By Kelly McGuire, MMH ’01, PhD ’07
CHR Insights features industry analysis and commentary from Kelly A. McGuire, MMH ’01, PhD ’07, who is a CHR fellow and vice president, advanced analytics, for Wyndham Destination Network. Previously the leader of the SAS Hospitality and Travel Global Practice, and a member of the CHR Advisory Board, she has long been active in advanced analytics and big data. Her blog posts feature industry research and guest interviews to address current industry issues.
The CHR Advisory Board is made up of 30 industry leaders from across the hospitality and travel industries. These leaders help to guide the research activities of the Cornell CHR, and support the CHR’s mission of disseminating cutting-edge resource to the industry for free.
The CHR Advisory Board represents a diverse group of industry insiders, with perspectives from across industry segments, geographies, and functional areas. Given the diversity of experience, position, and perspectives, I took the opportunity recently to poll the group to get an idea of the kinds of challenges and opportunities we can expect over the next 12 months, how the industry will be affected by major industry and global trends from 2016, and how the hospitality industry should be preparing for 2017. This blog post presents responses from some of the members.
The CHR plans to continue to share the knowledge and experience of this group in this blog this year. Look for more posts with insights about current industry trends and events.
Challenges and opportunities
Many of our advisory board members pointed to emerging technology, particularly as it relates to the guest experience, as both a challenge and an opportunity for 2017. Adam Weissenberg ’85, global sector leader, travel, hospitality & leisure, Deloitte, points out:
“For hoteliers, the abundance of choice around technology may prove to be the biggest challenge. Over the next 12 months, travel companies will be forced to think beyond the “what” of technology innovation and proliferation—the shiny devices, the applications, and the capabilities—and understand what technologies consumers are ready to adopt, and what experiences will drive real value.”
Dario Gonzalez, vice president, enterprise architecture, DerbySoft, advocates for a focus on the guest relationship: “The biggest opportunity will be the definition of ‘The GUEST.’ The Guest is no longer defined by the creation of a folio (check-in). The Guest is a relationship that starts early in the funnel with exploration and themes all the way to sharing the experience in social media.”
Linda Hatfield, vice president, knowledge management, IDeaS, A SAS Company, points out that effective use of data is a huge opportunity for hotels, if they have the right tools in place to take advantage of it. “Your competitive advantage lies in the ability to better understand your guest from the millions of data points available during a guest’s planning, buying, and stay experience. Hoteliers need to ensure their data are in a healthy-enough state to drive meaningful insights and that their technology supports the revenue strategy they need to deploy in order to meet those business goals. Driving profit is still about providing the ideal product to the ideal guest at the ideal price—the key is to ensure you have the tools and data to support that.”
Erik Browning ’96, vice president of business consulting, Rainmaker, believes that a disciplined and strategic approach to responding to group leads will be an important opportunity, but also a challenge, for hotels in 2017, particularly with forecasted declines in RevPAR growth. “I expect that hotels are going to start to compete even more heavily to book the group volume that is out there. Hoteliers are increasingly going to see group business is highly desirable due to its catering spend, early booking window, and manageable DOW patterns. …. Hotels are going to have to take advantage of existing tools and technology that enable them to respond to group inquiries accurately and faster than other hotels they are competing against. Those that do this will have a significantly better chance of booking the business and achieving their goals in the future.”
Susan Devine ’85, senior vice president, strategic development, Preferred Hotels and Resorts, says that for 2017, the biggest challenge is also the biggest opportunity: “overcoming the shift to a shared global economy in potentially turbulent times.”
How will 2016 affect 2017?
Members-only rates were a big news item inside the hospitality industry. Adam Weissenberg says that the members-only rate movement is a good example of how quickly customer expectations can change in today’s marketplace. “First movers in the member rates space were not first movers for long, as many hoteliers adopted the strategy extremely quickly. Major online travel agencies quickly followed suit, enticing online shoppers to log in to reveal lower rates and fares. The offering spread so quickly, it may now be an expectation instead of a strong direct booking driver. When strategizing for 2017, hoteliers must understand how quickly an attractive new offering can turn into a ‘cost of doing business’ within today’s competitive landscape.”
