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?
Service and Hospitality
Service quality and consistency create a competitive advantage for the hotel. It's essential to deliver on the expectations of the guests. However, the service is not enough. Hospitality is also a vital part of the guest experience.
Service is a process. Hospitality is an attitude.
When my luggage is delivered to my door promptly, and the requested newspaper is waiting for me at the concierge desk, it's a good service. When hotel staff is courteous, smiling, welcoming, and caring, it's hospitality. Both require a lot of effort from the hoteliers, from hiring the right talent to training and quality control.
What happens when the guest receives good service paired with an emotional connection with the hotel staff?
- Next time the guest will choose your hotel;
- Guest recommends your property to family and friends;
- Guest writes an online review that helps potential future guests to decide in favor of your property.
Good reputation and loyal customers are a competitive advantage for the hotel.
The next step could be creating a mini loyalty program for your customers - a good idea for independent hotels. I would be attracted to an option to log in to the hotel's website and receive a special rate and value element.
Hotels should sell experiences rather than rooms and give a wide variety of customization options. Experiences can be internal and external.
For example, look at the guest's arrival process, find ways to make it unique and segment-specific: in-room check-in, cold towel and refreshment drink, shoulder massage in the lobby, tour of the property, pet treats, etc. Offer cooking class with the hotel chef, movie night at the hotel pool, cleaning and sanitizing workshop with the Head housekeeper (yes, we live in COVID-19 times).
Partner with local attractions and create unique experiences for the guests - balloon flights, after-hours access to local attractions, VIP city tours with private guides, exotic car rentals for the stay, meetings with local artists, private drivers, etc.
All experiences should be unique and come with a hotel stay. Guests have to choose your property to take advantage of these offerings.
Sell packages that have bundled services. Packages have to be hotel specific and stand out from competitors' offerings. Selling packages that are not available on OTAs help win customers and promote the hotel's website, the cheapest distribution channel. Also, packages promote other hotel's revenue outlets (Spa, F&B, etc.).
Examine hotel services and amenities. Find ways to create bundles. Make it easy to pick from different package element options. Make the price attractive.
- Room + Breakfast + Parking
- Room + Parking
- Room + Tennis Lesson
- Room + Massage
- Room + Bar drinks + Dinner
- All-Inclusive: Room + Parking + Breakfast + Dinner + Spa service
Experiment! Listen to your guests. Find what works best.
Sustainability is becoming a competitive advantage for hotels. More and more travelers value sustainable business practices and environmentally conscious ways of producing a product. Hoteliers should focus on this trend and find ways to incorporate sustainability into the business model and effectively communicate effort to potential guests.
Support local communities, preserve local environment and culture, reduce waste and energy consumption, educate guests about sustainable hotel operations, etc.
When a guest chooses between your hotel and the competitor, the green operation could be the primary decision trigger in favor of your property.
To conclude, this is the formula for successful differentiation of the existing hotel product, in my opinion: