Background: Commoditization of hotel product has occurred over the past 11 or so, largely because of price transparency brought on by the Internet and unhealthy industry practices of competing online on price and price alone. In addition, third-party online intermediaries and their price-focused marketing initiatives have been responsible for the further commoditization of hotel products and services.
Here are several important developments in distribution in hospitality that have contributed one way or another to commoditization of the hotel product:
- The shift from GDS, call center, and the offline channel to Internet Distribution, which means a shift toward complete price transparency and easy “shopping around” of hotel rates and offerings
- Working with third-party online intermediaries that propagate the Web with price-driven hotel offers
- Rate Parity across all distribution channels has become the industry norm over the last 5 years. Though a highly positive move aimed to prevent price erosion, rate parity has contributed to the commoditization of the hotel product and services
- Best Internet Rate Guarantee has become the industry norm—this is good news. The bad news is that every player in the industry offers best rate guarantees, and this marketing aspect has stopped being a differentiating factor
- Matching the rates of the hotel’s comp set has become the industry norm. Rate comparison reports provide a quick snapshot of the hotel comp set’s current, 30- and 60-day out rates, so maintaining this “comp set rate consistency” has never been easier.
Commoditization of hotel product and travel customer
Just imagine how the hotel world looks through the eyes of the average travel consumer:
- You find practically the same rates for comparable hotels -in any destination
- You find the same rates for the same hotel whether you research the hotel’s own website or Expedia and Orbitz, call the hotel 1-800 number or speak to a travel agent
Under the scenario described above, how would the average travel consumer select a hotel? Obviously, additional factors play in the property selection process:
- Familiarity with the property (i.e. return guests, family and friend referrals, etc.)
- Brand recognition
- Customer retention programs in place. Loyalty programs are very popular with travelers and especially with people who book online. Forrester reports that over 80% of Online Bookers belong to some kind of travel loyalty program, and more than 60% to a supplier-sponsored one. The problem is that many travel consumers belong to several reward programs, including the ones that belong to your comp set
- Last, but not least, the “value proposition” of a particular hotel or hotel offering. In our view this is the most important single factor to facilitate the decision process. This factor alone is as powerful as all other 3 factors combined
Brand enhancement and appealing customer retention programs are expensive, long-term objectives. Providing unique value proposition to the potential customer and differentiating your hotel product from what the competition is offering are much easier initiatives to implement.
Aspects of the de-commoditization strategy in hospitality
A comprehensive De-Commoditization Strategy has the important goal of providing a unique value proposition to hotel customers. This strategy identifies unique aspects of a hotel product and destination, and develops a differentiated approach to a hotel’s key customer segments. This strategy allows hoteliers to create unique specials and packages, event-related getaways, seasonal promotions, and launch marketing initiatives that provide unique value to the customer.
A robust de-commoditization strategy involves the following:
- Focus on the value side of the Price vs. Value Equation
- Differentiation of the hotel product offering from offerings by the comp set
- Differentiation of the hotel offering from the indirect channels (i.e. third-party online intermediaries)
- Differentiated approach to the hotel’s different key customer segments.
Back to basics: value vs. price equation
As described above, focusing on the price side of the Value vs. Price Equation is the main driver toward commoditization in the hotel industry. What should hoteliers do to change the current situation?
- Stop competing on price only. Hoteliers will never be able to attract and retain more sophisticated travel shoppers and more affluent customers if they compete on price alone
- Re-focus the hotel product offering and marketing on the value side of the Value vs. Price Equation
- When designing the hotel marketing strategy, create unique hotel offers based on unique product attributes and attributes in the local environment
- Create distinctive product offerings designed to provide a unique value proposition to your hotel customers to boost sales of suites and hotel packages such as family packages, weekend getaways, seasonal packages, and spa packages, to name a few.
Specials & packages: hotelier's important de-commoditization tool
Travel consumers look for product uniqueness, special opportunities and value. Creating unique specials and packages, event-related getaways, seasonal promotions and other marketing initiatives that provide unique value to the customer should become an important aspect of the hotelier’s de-commoditization strategy.
According to typical traffic analytic reports of HeBS clients, Specials & Packages, or Special Offers, is one of the top three most popular visited pages. This suggests consumers are shopping for value. Our advice is to give them value.
A recent online survey of visitors to a major hotel brand website, conducted by HeBS, underscores the importance of Special Prices & Promotions, which together with the Best Internet Rate Guarantee, comprise the most important reason for people to book on the hotel brand site:
“Which of the following would influence you to book directly on the brand website rather than on other travel websites (e.g. Expedia.com, Travelocity.com)? Please select all that apply:”
Here are the results (all are statistically significant):
• Best Internet Rate Guarantee: 71%
• Special Prices & Promotions: 70%
• Earn points/rewards: 54%
• Easier to make/change reservations: 51%
• Better descriptions of rooms: 47%
• Ability to find more info about the hotel: 45%
• More photos of hotel/rooms: 39%
• Ability to find more info about the location: 28%
• More info on cancellation policy: 20%
• Can Book packages with hotel, air, car, etc. 8%
A hotel special offer or promotion creates not only strong value proposition to potential customers, but a highly marketable product the hotel can now promote via search marketing, email marketing, online sponsorships and display advertising, and in the print media.
The Value vs. Price discussion affects most industries and the resounding conclusion has always been that consumers choose value. The unique value proposition intertwined in the product offering, value of service, honesty of price, and the additional touch of value fights commoditization. Competing on price and price alone, particularly in the service industry is a last ditch effort. Nowhere is this more important than in the hospitality industry where pricing has become so competitive.
Working hard against further commoditization of the hotel product and services should become an important objective in 2007. Hoteliers have to identify unique aspects of the hotel product and destination and develop a unique value proposition to the hotel customer, utilizing a differentiated approach to key customer segments.