While members-only rates did build awareness both within the industry and among consumers, not every guest may be a good candidate for a members-only campaign. As Linda Hatfield points out, “An offer to book direct is a good strategy, but you have to be able to market that offer and it has to be meaningful to the audience without cannibalizing business elsewhere. As hotels start to leverage travel-intent data across the thousands of digital booking platforms and integrate that with forward-looking demand intelligence, they can begin to pinpoint revenue opportunity by date, demographic, and offer. These sorts of analytics in an automated environment can help you make the best use of all your booking channels when they are needed, from direct bookings to OTAs.”
Erik Browning reminds us of the role consumer experience plays in the book-direct discussion:
“Winning the direct-distribution model will continue to be a huge focus for hotels … Brands have to work to dramatically reduce this number to protect profitability. It isn’t going to be easy. Expedia and Booking.com will continue to invest in artificial intelligence platforms such as Amazon Echo. Imagine sitting at your desk and saying, “Alexa, find me a midtown NY hotel on January 19 for two nights,” and it connects to your travel profile to return the types of hotels you like and allows you to book immediately. … Consumers will book where they get the best experience. … Even assuming hotels successfully reduce acquisition costs, they will need to execute a strategy that makes consumers want to book directly with them. If the OTAs continue to remove friction points in the booking process, they may gain additional share of business. So even if hotels successfully reduce commission and margin expenses, the net acquisition cost may not decrease if there is proportionately less volume going to the direct channel and more volume going to an OTA. Discounting helps, but that isn’t the ultimate solution.”
Another big news item in 2016 was continuing discussions of the impact of AirBnB on the lodging industry. Adam Weissenberg reminds us: “Despite the enormous rise in rental bookings, the hotel industry has still continued to post growth. … While the sharing model has completely disrupted other verticals (consider the music industry), traditional hospitality is not just enduring the storm—it is thriving on uninterrupted demand.”
Still, as millions of traveling consumers make the decision to book either a hotel or a rental, hotels will need to understand what is driving this decision and how to best position themselves to capture as much of this demand as possible. Erik Browning says, “Instead of fighting against it, hotels really need to understand why a consumer is not choosing to stay at a hotel. Hotels can learn from this so that they can offer the right product to their target customer.” As discussed earlier, this will require investment in consumer-experience-related technology and the science to analyze consumer data.
Preferred Hotels and Resorts is addressing this growing interest in alternative options. Susan Devine says, “Preferred Hotels and Resorts recently developed its Preferred Residences brand to encompass more types of residential-style accommodations to suit the interests and demands of today’s travelers.” She indicates that this will be a focus in 2017. I imagine we’ll see other hotel companies adopting similar strategies.
In terms of macro trends, after years of practically unprecedented growth, we started to hear rumblings in 2016 about a potential downturn. Adam Weissenberg reminded us that “historically, downturns have been the result of exogenous events (savings-and-loan crisis, dot-com bust, 9/11 terrorist attacks, and the housing crisis). Hospitality cycles have had less correlation with industry-specific issues like over-supply than macro indicators like economic growth. Therefore, absent some exogenous event that would drastically affect economic growth to the negative, the outlook looks solid.” Susan Devine says that Preferred is forecasting continued growth.
My concern is that hoteliers in general, and revenue managers in particular, will hear this macro discussion and start to pull back or become more conservative, thus making this discussion a self-fulfilling prophesy. Every hotelier needs to keep an eye on the unique characteristics and opportunities in their own markets and for their own brands, when making pricing and positioning decisions.
How to survive and thrive in 2017
For this group, surviving and thriving in 2017 will require a focus on the guest experience, Adam Weissenberg suggests “For years, travel suppliers have been trying to crack consumer loyalty by offering intricate programs and schemes. 2017 calls for a shift in thinking to make customer experience paramount. Over the next twelve months, travel companies should take advantage of an increased awareness of customer expectations, re-imagined technology strategy, and differentiated offerings to provide unmatched travel experiences. Loyalty will follow.”
