World Panel
Viewpoint21 January 2020

Will the value of brands remain sustainable in today's distribution age?

2020 C-SUITE World Panel

— 9 C-Suite executives shared their view

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This viewpoint was created by
Peter O’Connor, Chaired Professor of Digital Disruption at ESSEC Business School
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Michael Levie
COO and Founding Partner at citizenM

Let me start by answering the question first; “yes from a distribution perspective, the era of hotel chains is coming to an end”. Still today there are reasons why an independent owner might still work with a brand, even if it were only for distribution purposes. The distribution landscape is changing fast and there are few structured ways to educate yourself. The brands do have specific distribution knowledge and systems in place to guide independents. see more

Is there today a fair playing field and can independent's get to the same customer reach, the answer is also yes.

The bigger question is what is your distribution strategy and as important what is your target spend.

Gross revenue minus distribution cost leads to net revenue, which is the real marker / starting point for every hotel P&L. And equally important what is the breakdown of the distribution / channel cost and net contribution. Every reservation needs to have its channel cost and “ADR” contribution analysed and cumulated fit in the distribution strategy.

The correlation of channels and strategic use lead to the best optimisation.

Obviously, there are many systems and independent companies that can assist, but without a solid basic knowledge the results will not necessarily cumulated into the desired outcome automatically.

And then there are those major shifts in the distribution landscape that need almost like “daily stock trading” detailed and consistent monitoring and reacting to.

Where Ota's first took a slice of cheese from our hotel sandwich, they are being upset and challenged themselves by players like Airbnb and Google. Oh, and what about a real entrance of World dominant players like Amazon or the impact of Chinese / Asian sites like Alibaba and C-Trip…the speed of change is only going to increase. It will undoubtably have a positive distribution cost reduction effect for the hotels and provide more options…

This conversation is extremely useful and should take place, but there is another that sometimes doesn't get enough daylight; does our brand and product sufficiently “differentiate” our hotel from the rest of the pack.

The answer often or better almost always is “NO”.

Brand often means the following formula; “name + logo + frequent guest program = brand”. And as long as we can take a name and logo down one day and continue the hotels operation uninterrupted the next day with a new logo and name our industry misuses and doesn't understand what “brand” truly is.

How many hotel chains do you know that by walking into the door tells you who they are…2 possibly 3… or reversely, how many times do you walk back out of the lobby and look at the façade to know with which chain you are staying.

The brand choice is often frequent points related right. Well that will wear thin quickly if with Amazon (Plus) or Alibaba you get frequent points or discounts. And if Google truly enters the hotel distribution landscape “predictive” selling will also lead to a huge consumer shift.

So “brand” and “distribution(cost)” go best hand in hand with a truly differentiated product, or alternatively with good systems and specific brand and distribution knowledge.

Comment
Matt Luscombe
Chief Executive Officer at Cycas Hospitality

If you'd asked me ten years ago about the future of hotel brands in the digital age, I'd have been uncertain. I could see the dramatic changes that were happening. Hotels' 'distribution costs' - particularly commissions paid to online travel agents (OTAs), other online intermediaries and brand loyalty schemes - were increasing rapidly, while fees paid to 'traditional' partners - wholesalers, tour operators, GDS, agents and the brands, themselves - showed no signs of decline. see more

And those trends have only accelerated. Google remains the largest beneficiary of online growth, with a significant majority of all searches and bookings originating from its platforms. Among its largest customers - from any industry - are Booking.com and Expedia, the world's largest OTAs (excl. China), who continue to invest heavily in online search and traditional TV advertising to remain top of mind for hotel guests. Those billions of dollars in spending each year come directly from the owners of hotels, particularly here in Europe.

In this article, Matt Luscombe, CEO of Cycas Hospitality - one of Europe's leading hotel management companies - explains why, regardless of their booking channel, global hotel brands continue to remain relevant to guests and take share from unbranded hotels.”

Related article by Matt
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Heather McCrory
CEO of North & Central America at Accor

There is no doubt that hospitality companies are facing pressure from new players and tech companies from a distribution perspective. Furthermore, social media and online reviews ushered in a level of transparency that levels the playing field and holds brands accountable to their mission. Overall, the hotel companies still have a unique advantage in that we meet and greet our guests every day. We personally interact with our guests and through our frequent conversations and regular points of engagement we build long-lasting relationships. see more

Every brand in the Accor group offers a unique brand DNA and guests recognize and understand the brand experience when they book with Accor. The pressure point is the ability to consistently deliver on the brand promise at every hotel, and across all platforms/interactions from consideration/research to departure.

A variety of choices, with multiple destinations and brand styles, is one of the components needed to continue to provide the consumer/end-user with value. At Accor, there is a brand for every occasion and every wallet. For instance, a guest with a milestone anniversary will soon be able to celebrate at Raffles Boston, confident in their expectation that the experience will be both intimate and luxurious and that they will know they are staying somewhere very special. Or a family attending a weekend hockey tournament in Nashville might want the opportunity to expose their children to art and culture through a stay at 21c Museum Hotel while they're visiting the city.

