Why Hotels can’t compete on price alone, articulate value

Hotels have never operated in a more fragmented or competitive booking environment than they have today. Not only are hoteliers challenged to attract the right guest, at the right price, in markets that have seen large-scale hotel development over recent years, but they are also facing stiff competition from new players in the sharing economy.

Led by Silicon Valley technology giant Airbnb, sharing economy accommodation platforms linking private citizens with vacant rooms or properties have grown dramatically in popularity over recent years. In Australia alone, it is reported that one in every six people over the age of 18 have downloaded the Airbnb app and established an account, which poses a very real threat to today’s hotel sector.

With a dynamic new booking landscape, how can hotels continue to attract guests and compete with a sharing economy whose growth seems to be on an ever-upward trajectory?

Articulate value, not price

When faced with new competition from the sharing economy (or from more traditional accommodation providers), the worst thing a hotel can do is offer short-term discounts to gain a competitive edge. These discounts often mean a hotel was forced to accommodate for the price reduction by reducing services that differentiate its property from competitors. To fight the commoditisation brought about by an excessive focus on price, hotels must maintain unparalleled service levels with a strong brand focus. Every guest–new or loyal–that walks through the door needs to understand what makes that property and brand different and unique in the market.

If a hotelier is unable to convince customers that their product is worth more than an Airbnb property based on “soft” factors beyond price (assuming that location is equivalent), then they’ve become a commodity. Price then replaces brand, service standards and physical property as the key driver of purchase decisions.

The only way to operate at prices higher than other hotel competitors, or the sharing economy, is to deliver true value and experiences that competitors cannot match. If hoteliers do not effectively emphasise a hotel’s unique value, they are vulnerable to potential guests comparing their property prices against their competition – even if their product delivers a higher value.

But what is “value”? To answer that question, hoteliers need to understand their target market segment. Airbnb grew their business aggressively through effectively targeting family and leisure travellers, and is now working hard to sell their offering to business travellers as well. Hotels, on the other hand, have more complex market segments, including not only leisure and business travellers, but also groups. It is vital that hoteliers gain an in-depth understanding of their business mix to deliver value to their target market segments. By understanding their business mix, hoteliers can analyse customer behaviour such as booking pace, length-of-stay and room-type preference so their sales and marketing strategy can be targeted to promote value to different target markets.

Read rest of the article at eHotelier