Fragmentation continues to shape the competitive landscape for hoteliers

Fragmentation in the hospitality industry, from accommodation options to distribution technology, will continue to heat up competitive pressures for hoteliers throughout the year.

Rising to the challenges will require hoteliers to take a more thoughtful, specific and data-based approach to identifying key customer segments, crafting marketing messages across multiple platforms, and promoting their unique value proposition.

There are significant regional differences in the current fragmented accommodation landscape that will shape how hoteliers in different markets position themselves to compete.

Large brands dominate in North America, controlling more than 50% of rooms, while more of the markets in Latin America, EMEA and Asia Pacific are comprised of independent properties and small chains. 

“Even in the U.S., where the big brands rule, they are attacking the different customer segments by having a product at every level,” says Jenny Mays, vice president of product management for Sabre Hospitality Solutions.

“That’s a great example of how one brand can’t be everything to everyone.” While this isn’t a new trend, “There is more layering now,” she says. “In the past, there may have been three or four different levels within one hotel company and now there are 10 or 12.”

The rapid movement of alternative accommodations into the mainstream for leisure and, increasingly, corporate travel, has further fragmented both the accommodation and the online distribution landscape.

This trend is not likely to slow any time soon, and is in fact heating up, according to Phocuswright’s comprehensive 2018 research report on the U.S. hotel and lodging market. Airbnb and Booking.com are in the lead with about five million listings each, and HomeAway is playing catch-up with roughly two million listings. Expedia is now in the process of making hundreds of thousands of HomeAway properties bookable on the mothership. 

“The introduction of more alternate lodging content into the mass market and into the conversation adds to the fragmentation and differentiation,” notes Mays. “It was there before but it wasn’t as accessible and shop-able as it is today, with Airbnb and the content that Booking.com and Expedia have pulled into their environments.”

Regional differences

The accommodation picture changes significantly outside of North America. In EMEA, while the big players are present in major metropolitan areas, smaller and independent hotels and chains dominate in most cities and regions. 

“It’s very different from the United States,” says Richard Wiegmann, managing director and chief commercial officer in EMEA for Sabre Hospitality Solutions.

“It is a highly, highly fragmented market. We have a huge level of small and medium hotel chains over here, some of them very regional, with between 15 and 30 properties, and most are family owned. Many have a longer perspective on investments. They are all unique, but the thing they have in common is they all want to compete with the big boxes, they want to compete with the large brands, like the Wyndhams and Marriotts of the world.” 

The fragmented accommodation landscape in EMEA is difficult for consumers to navigate, resulting in little brand-specific loyalty but a high degree of loyalty to individual hotels that can span generations.

Notes Wiegmann: “I have hotels of my own and there are families and travelers who have come to us for the past 30 years.”

The fragmented distribution landscape

While technology innovations and introductions have facilitated marketing efforts, they have also created a highly fragmented distribution landscape that makes it difficult for many hoteliers to pinpoint demand attribution and determine their true distribution costs. 

“There are so many touchpoints and multiple channels used by consumers now, and they can wind up on a property website, a brand website, an OTA, a media publisher, on Google — and there can also be retargeting initiatives by different entities,” says Robert Cole, founder of RockCheetah, a hospitality and travel technology consulting firm.

“With all of that, who can you attribute the booking to? Is it shared? There are a lot of fingers in the pie. Because of this fragmentation, figuring out demand attribution is a very complex thing for the hotels, and it’s hard to figure out the cost of distribution channels.”

Lowering distribution costs associated with indirect channels - a top priority and constant challenge for hoteliers - becomes even more critical in the fragmented distribution landscape. 

Lowering distribution costs associated with indirect channels including OTAs and meta search—a top priority and constant challenge for hoteliers—becomes even more critical in the fragmented distribution landscape. 

As costs associated with labor, debt service, interest rates, utilities, real estate taxes, marketing, and franchise fees continue to climb, “Distribution costs are the only cost driver that hotels have any control over,” says Max Starkov, founder and director of the HEBS Digital hotel marketing firm.

“This is what our industry has been struggling with for many years, and it’s one reason why major hotel brands have introduced book-direct incentives.”

Increasing direct bookings and retaining more customers through loyalty, reward and guest appreciation programs are key parts of the solution, Starkov says, noting OTA commission costs for independent hotel bookings are in the 18% to 20% range, versus 2% for a booking originating from a hotel’s website. “The difference is night and day,” he says, “and that’s where the focus should be.”