Additionally, this whole idea around purpose is more and more important to consumers. They make brand choices based on how their own core values are reflected in the companies with which they've chosen to spend their hard-earned money. There is very little patience for lack of transparency in areas that matter like corporate social responsibility, and in particular the environment.

On the B2B side, our large Global/National Sales organizations and personal relationships with key accounts globally are hard to replicate with technology alone. While tech companies are encroaching in the meetings/events area, planners still want to have that same personal connection with experts that can guide them to the right destination and plan every detail of their complex events.

We need to effectively communicate both the individual brand promise as well as the ability to deliver a consistent distribution/loyalty experience – then we will drive both brand engagement and brand loyalty. The new Accor loyalty program, Accor Live Limitless (ALL) is a loyalty ecosystem poised to deliver over 40 unique brands around the globe, the personalization demanded by our guests, and unique, once in a lifetime experiences – all under the umbrella of the organization's values and principles and all within the convenience of one app.

For hotel owners, the integrated distribution, revenue optimization, and customer management platforms that allow the hotel to maximize revenue and better deliver on the customer experience on the property and through CRM are a necessity. We believe it is the full-service option with a personalized relationship with our guests that will continue to be the differentiator. However, this will continue to be an interesting space to watch as the giants - Amazon, Google, and the like - continue to focus on travel.

Comment
Bill Walshe
CEO at Viceroy Hotel Group

Consumers are progressively depending on technology to plan and book travel, which is driving an increase in the number of technology companies seeking to incorporate distribution solutions into their business model. As a result, this competitive landscape has propelled innovation, while creating a downward pressure on cost to hotels. Smaller or Independent companies typically are able to embrace a faster cadence of innovation over larger operators that are tied to proprietary systems or extensive operating standards. see more

We seek to partner with distribution providers that share our passion in delivering iconic experiences beyond typical hotel stays, and have the capacity to be an extension of our sales and marketing efforts (Classic, Island, Luxury Retreats, Guild Agencies, etc.) This helps to sustain revenue growth as we perpetually optimize our inventory to command rate premiums. Additionally, transitioning away from legacy methods of transacting reservations (GDS, email, etc.), and embracing various technology solutions (App-based, Direct Connect with SynXis, GHA OCM, etc.) has enabled us to reduce costs for our hotels and Sales partners.

These tools ensure that we are able to deliver content that is personalized and more relevant to the consumer. Lastly, we know we have chosen the right distribution partners when we are able to pivot our strategy daily, with the intent of being hyper-focused on guests with the greatest propensity to convert. 

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Jay Stein
Chief Executive Officer at Dream Hotel Group

In short, no. The era of the hotel chain is not coming to an end as they certainly bring value to the industry in many ways, but the way hotels do business is unquestionably changing. While in the past a hotelier needed to work with a large chain or brand in order to have world-class distribution, in today's environment this is no longer essential to success. Smaller chains, boutique brands, and independent hotels have more options when it comes to distribution through advances in technology. This inevitably began to level the playing field in that regard. see more

At Dream Hotel Group we work with Sabre, which allows us to connect directly with over 600 OTA partners, over 800 Tour Operators, and more than 600K travel agents who log into the GDS to make reservations every day, in addition to powering our booking engines. Working with a large chain could actually be limiting in a specific hotel's distribution depending on the chain level agreements. Many large chains have distribution clauses in their management contracts, preventing individual hotels from working with companies that do not have a chain level agreement with that brand. So if, as an example, you want to work with Airbnb, but your chain does not have an agreement, the hotel will not be able to distribute on that channel. As a boutique brand, we are nimbler and able to move more quickly with new/upcoming partners. As a boutique collection, we recognize that all of these different distribution partners bring additional value & revenue to our brand and as a result, we are able to forge those partnerships with limited constraints.

Another example of how large chains can hinder your distribution: the chain may have contracted discounts or mandatory rate plans with an OTA such as Expedia. As an individual hotel part of that chain, you would not be able to opt-out, even if you didn't want to be part of that offer. At Dream Hotel Group, we are more flexible in our negotiations to allow our individual properties more control of their rate/promotional strategies. Parity is a big part of agreements between large chains and OTA partners. Chains are successful at maintaining parity. However, chains establish parity by limiting the available rate plans that a hotel can sell directly on its site, ensuring that the same rate plan is distributed to the OTA partner. Companies like Dream Hotel Group have more flexibility in rate strategy and how/where they distribute rates. To an extent, we can distribute a limitless number of rate plans on our websites and distribute these rate plans to other channels on a need basis only.

