Let's face it - the hotel room is a commodity. It's an asset that every hotel has. With the introduction of the internet, the commoditization process accelerated. It's no longer enough to have rooms to sell. Customers can quickly compare rates and identify similar room products. Once hotel room products are perceived as related, price becomes the primary decision driver. Once price becomes a primary decision factor, it's challenging for hotels to increase revenues and compete.
Why should a guest stay at your hotel when similar rooms and rates are available in the market? Should you lower the rate to attract customers? What if competitors follow and also decrease the room rate?
Successful hotels compete on value, not price.
Location and Design
The location and design are crucial. These two factors can create a long-lasting competitive advantage and should be carefully considered when the new hotel's feasibility study is conducted. A hotel with few competitors located in a unique area near a major natural attraction that is accessible through good transport infrastructure is advantageous from the start. Design that is different from the competition, unique and creative, is also a contributor to hotel differentiation.
The majority of existing hotels are located in well-established and highly competitive markets. Changes in design are costly and challenging. To compete successfully, focus on value will be the best strategy.
What about hotel brands? Does affiliation with a brand guarantee a competitive advantage for the hotel? Yes and no.
The brand guarantees the customer a certain level of service. If the brand image is strong, and the hotel consistently delivers on the brand promise, the customer will choose the property affiliated with this brand. Loyalty programs help to keep customers and prevent them (to some extent) from staying at competitors' properties.
On the other hand, the industry consists of a wide assortment of brands. All great, all offer similar levels of service, matching products, and loyalty perks. Could the brand also become a commodity? I think so.
Internet and OTAs
I think OTAs play a vital role in the commoditization of the hotel industry. They give consumers an easy tool to compare different hotel products. Moreover, OTAs created loyalty programs that attribute to an even higher level of industry commoditization. Consumers choose any hotel based on price and care more about the OTA channel they book on.
Imagine you need to stay for a night in New York. You search for hotels on Google, Expedia, or Booking.com. All hotels have more or less similar rooms, and all operate under well-recognized brands. How will you make a choice? For me, it will be the price.
The internet urges hoteliers to focus on the value of their product to the customers and proper communication of it.
How can hotels create value?