white paper The Millennials: Leading to the damnation of hotel brands? The focus on millennials is having a dampening effect on real growth potential, with the
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otel brands have been focusing on catering to the millennials – a segment of around 80 million Americans between 9 and 31, and many more in other parts of the world. However, all the work and development of brands catering to this segment has pointed to one inconvenient truth: there are probably no real differences in hospitality needs between millennials and boomers. The net result, however, has been an overall improvement in the design and quality of hotels across the brand spectrum; it has also highlighted the huge opportunity for independent hotels and small chains to grow their business through the boomer market segment.
greatest opportunities being ignored in favor of a not very appealing market segment
There is much being made of the importance of Millennials (people born between 1982 and 20041) to the hotel business. Certainly, as the vast majority of people born during that period are people, there is no doubt that in one way or another they are of great significance to the hospitality industry, and industry leaders must be applauded for their interest in this market segment. There were, after all, 80 million of them living in the US in 2012, and it’s likely that some of them, at least, will stay in hotels. Some already have.
guided and possibly not helpful. I say possibly because, as we will see, the focus on this generation has had some very positive consequences for the industry for which we should all be grateful. On the other hand, the intense focus on these young people is having a dampening effect on the real growth potential in the industry, with the greatest opportunities being ignored in favor of what is, in real terms, a not very appealing market segment.
However, the notion that understanding this cohort is the magic bullet that will propel hotel brands into stratospherical profitability is mis-
Jimmy (not his real name) is given a choice of two market segments to go after. Which of the two should he choose?
The most simplistic précis of the argument runs something like this:
1. There is some discussion, obviously, about the beginning and end of the millennial generation. The dates 1982 to 2004 are those used by Neil Howe, William Strauss, and R.J. Matson who started the whole thing with their 2000 book Millennials Rising: The Next Great Generation. 416.967.3337 www.proteanhospitality.com ©2014
Excerpted from the article by Protean Managing Partner Laurence Bernstein first published in Hotelexecutive.com (http://hotelexecutive.com)
That the branded hotel industry has chosen to obsess with this segment is an enduring mystery, which this article makes no attempt to examine
The first segment consists of 80 million young people (between the ages of 9 and 31), a disproportionate number of whom live at home with their parents because they are too young to live alone (unsurprising and not unique to millennials) or because there are no jobs or only very menial low paying jobs for them, even if they have expensive college degrees. Some forecasters wonder whether there will ever be jobs for them (there will, but when depends on when the other segment retires or dies!). Other than a miniscule few, people in this segment have no assets, and those who do are highly in debt (mortgages and car loans). All in all prospects for this bunch don’t look very good for the next thirty or so years. The second segment consists of 76 million people ranging in age from 40 to 67. While unemployment is relatively high (7% in the US), there is no systemic reason why those who want to work won’t find jobs. While not necessarily well prepared for retirement, these people own houses and are paying down their mortgages – the older part are entering retirement. The generation currently owns 80% of personal financial assets and more than half of all consumer spending. They buy 77% of all prescription drugs, 61% of over-the-counter drugs, and 80% of all leisure travel1. They are about to inherit trillions of dollars from their parents and they are entering retirement: they’ll have nothing else do with their time than spend their money – in the initial stages of retirement heavily skewed toward travel. Being the proud graduate of a certain nameless hotel school, Jimmy chooses the second segment. Even though, as he points out, the business travel component in segment 2
is probably declining while that in segment 1 is growing (true, but there are probably around 50 million boomers in the business travel age category between 40 and retirement, and 45% of non-millennials take four or more business flights annually versus only 28% of millennials2). We could go on and on demonstrating the important commercial point that millennials are (in the hospitality industry) by no means the low hanging fruit; every business strategy suggests going after the low hanging fruit first. That the branded hotel industry has chosen to obsess with this segment is an enduring mystery, which this article makes no attempt to examine. What we are doing in this article is examining the impact of this obsession on the overall hospitality landscape. In some ways the impact of this misguided obsession is very positive, primarily because millennials are not much different from non millennials – at least in terms of what they are looking for in hotel brands and how they relate to hotel brands at an emotional level. In fact, ProteanHotspex study of brand engagement suggests that marital status has more impact on brand engagement than age cohort (which is clearly to be expected). Where there are differences they tend to be around attributes that might be attributed to physical age (for instance, the study suggests millennials are more driven to hotel choice by factors such as if they experience the hotel brand as exciting or entertaining; and millennials would be slightly more likely to engage with brands they consider active and modern) all of which are not intrinsic generational attitudinal differences, but may well change as the travelers get older3. They are also not de-motivators to the other cohorts. A recent announcement of hotels de-
1. Wikipedia (yes, we know, but it is the best available resource!) 2. Traveling with Millennials, bcg.Perspectives, March 2013 3. Protean Strategies-Hotspex Hospitality Brand Engagement Study, 2012
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It may come as a shock, but just about everybody traveling these days has a mobile phone and/or laptop and/or tablet signed or redesigned to meet the specific needs of millennials quotes Christine Barton, a partner at The Boston Consulting Group, and author of a recent study about the needs of millennial travelers. Ms. Barton highlights a few of these needs which we have compared to the needs of nonmillennials: Clearly, all of these revolutionary ideas are in fact what hotels provide anyway, just updated. The important question is whether hotels would have updated their lobbies and rooms without this belief in an entirely new customer sensibility? In other words, is the whole millennial thing simply an excuse to bring hotels into the 21st century?
Given the complete lack of real insight into different millennial behaviour as it applies to hotels, I have to conclude that this is the case. Take the following quote from the USA article on Marriott’s new Moxy brand1: “What we discovered is that they’re extremely comfortable with technology. They want and are willing to use technology to find good deals and good products. They love style and they’re very brand conscious, but they don’t necessarily want to pay an arm and a leg for something.” (Moxy) One can only hope that they did not spend too much money on consumer insight research to come up with this deep understanding of the millennial
1. USA TODAY 8:43 a.m. EDT March 19, 2013
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Few, if any, “innovations” in millennial focused brands are attributable to typological differences – they are mostly updates of traditional hotel design and amenities that meet the current design and quality standards everybody is looking for.
(and in this case Gen Y) soul. Newsflash: in 2013 just about nobody is not comfortable with technology. Just about everybody is using technology to search for good deals and good products. Everybody loves style (although not necessarily the same style), the question of brand consciousness is proven to be related to a variety of socio-economic and environmental factors rather than age (so it is possible that all people who can afford to travel are more brand conscious), and nobody wants to pay an arm and a leg for anything. So what is Moxy actually saying? At the most fundamental attitudinal level they had trouble finding any real differences between this group and boomers, so they hang their hats on functional design differences that sound suspiciously like a strategy to make the experience cost less, rather than be more appropriate. They have concluded, the article goes on to say, rightly or wrongly, that millennials are prepared to sacrifice more than boomers in the hotel experience purchase1. In the article Moxy is described as providing very small rooms, less furniture, no desk (millennials enjoy working on the bed or in the chair – actually, and apparently they miss the point, millennials and everybody else enjoy working in comfortable spaces and will go to the lobby or work-centre if the room is not large enough), limited service (no service), etc. Interestingly, other than the limited service aspect, this is exactly the thinking that Ian Schrager put into the design of the original Morton’s hotel in 1984, when the oldest millennial was 2 years old. At the same time the idea of “lobby socializing” (now renamed “lobby connectivity”) was introduced; more to the point, lobby bars in hotel have been around since about always (except
they were less noisy and less dark!), and meeting in hotel lobbies is a long standing tradition al over the world. We can find many more examples that clearly demonstrate there is no real meat to the notion that millennials are different from boomers in their hotel needs in ways that have anything to do with their fundamental typologies. Few, if any, “innovations” (and I use the term loosely) in so-called millennial focused brands are attributable to typological differences – they all seem to be updates of traditional hotel design and amenities that meet the current design and quality standards everybody is looking for. M illennials will stay at Moxy because it is affordable and comfortable – boomers would have stayed at an affordable and comfortable hotel when they were 25, if there had been a brand offering that product. In the meantime this obsession has resulted in an overall rethink of hotel design for everybody and hotel brands have come to the conclusion that providing mediocrity is across the board a bad idea. This is good for all travelers, even if it was arrived at via a vapid segmentation strategy which has little chance of succeeding. But it is a bad thing in that hotel brands are not focusing on where there is a real opportunity to create added value innovations for a market that is actually likely to pay for it. Bad and good – bad for the hotel brands, but good for independents and small chains that can capitalise on the huge potential of the boomer market. While that market may start to die (figuratively and literally) in about 15 years, it will be hugely lucrative in the short and medium term, and appears to be a space in which the major chains are not interested in playing.
1. Customer sacrifice is what James Gilmore suggests is the counterpoint of customer delight: it is the response people have to negative components of an experience that they otherwise find delightful or satisfactory. Typically customer sacrifices are described as “good enough” meaning they aren’t good at all, but given the need for the balance of the experience, they will suffice.
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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 5