carpet bagger this week.
Small business travelers feel ignored
A huge opportunity for hotel brands lies in the care and nurturing of small business travelers who find themselves paying quoted rates (or, in current parlance “lowest available rate”) while their colleagues in large enterprises enjoy rates significantly lower than the “lowest available”, as well as other practical benefits (availability guarantees, etc.) Top tier member benefits from loyalty schemes offer some of these benefits, but they are not available to most travelers, nor are they presented or experienced in this context. At the end of the day, these frequent travelers told us that “brand” does not figure in their decisions other than through loyalty programmes. They do not see hotels and the brands that market and or manage them as delivering meaningful, differentiated experiences that transcend the value of the loyalty programs (and bear in mind that they
tend to have memberships in all major programmes so that, at best, loyalty programmes deliver a slight edge over independent hotels).
Summary
While doing an overall better job, motivated undoubtedly by increasingly aggressive competition, hotel brands are not being seen and evaluated based on their attributes: Hotels are not experienced in ways differentiated or relevant enough to drive preference Lack of consistent and predictable pricing (and over transparency) has removed a consistent value proposition, which results in commoditization of the product and, in this instance, the experience If trust is a result of a well executed brand, it is inevitable that consumer trust in hospitality brands will continue to erode, especially when combined with active trust busters such as incomprehensible rate variances Hotel chains that attempt to define the essence of the experience and use this to direct their positioning, promise and personality, will be able to build the relevant differentiation needed to create a strong brand. Short of this, those that continue to attempt to differentiate on product features or amenities will continue to see their margins disappear in a sea of competitive pricing, and their capital value will continue to be dependant on an erratic real estate market.
Protean Hospitality is a boutique brand strategy advisory firm focused on helping our hospitality clients drive growth. We combine our business/category expertise with tenacity, balancing rigor and creativity, to uncover new opportunities for hotels, resorts and hospitality brands. For further information on this and other Protean Hospitality studies contact: Laurence Bernstein, Managing Partner, 416 967-3337 x 101; Bernstein@proteanstrategies.com Www.proteanhospitality.com Page 4