Disrupting the disruptors
15 DECEMBER 2015 7:52 AM
Hotel executives need to stop worrying about the effects OTAs and home-sharing sites are having on their businesses and instead focus on how to outdo these upstarts.
There’s been a lot of virtual ink spilled in recent years in this publication and others on the topic of disruption in the hotel industry. Disruptors—everything from home-sharing sites like Airbnb to online travel agencies to new sets of investors hovering over possible acquisitions—have created turmoil and angst in some corners of the industry.
But instead of focusing on how disruption is a threat to the business, and how to battle disruptors through legislation and public relations, it’s time hotel owners, operators and chain executives think about doing some disrupting of their own.
That seems to be what’s happening, whether those in the industry recognize it as such. Recent mergers and acquisitions, and rumors of more to come, are examples of how industry leaders are attempting to wrest back control of their destinies.
Last month’s proposed acquisition of Starwood Hotels & Resorts Worldwide by Marriott International is a lot more than one competitor buying out another. While a lot of post-announcement chatter has focused on the effects of the merger on hotel owners, headquarters’ staffs and frequent guests, the real reason the deal makes great sense goes beyond these considerations.
Marriott President and CEO Arne Sorenson nailed it in a blog he published the day of the announcement. In it, he gave two reasons for the merger: the obligatory creation of added value for shareholders but also the ability of a greater size to “help us stay competitive in a quickly-evolving marketplace.”
Sorenson recognizes the importance of meeting the strength of the OTAs and the home-sharing industry with the strength a large mega-hotel company can wield. From a distribution point of view, a merged Starwood/Marriott company will resemble what OTAs offer: 30 brand choices in every possible segment with multiple offerings in many, if not most, markets. When a customer wants to book a room in downtown Pittsburgh, why go to Expedia or Airbnb, when the new Marriott website will offer nearly as many choices in every price category and street-corner location?
One person with a toe in the hotel industry who understands the importance of scale in the hotel industry is Barry Sternlicht, chairman and CEO of Starwood Capital Group but best known as the founder of Starwood Hotels. Immediately after the Starwood/Marriott merger announcement, Sternlicht discussed its real value.
“The scale of this merger was done to fight the OTAs—the online travel agents—and also the potential threat of Airbnb,” he said in a TV interview. “We’re going to see global consolidation. This probably won’t be the last deal.”
While a 30-brand company can carry a lot of negotiating power into discussions with Expedia, Priceline and other OTAs, the key question is whether the size and scale of the new company will actually translate into stabilized or even shrinking costs of customer acquisition. Can executives of the new Marriott twist the arms of Expedia representatives to gain lower commissions or concessions on parity and last-room availability?
If not, the new merger loses some of its luster.
Another potential disruptor on this front comes on a global scale. Three Chinese companies—Shanghai Jin Jiang International Hotels Group, HNA Group and the sovereign wealth fund China Investment Corporation—had been mentioned in the bidding for Starwood and are likely to pursue one of the other mega-brand companies that might be in play.
There’s another side to the disrupting-the-disruptors equation, and that might be termed “killing with kindness,” especially when it comes to home-sharing competitors.
To fight the perceived high levels of one-to-one hospitality home-sharing hosts provide to their guests, hotel owners and operators need to double down on developing heightened cultures of hospitality leavened with healthy doses of technology.
Marriott executives seem to understand the need to step up service and personalization at its properties. The company recently expanded Mobile Requests, a two-way chat feature of its mobile app that allows member of Marriott Rewards to communicate directly with hotel staffs with questions and requests.
It’s a good example of personal hospitality with a twist of technology, but a better approach is one that gets hotel GMs or assistant GMs in the lobby every afternoon from 5 to 9 p.m. and every morning from 7 to 9 a.m. to greet guests personally.
There are pitfalls ahead for all hotel companies as they try to find the right ways to grab power back from the disruptors. The Starwood/Marriott combination presents an issue for frequent travelers. One of the major perks of Starwood’s Preferred Guest program is guaranteed 4 p.m. checkouts for higher-level members. Will Marriott be able to extend that benefit to whatever combined frequency program evolves from the merger? If not, the new company could lose loyalty among a major group of customers.
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