RJ Friedlander, founder and CEO of ReviewPro, concurs: “Whether you manage an individual hostel or one of the world’s largest luxury brands, delivering memorable experiences to travelers is the key to success. Our industry needs to rapidly ‘raise the bar’ to make guests feel that we truly care that their stay is as positive as possible and exceeds their expectations. It’s about really delivering on this promise and making sure that guests feel appreciated and special. Across all segments, there is still a lot of work to be done.” He continues:
“Hoteliers have to make the link between guest satisfaction and real-time operational decision-making much stronger. In 2017 and beyond, the big winners in our industry are going to be the brands that can identify problems as soon as they surface and ensure the relevant information is immediately deployed to staff members so they can act on it. Organizations that make this cultural shift, focusing resources on what affects the guest while ensuring the entire team feels both empowered and accountable, will be most successful in enhancing the traveler experience. By taking advantage of this opportunity, hoteliers will be able to more consistently ‘surprise and delight’ guests, boosting customer loyalty and revenue and creating highly valuable brand advocates.”
Linda Hatfield points out: “The best way to thrive in 2017 is to start thinking outside of the box, and by box I mean your hotel. The data hotels generate is critical. It helps create the basis for a forecast that will ultimately drive revenue-management strategy and allocation of operational resources. The challenge is, you have descriptive data only for the guest that stays with you; what about the tens of thousands of guests who don’t? The industry shakes its head in frustration with the ever-changing distribution landscape, but what this has provided is a way to extract more insight from the consumer. Market intelligence that can discern future demand for a given market can provide insight into trends historical data may not reveal. This type of data creates prescriptive analytics that can determine not only the probable outcome but, more importantly, the optimal outcome.”
Dario Gonzalez recommends that “CRS systems must introduce dynamic pricing at user level. Yield management should not be a process that runs in the background. Yield management becomes part of the shopping transaction (real-time).” Of course, in my opinion, we need to be careful when we think about pricing to individual consumers. We’ve seen some consumer backlash at even the hint of price discrimination based on “who” you are. However, I think Dario would agree that we need to be able to tailor a product offering to a specific consumer based on their needs and preferences, which includes the right price, and we’ll need support from the CRS to do this. We just need to be careful to always maintain perceptions of fairness in pricing.
Erik Browning believes that 2017 will be another strong year for the hospitality industry, but, as always, we shouldn’t count on this to last.
“As an industry, we have done a terrible job at managing downturns…. During these very good years, let’s figure out how to do better the next time. Know your booking windows, acquisition costs, channel strategies, optimal segmentation mix, etc., and set a strategy to achieve the highest possible revenue based on different RevPAR change scenarios. Optimize your distribution strategy to get as much business as possible through the most profitable channels. Make sure you are spending money in the right place when marketing online. …. Spend now on technology that will help you price and strategize better for the future. …. Being proactive now to manage for the future will pay dividends.”
Susan Devine has a simple but powerful message for hoteliers in 2017. “Look to the consumer, the current (rather than past) environment, and the available and developing technology. The one constant is change!”
2017 isn’t likely to be less turbulent than 2016. With the impact of the recent unprecedented merger and acquisition activity, the continuing discussions about rising distribution costs, and the growing popularity of alternative lodging options, as well as political and economic uncertainty, it will be an exciting year, to say the least. Hoteliers need to start preparing now, if they are to survive and thrive. The lesson I take from these perspectives is that hoteliers quickly need to start to build strategies to better understand their guests and their operating environments. This will mean gathering data, investing in technology, embracing data science, and working cross-functionally to build competitive strategies guided by what the data say.
It’s likely that some will believe we are heading for a downturn and start reacting prematurely instead of reading the market. Some will throw their hands up and blame the OTAs or Airbnb for poor performance, instead of building a strategy to take advantage of partnerships. Don’t be one of these. Instead, take a careful look at your environment and your guests to find your opportunity to survive and thrive.
Best wishes for a Happy, Healthy, and Successful 2017!