Disruption is the new normal
11 DECEMBER 2015 7:14 AM
It’s time for the hotel industry to remove the term disruption from its lexicon. Those forces we all thought were intruding into the hotel business have become mainstream.
The hotel industry is not immune to change and disruption in all phases of the business.
Airbnb and other sharing-economy sites are changing the way some consumers think about accommodations. Online travel sites continue to change the landscape of hotel distribution, creating new challenges for hotel marketers and revenue strategists. Even hotel real estate financing is undergoing change as new funding alternatives, such as crowdsourcing, auctions and EB-5, provide additional channels for owners and developers.
The Broad College of Business and The School of Hospitality Business recently conducted an event in San Francisco titled Hospitality Industry Disruptive Innovation Forum: Action-Reaction. The program was designed to be an adventure and intellectual journey to explore the changing landscape of hospitality business and thoughtfully engage leaders both from traditional hospitality companies and the new companies entering the hospitality sector.
This article summarizes some of the insights generated at the forum to create a better understanding of the new business models and strategies for companies to adapt and position traditional hotels for success.
1. Disruption is the new normal
It’s time for the hotel industry to remove the term disruption from its lexicon. Those forces we all thought were intruding into the hotel business—everything from online travel agencies to crowdfunding to the ultimate disruptor, home sharing—have become or at least are on their way to becoming mainstream. Savvy hotel owners, operators and company executives now understand they need to find ways to work with, or around, these forces they once considered to be enemies.
As one speaker at the event described OTAs, these disruptors are at worst “frenemies.” Some of them—OTAs—we need; some—crowdfunding—have become helpful; while others—home-sharing sites like Airbnb—are requiring us to change our business and customer service models.
2. Compete, collaborate and find synergies
Conference keynote speaker Chip Conley, head of global hospitality and strategy for Airbnb and founder of Joie de Vivre Hotels, struck a conciliatory tone in his remarks. His premise is that the hotel industry—and he is quick to point out he’s also still a hotelier who owns 15 hotels—needs to understand Airbnb is a complement to the traditional accommodations industry.
He said the home-sharing industry and the hotel business can find ways to be partners in the travel space. He acknowledged the need for what he called sensible regulations of home sharing along with appropriate payments of occupancy and other taxes.
Beyond that, he said Airbnb wants to collaborate with all segments of the tourism industry to market destinations and experiences and to share best practices.
“To us, it’s not necessarily a zero-sum game,” Conley said.
3. Can traditional hotels learn something from the new players?
Some of the speakers at the conference agreed hotel owners and operators need to adopt some of the business practices that have made home sharing quickly become so popular among consumers.
Joel Hiser, principal of HTL Hospitality Advisors, spoke of an Airbnb experience his family had while traveling in Australia. The host—who lived in a separate part of the home the Hisers were using—met them upon arrival, sat with them and chatted about places to see, the areas to avoid and the restaurants to visit while they were in Melbourne.
“You wouldn’t get that kind of hospitality by staying in most hotels,” he said. “It was so much better than staying in a hotel.”
That’s the first lesson for hoteliers as they try to decipher the best response to the home-sharing phenomenon: They need to infuse a greater sense of caring, friendliness, assistance and hospitality into their operations. But to best replicate what home sharing can provide, hoteliers need to train their staff members to be genuine. Does authenticity trump the desire to be perfect?
“What impresses me most about Airbnb is its humanity,” said Mike Depatie, managing partner of KHP Capital Partners and former CEO of Kimpton Hotels & Restaurants. “It was the same attitude we had at Kimpton. We weren’t scripted in service, but we were great at authentic, genuine interactions with people. We weren’t very crisp, but people felt a connection that worked.”
What also has become clear over the past several years with the rise of the sharing economy is that peer reviews are a major driver of business. If you can convert a guest into a friend, that friend becomes your unpaid hotel evangelist.
Something to think about: How much do the businesses involved with home sharing spend on sales and marketing?
4. Guest service technology leaders versus laggards
Where home-sharing services have an advantage today is in technology. As Shaun Aukland, account executive at Google Travel, said, sites like Airbnb offer one online reservations experience for all guests and all locations. As a result, the company is able to easily get a single view of its customers across every marketing channel used to capture that business.
“For hotels, distribution is inherently more complex,” Aukland said, adding hotel companies are often strapped with legacy technology systems that don’t work easily with each other and don’t provide easy and consistent experiences for potential customers.
“At some point, hoteliers have to make a bet on technology and blow up every inconsistent system they have and make a switch. Of course, that is enormously challenging to any business,” he said.
Something to think about: Why are hoteliers taking so long to decide whether they should charge for high-speed Internet access, when most customer retail touch points from restaurants to malls to airports are providing it free? These shape customer expectations. The home-sharing industry gets it and is nimble to pick up on the value of connectivity for travelers and expectation that the service should be free.
5. Understanding and coping with the competitive threat
The hotel executives speaking during the forum said that they believe home sharing is mostly competitive in several segments of the hotel business. It is 90% leisure, Depatie said, although home sharing also is making in-roads into the extended-stay accommodations space. This dynamic could change in the future, especially as hotel industry performance begins to slow and if an economic downturn hits the general economy.
“We don’t need to worry too much today about this threat; the hotel business is great, and everyone is happy,” Depatie said. “But when things turn down, you’ll see these Airbnb hosts becoming more desperate for income, which means they’ll be less likely to show any pricing integrity. It could be a real threat to us.”
Consider the fact that Airbnb has introduced variable and seasonal pricing, its version of revenue management, to guide hosts to optimize revenues.
As noted by the Google executive on the panel, several tech companies, including Google, incentivize and encourage their executives to use home sharing. However, Aukland noted that business trips for him have a time constraint, and therefore it is risky to stay at home-sharing accommodations.
For hotels, it is something to be on the lookout for as these home-sharing services evolve; they could be a direct threat to the business segment as some younger travelers might still prefer the informality and authenticity to traditional hotels. Airbnb already has in place a business travel program and actively solicits businesses to partner with them and their hosts.
While the hoteliers were open to working with home-sharing companies and finding ways to co-exist, they’re not naïve to the potential competitive power these sites have and could continue to develop in the future.
Something to think about: “We in the hotel industry are the plant eaters of the world, whereas the technology guys are the meat eaters,” Depatie said. “We’re the friendly, big dinosaurs with the long necks eating up plants. They’re the saber-toothed tigers.”
A.J. Singh is the Professor of International Lodging, Finance and Real Estate Finance in The School of Hospitality Business. He has co-authored three textbooks, on International Hotel Management (2008) and Hospitality Asset Management (2009), and Best Practices in Sustainable Hotel Development and Operations was published in March, 2011. Dr. Singh was jointly responsible for the establishment of The Hospitality Business Real Estate Investment Management Specialization in The School of Hospitality Business at Michigan State University. He currently teaches the Hospitality Business Real Estate, International Lodging Development and Management and Financial Management courses at The School. He is an active member of HAMA (Hospitality Asset Managers Association) CHRIE (Council of Hotel, Restaurant and Institutional Education) and AHFME (Association of Hospitality Financial Management Educators) ISHC (International Society of Hospitality Consultants) and ULI (Urban Land Institute). Dr. Singh works closely with the Center for International Business Education and Research (CIBER) at Michigan State University. Dr. Singh's has over 15 years of hospitality business experience in various management positions in the USA and India. He has worked for Oberoi Hotels, Stouffer Hotels, Hyatt Hotels and Laventhol & Horwath.
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