How Hotels Can Compete for Revenue Against the Growing Threat of Airbnb?
The Airbnb business model is driven by solid economic fundamentals but hotels can offer value as well
By Gabor Forgacs, Associate Professor, Hospitality & Tourism Management, Ryerson University and Frederic Dimanche, Director of the School of Hospitality and Tourism Management at Ryerson University,
Airbnb successfully delivers relevant and quantifiable advantages in saving time, defeating distance and generally finding a way to offer a solution for a "pain point" be it constrained travel budget or a preference for a given location. Airbnb also offers the perception of control for users, and a perceived authentic experience with locals.
Hotels that are aware of the increased value-consciousness of travelers may better hold market share against the Airbnb threat if value added features, creative bundling and rate parity are strategically executed and marketed. The objective is not necessarily luring away Airbnb customers. The real objective is not let Airbnb out-market and outcompete a hotel and erode its share of lodging demand. Strategic revenue management would suggest competing on value while refusing to compete on room rate.
Hotels have learned over the years what the decision drivers are for various segments of guests. Price is important; however it alone is not always the most significant decision driver. The power of location is a key factor as well. The J.D. Power Guest Satisfaction Survey (2015) confirmed that "Convenience of location is the primary reason customers enroll in hotel loyalty/rewards programs, with 41 percent of members choosing their program based on convenience of locations where they travel."
Hotels typically offer a link to a location map and driving directions to getting to their place on their landing page in the form of an optional feature: The potential guest has the option of clicking on a link that opens a map or a set of directions for drivers. It is a two-step process. What Airbnb offers is slightly different: Search results are listed on the left side of the computer screen and a location map on the right side highlights instantly the location of the unit that is being considered. This is a no-click feature (needs a scroll-down on a phone screen). The instant real-time location display is the recognition of the importance of the location as a decision driver and it is seamlessly integrated into the booking process. Hotels that pay attention to the user friendliness and intuitive approach can learn from this subtle but important design feature.
The primary objectives of hotel websites can be summarized in a concise manner: To attract, retain, engage, and convert. Unpacking these terms in a simple way, these ambitious objectives are meant to
- Attract the potential guest and make it easy to be found through understanding the workings of search technology;
- Retain the visitor who ends up on the landing page through the use of site architecture that makes the navigation user friendly and through offering a reason to stay on the site;
- Engage the potential guest through offering appealing content and imagery; and
- Convert the visitor to take desired action (from look to book, signing up for the loyalty program, posting a review, etc.).
The site as a vehicle can create a user experience that reflects the genuine image of a business. All the important aspects of Airbnb are well reflected on their pages in terms of its approach to customers. Hotels may take away some key learnings from the site regarding ease of finding information, visual appeal and functionality but most of all a consistent feel that helps the visitor understand what kind of a business he/she is dealing with.
User friendliness is paramount. The successful site design must be able to offer a consistent user experience for the visitors of hotel sites as well if they are to meet the challenge of staying with a guest through each phase of trip planning. That may require different versions of the same site launched at different access points as most users are multiple device owners and a given trip booking may start on a laptop, continue later on a mobile phone and then conclude on a tablet of the same guest. From the initial idea of going away (inspiration phase) to the post-trip phase of posting reviews and pictures on social media (sharing phase), service providers that want to compete with the Airbnbs of the 21st century should be able to stay in touch with their clientele through each phase of the customer decision journey. Learning to do that efficiently is mission-critical for hotels that don't want to be outcompeted by new digital players that keep eroding the market shares of hotels.
Consumer preference: from a room number to an individual and hotels can play that card even better
The Airbnb site offers minimal text and appealing visuals. The images tell the story better than text. The carefully worded lines create an appealing illusion of feeling at home at someone else's place: the rented home of the host. Blending in with the locals is emphasized.
There is a simple reason why these notions resonate so well with today's travelers: authentic local experiences are sought after. Just as the source of value creation in the 21st century economy has shifted from tangible assets (e.g., machinery and buildings) to intangibles (e.g., cloud based digital platforms or branding), there has been also a similar shift in personal value being placed on authentic experiences versus the ownership of tangible consumer goods.
Airbnb thrives on the appeal of safe adventures and local experiences where a visitor buys into the idea of genuine local flavors versus a somewhat sanitized cookie-cutter experience offered in the name of brand consistency of many hotels. A Holiday Inn stay and a MacDonald's meal as examples offer a safe comfort zone in a consistent manner in any locales for those customers who need exactly that. There is valid reason of the success of the tag line "The best surprise is no surprise." – a Holiday Inn classic ad.
However as customer preferences are shifting towards more emphasis on the quality of the travel experiences, a growing number of travelers became more adventurous. Living amongst the locals in a rented local residence instead of staying at a hotel with fellow visitors may offer a better way of getting immersed in the local culture. The exposure to local places and people is a truly personal experience that helps a visitor to connect with a foreign place. The appealing price point coupled with authentic experiences became an attractive value proposition to travelers in more than 34,000 cities around the world.
Strategically astute revenue managers of hotel operators are paying attention to changes in travel habits and shifts in customer preferences. The growth in boutique and lifestyle concepts, dual-branded and focused-service properties, coupled with a growing number of soft brands all reflect meaningful attempts on part of the lodging industry to offering a more high-touch and personalized experience for guests who prefer to be much more than just a room number. The well applied marketing strategy helps maximizing revenue potential.
Interestingly, there are identifiable hotel industry trends which might have contributed to the acceptance of no-service and self-service on behalf of the guests. The trend of speedy procedures and convenience drove the proliferation of self check-in, self check-out, automated wakeup call, automated concierge, plus self-service inside the guest room from coffee makers, ironing boards to safe deposit boxes. Linen and towel replacement are frequently optional for environmental considerations. Guests may conclude that if it is up to them anyway to do all of the above they might as well do that for a lot cheaper by renting a private apartment.
The key learning for hotels is not the reversal of "amenity creep" but the realization that guests, while they don't mind self-service, might be interested in connecting with local culture in a meaningful way. Some brands already began launching new concepts where "local" is the theme. Interior color, furniture and fabric choices can be a reflection of that. Menu design started to promote local recipes and local ingredients. New lobby designs cater to creating a more social scene for mingling and interacting with other guests and locals. If management can build strong relationships with local artists (art exhibitions, performances) and businesses (pop-up shops) they can successfully promote their hotel as a hub in the local community. A growing number of travelers may take an interest in that. This might help holding occupancy share in saturated markets which is an objective for revenue professionals.
There is one playing field where hotels have the home-field advantage (so far) versus Airbnb. As the home rental business records only the payment transaction and nothing more beyond arrival and departure data, hotels are at an advantage for they can harness the power of rich data they can collect. Hotels may use CRM (Customer Relationship Management) and a new marketing tool of predictive analytics to develop an in-depth understanding of their customers spending patterns and develop dynamic customized packages hitting all the right buttons that are identifiable in the guest profiles. This data driven approach can be a meaningful competitive advantage if played well for individualizing guest stays and maximize revenue per stay.