All this isn't to say big box brands/hotel chains don't have their advantages. At the end of the day boutique hotels are still going to do what they do – and, in our case, that is to consistently deliver a high-touch, high-style, high-design lifestyle experience that's truly unique and authentic to its locale – while the big chains, the Marriotts, Hyatts and IHGs of the world, do what they do. Distribution costs are just one part of doing business and what brands vs. chains vs. independents choose to spend is different for every property, every situation. 

Comment
Thomas Willms
Chief Executive Officer (CEO) Deutsche Hospitality

Being part of a powerful network has many advantages on various levels and distribution is certainly one of them. World-class distribution is not primarily about size – it is also about knowledge, technology, and agility. However, chains can centralize knowledge and insights and deliver high-end services to their hotels for a lower cost, where independent properties need to create their own infrastructure and hire the right people. Hotel chains with established hotel brands offer sophisticated direct distribution channels. see more

Sometimes hotel chains may be overthinking distribution, creating high complex infrastructures and trying to fit too many processes. Therefore, focus on the customer is essential and also the key to distribution landscapes. For local hotel operators, it is a significant asset to have a dedicated team of distribution specialists and tailor-made technology behind them by being part of a hotel chain with its own brand-specific marketing and digital distribution channels.

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Ash Kapur
CEO, InTown Suites and Uptown Suites

Brands (Hotel Chains) provide tremendous structure to a hotel's distribution strategy. However, I wouldn't describe the larger hotel companies as “brands”; they are distribution machines that include a CRS, Loyalty program, property management system and connectivity solutions that cater to different tiers (economy, midscale, luxury). see more

A brand is a sense of connection that goes beyond a traditional earn and burn loyalty program. That said, hotel chains have a bigger role to play in corporate markets and/or markets that don't run high occupancies. I expect to see continued consolidation as hotel chains seek greater distribution and promote themselves as market-places similar to online agencies and or Airbnb.  

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Ramón Aragonés
Chief Executive Officer at NH Hotel Group

I don´t think the hotel chain era is coming to an end. It's true that clients are evolving though, as are their preferences. There is a much wider offer in terms of product and consumers have more clarity as to what they want as well as access to different ways of managing their reservations. In this scenario, hotel chains must look for ways to attract consumers towards their own channels and retain them by boosting their loyalty.  see more

The great variety of existing intermediaries opens up various options for a client to get to a hotel but once inside, is it our obligation to focus on offering the best brand experience, anticipate their needs, surprise them, and above all, engage them so that their next stay is booked directly through us or, at the very least, to ensure that they choose our property again. In this sense, brand awareness and notoriety give hotel chains a competitive advantage because sometimes it makes clients feel that it is a safer option. We offer guarantees and a specific operational promise which is why many hotel chains will continue to be a reference for many consumers. It is also worth mentioning that hotel chains have at their disposal more resources than independent hotels to reach clients and potential consumers directly. But we must not rely on sales exclusively, great distributors are here to stay and we must see them as an extension of our sales force. We should work with them to help us distribute our product in markets in which we may have less brand recognition and where they can give us a huge boost and added value. With regards to intermediary costs, hotel chains still have more negotiation strength because of our larger portfolios, our geographical footprint and our brand reputation, which gives us an advantage vs smaller hotels.

For the past few years, the trend in the market has shifted towards concentration, both in the traditional travel agency industry, OTAs, airlines and great hotel operations… So, no, I do not see that the time of the hotel chains will come to an end any time soon. Quite the contrary, I believe that we will continue to increase in strength as long as we continue to invest in client experience and technology.

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Marloes Knippenberg
CEO of Kerten Hospitality

Hotel chains will remain relevant since owners seek something with a proven track record and customers look towards brands they recognise because they want familiar experience. The new frontier ushers with new technology, travel apps and platforms that are changing the way our industry evolves. Apple did not allow Samsung to play catchup but altered the new retail endeavours and this is exactly what the Airbnb's of today are doing to the hospitality space. see more

 

With economies of scale comes great opportunity and, while the big hotel companies have become adept at interpreting data gleaned from guest databases to deliver highly targeted brand campaigns, many companies haven't been able to capitalise on the information in the same way. Without a real focus, tools such as e-newsletters become generic rather than the targeted communications that they can and should be.

 

At the same time, customers are changing and no longer want a cookie-cutter approach when they travel, with personalised service and the opportunity for experiences tailored to their individual preferences becoming increasingly important. This is why the big hotel companies are launching small niche brands which appeal to a very targeted audience.

 

As the likes of booking.com and Expedia continue to drive volume based on user reviews and experiences, brand-specific distribution is becoming less about driving direct sales and more about sharing a brand narrative which contributes to a wider experience. This is particularly true of the new generation who are less interested in things like loyalty cards and more interested in transparency and responsibility, elements which are helping to create a totally different following and completely change how we as an industry approach distribution.

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