Hilton is a prime example of success in leveraging a loyalty program into direct bookings. Travelers who sign up for Hilton’s loyalty program and book direct on Hilton’s brand.com website have access to rates up to 10 percent off the price of the same room on an OTA.

Hilton Honors reported that its loyalty membership grew 16% year-over-year in Q3 2018, with Honors members now accounting for 60% of occupancy. Toward the end of 2018 Hilton upped the incentive to book direct by guaranteeing to match a lower price on any other site and giving the traveler a 25% discount off that stay.

While the strategy to use loyalty membership to increase direct bookings can work well for the largest chains with robust loyalty programs and global brand recognition and promotional reach, the effectiveness of that approach for smaller chains and independents has yet to be determined.

Insights on competing in the fragmented marketplace

Competing in a rapidly evolving landscape where accommodation options and distribution technologies abound requires hoteliers to take a much more specific approach toreaching their target consumers. 

“The fundamental challenge is mind-share and how to stand out and be chosen when the customer is making the decision,” says Mays. “As the fragmentation shifts and new content is introduced, you have to address the challenges in a different way. Years ago, you could have more of a mass market message. Now with mobile and personal apps, more differentiation within brands, and more competition from alternative lodging, you have to get more specific in your message.”

Hoteliers also have to be much more data based and analytic in identifying who their customers are, where and how they are shopping, and how to promote their unique value proposition to those customers across different channels and medias.

“If you think your target customers are anyone coming into your market, that’s not specific enough to figure out how to play to your advantages,” Mays advises.

“Be clear about what makes you different, what value you offer, and who that value resonates with. The more specificity you can have around who your target customers are, the more specificity you can create around your value prop for those customers.”

Mays noted that data-oriented luxury hotels have mastered this type of marketing specificity. “They understand their customers, they use their names to speak to them, and they know what their preferences are,” she says. “They really get to know what makes their customers tick and they cater to that.” 

While not all hoteliers can reach that depth of customer understanding and responsiveness, “even understanding trends in your market, knowing your key feeder markets and your seasonality, can help you guide your marketing spend and marketing speak in the right direction,” Mays says. “Data and analytics tools, and product and guest services tools, can help hoteliers make these decisions in an optimal way.”

Starkov’s perspective is that hoteliers need to understand that they can compete most effectively in the fragmented hospitality landscape by creating a holistic approach to the entire guest journey. 

“In this very complex and advanced digital world we live in, the whole guest journey from customer engagement in the dreaming phase to booking, to communications pre-, during and post-stay, to engagement after they have left the property, to acquisition marketing should be one seamless process,” he says.

“The industry has a hard time understanding, investing in, and mastering that this is one holistic process divided into many micro moments with many opportunities to engage customers and turn them into guests.” 

A look ahead

New technologies might be the key to facilitating hoteliers’ ability to create that holistic guest journey.  

“There is no shortage of data in the travel industry,” says Ben Alves, vice president and general manager in the Americas for Sabre Hospitality Solutions. “The challenge is how do you get all that different disparate data from all these different disparate systems together and have it actually mean something. That is a very laborious, very difficult task.”

Alves anticipates that emerging new technologies will shape data integration strategies on the hotel side over the next five years. 

“While they might sound like buzzwords today, artificial intelligence and machine learning will not only help us to gather more data and make better decisions around it, they will also allow us to go to disparate systems and pull that data together in a more integrated fashion,” Alves says.

“That will create more parity in the marketplace for mid-market and independent players by providing them access to more data than they’ve ever had before. It will enable hoteliers to curate unique experiences at scale, which enables the hotelier to gain more share of wallet. A human couldn’t keep up with enough data to do this by themselves.”

As hoteliers strive to maintain a competitive edge in the marketplace, there is a potential game changer on the horizon that could add another layer of complexity to the fragmented distribution channel. 

As noted in the Phocuswright report, some of the biggest media and e-commerce brands in the world are now venturing further down the funnel of hotel booking.

Google is already a leading hotel metasearch player with Google Hotel Ads and has been dabbling in booking for some time. Amazon is waiting in the wings and will likely test the travel market again in its own way, possibly around Alexa or Prime membership.

Already a huge player in private accommodation, Airbnb began officially distributing boutique and independent hotels on its platform early in 2018, positioning itself as a potentially formidable for Booking.com and Expedia in those sectors. 

For hoteliers, keeping an eye on these trends and choosing partners who can understand and navigate the fragmented hospitality landscape and create personalized solutions will be key to success this year and beyond.