About HVS | Download HVS Brochure | English 
Log In |  Access the HVS Library
header

Changing Times Require Changing Hotel Business Models

The performance of the hotel industry can be either enhanced or limited by the way in which hotel business is conceptualised. This article illustrates how economic trends present opportunities to redefine hotel business models and create value.

The performance of the hotel industry can be either enhanced or limited by the way in which hotel business is conceptualised. In the context of evolving economic environments, the widespread belief that hotels are strictly in the business of selling rooms to guests in need of accommodation is narrow and thus limiting. If the industry does not take full advantage of the opportunities presented by economic trends, hotel assets will remain underutilised, potential markets will remain untapped, strategic alliances that should occur naturally will not materialise and significant revenues will be foregone.

This article presents two concepts that could offer opportunities for the industry if hotels are willing to take a few steps away from the traditional business models.

The Catwalk Concept

A model to capitalise on the opportunities presented by the proliferation of international brands

Hotels should capitalise on a key side effect of the global proliferation of international hotel brands: efforts aimed at building hotel brands have resulted in branding the guest population as well. Guests loyal to a particular hotel brand share identity traits and lifestyle preferences with each other and differ from guests that prefer different brands. Therefore, branded hotels are brick and mortar containers for very distinct, well defined, self-selected captive audiences that could be accessed for marketing purposes. This argument holds true to the extent that hotel brand preference is a reliable indicator of purchasing behavior and brand preference for other products and services.

A branded hotel can take three specific steps to capitalise on this opportunity:

  • First, conduct research to identify specific brands of other products and services that appeal to their guests, for example, one such brand could be a particular type of flat-screen television whose design and price tag has been targeted to a specific type of customer.
  • Second, explain to the companies identified the benefits of gaining access to their guests; the hotel could build guest market profiles to support the claims that its guests fit the profile of the flat-screen television’s target audience.
  • Third, find inconspicuous ways to grant these companies access to the guests, for example, the hotel could agree to display the flat-screen televisions in its rooms so that the guests interact freely with the product, without ever feeling part of a marketing campaign.

Variations on this approach can be applied to any type of product or service that could be adopted by a hotel, as long as its brand target market is compatible with the hotel’s guest profile. Examples include products such as design furniture, art collections and electronic gadgets or services related to wellness, health, continued learning or entertainment. The approach proposed here should not be confused with practices already employed by hotels that have successfully marketed and sold their own products to their guests by using the rooms as display space and offering hotel products via catalogues.

The value proposition to the purveyors of goods and services is twofold.

  • First, they would enjoy marketing benefits derived from their ability to reach a target audience in an environment that allows this audience direct and free interaction with their products. This opportunity would be especially valuable in instances when new products are tested in the market: the costs of testing the product will be reduced and the ability to reach the desired audience enhanced.
  • Second, using hotel space as exhibition space or product-testing ground may also result in direct sales to the guests and indirect sales to audiences reached by word-of-mouth generated by the guests.

The value proposition to hotel guests is also twofold.

  • First, they would benefit from exclusive access to tailored products or new concepts that will enhance the value derived from staying in that hotel.
  • Second, they could benefit from exclusive discounts.

The value proposition to the hotels themselves is multidimensional.

  • Direct benefits would be derived from additional income streams, as hotels can sell the same space many times over during the same time period (that is, the guests would pay the daily rate to gain access to the desired room, interested suppliers of goods and services would pay to gain access to the guests).
  • Indirect benefits could be derived from the added prestige of associating the hotel’s brand with other established brands, or from the increase in demand from guests as a result of marketing strategies that exploit the potential discounts offered to them.

In conclusion, the trend of increased proliferation of international brands may be better exploited by the adoption of a hotel business model which recognizes that branding efforts have transformed guests into assets and other companies (including hotel suppliers) into potential customers.

 
The Sanctuary Concept
A model to capitalise on the opportunities presented by a particular aspect of globalisation

Hotels should capitalise on the trend of globalisation by tailoring their product to serve the rapidly growing population of professionals who relocate across the globe every few years in search of better career prospects. The demand generated by these professionals is recession proof, as it can be captured in good times, when people move to a new region, and bad times, when they move out. Moreover, for a hotel chain with international reach, this demand can be captured at both ends, in the city left behind and in the new destination.

The extended stay hotel concept taps into this market to some degree. However, to fully capitalise on this pool of demand, hotels should focus on the particular needs of this type of guest. It is true that guests relocating to a new city require direct access to hotel rooms because they need accommodation; however, these guests have a more pressing and important need for access to the institutions and facilities of an unfamiliar new city. This need highlights two opportunities, one related to a tailored product hotels could offer, the other related to the Catwalk opportunities afforded by catering to this type of guest.

Hotels could tailor their product to incorporate logistic and ambassadorial functions aimed at drastically reducing the acclimatisation period of any newcomer by making the process short and effortless. This value proposition could be particularly attractive if addressed to corporations, which would then benefit from a speedier acclimatisation of their new hires in two ways.

  • Relocation costs would be cut significantly by reducing the time spent in hotel accommodation, searching for permanent accommodation and going through the necessary red tape.
  • The companies would also benefit from an employee that can focus on the job immediately instead of spending a long amount of time trying to settle in their new city.

The concierge services of such a hotel would include assistance with obtaining residencies and driving licenses and help with finding a permanent residence, purchasing a car, and so forth. The rooms could be tailored for guests travelling with many possessions; the common spaces could be designed to increase networking and interaction between people that share the same potentially nerve-racking experience of relocating and starting a new life in a new home.

The Catwalk opportunities are very significant, as the relocating guests share basic needs that go beyond issues of lifestyle and consumer preferences. Virtually all of these guests will need a house and furniture and most of them need a car. Moreover, there will be a great immediacy for these needs, which should be satisfied within weeks so that they can focus on their new job. How valuable would it be for real-estate agents, furniture distributors, car dealers and other purveyors of related goods and services to gain direct access to the guests of a hotel catering exclusively to this demand segment? The strategic alliances that could be formed to create an effortless transition period for these guests are worth investigating.

In conclusion, the growth in the number of professionals that habitually relocate in search of better career prospects may be better exploited by the adoption of a hotel business model that tailors its product and creates strategic alliances with suppliers of goods and services that can make their transition period smooth and effortless.

Conclusion

The Catwalk and Sanctuary concepts have been designed to illustrate possible ways in which hotels could better capitalize on enduring trends by engaging in creative uses of previously underutilised assets: hotel spaces, hotel guests, and hotel time. The vital prerequisite for such concepts to be adopted and gain traction is to recognize that hotels are strategically positioned to provide a wider type of access (not just to rooms) to satisfy the multiple needs (not just for accomodation) of several entities (not just guests) in a particular place and during a particular moment in time.


13,475 views

Filed Under Category Economic Trends and Cycles

i own and operate a stand alone 36 rooms 3 star property in kasauli,shimla hills the property is 10 years old and has done extremely well and present annual occupancy is 60% and arr rs 3000 my question is whether branding and outsourcing management to a chain will benefit me in the long run and also enable me to devote time to expansion.also can i expect improvement in occupancy/arr/revpar and maintainence of the property regards
Thank you for your question. More information would be needed to answer - will touch base with you directly to discuss further. CC
Have found your article interesting. Writing from India where currently there is a perceived buyouncy in the hospitality space where every hotel chain and every brand therein is wanting its share of the pie... However my question is in todays economic challenging times, what is of true value to the traveller - a brand or inate quality in the product - it could be a adhoc chain of unbranded hotels. Will it work given an excellent product without the brand in the pure pull sense, not withstanding the strength which a chain brings with its distribution network.
Dear Mrs. Gupta, thank you for your comment. The answers to your questions may be too lengthy for this space; please do not hesitate to give me a call if you wish to discuss in more detail. Quite briefly, having a brand is better than not having one; the ability to provide a quality product is one thing, the ability to capture demand by effectively communicating that quality is an altogether different thing. Also, a brand is quite unavoidable if we consider its nature– it would be easier to attempt not casting a shadow in the sun then to attempt not projecting an image for your hotel(s); the real decision, then, is the degree to which you will dedicate resources to control the image you project (i.e. your brand). In more cases than not, failure to manage this image attracts failure in other respects, which is less desirable. Could an unbranded chain of hotels provide high quality? Recruit the right leadership, commit the needed resources, and why not? However, the cost of this quality would be considerably higher because you would not enjoy the benefits of an established brand (operating experience, distribution channels, centralized support, economies of scale, prestige). At the same time, the rate you could command would be lower than what is generally achieved by an established brand. The bottom line, then, could be negatively impacted from two directions. That being said, financial considerations should rarely be the only decision-making factors.
I find your catwalk and sanctuary concept interesting, However I am from South Africa and planning to innovate a new business model for hotels, in partcular a move towards high quality low cost model that will provide unprecedented value to the customer at a low cost. Do you think these concepts are applicable to independent non branded limited service hotel concepts? I would welcome your advice
Thank you for your question Mr. Nomnga. While the two models are mere illustrations of alternative ways of thinking about hotel business and not solutions to a specific set of circumstances, here is how the ideas in the article may be relevant to your plans. The Catwalk concept, in its general application, will not be immediately relevant because it relies on the assumption that an established brand has created the pre-conditions for guests to self-select themselves and become an audience that is worth accessing. A great part of that worth is derived from the ability to articulate the essential traits of this captive audience. A new brand needs to find its own identity before even beginning to create/attract such an audience. It will take time. Since you mention the intention to pursue non-branded hotels, the argument is moot. The Sanctuary concept is a more specific application of the Catwalk, in that it bypasses traits related to life-style and consumer preferences and addresses the immediate needs of a specific audience: relocators. As such, the Sanctuary concept could theoretically be executed with a low cost limited service approach in mind. However, it would not be, strictly speaking, a hotel, but a hybrid product that bundles services that have not yet been brought together under the same roof. It is untested and unprecedented and it relies primarily on the ability of public and private entities to recognize their compatible interests and to create significant added value by joining forces. Finally, the success of any concept you may choose to create will be a function of your ability to asses and adapt to the needs of the specific locations that you intend to serve – time-specific geopolitical, economic and social forces need to be understood and respected. You have a lot of homework to do. Best of luck! CC

Submit Question or Comment

(We do not display your email next to your comment; it remains anonymous)

Type the above text:

All questions and comments are moderated by HVS authors and staff. The posting of advertisements, profanity or personal attacks is prohibited.