How to Keep a Brand Alive and Kicking
Stephan Vanden Auweele
By Stephan Vanden Auweele,
05 February 2024
Have you ever asked yourself which brand of hotel you are staying at? You are definitely not the first and many more “sleepers” will ask themselves this question. Your room surely has a great bed, a walk-in shower in a comfortable bathroom and a 55-inch television that provides – if you’re lucky – the ability to play your own content. In short, luxury hotels are competing to offer almost homogenous products. This is the biggest danger the hospitality sector has been facing for quite some time.
It’s especially true for business travelers, whose choice of where to stay is often decided by corporate agreements. Luxury hotels compete for them by offering F&B concepts, extensive meetings and spa facilities and, since Covid-19, co-working spaces.
For resorts, the approach is quite different as guests have more “experiential” time in the hotel. More importantly, they pay out of own pocket, which drives hotels to differentiate their offerings a lot more.
The big global chains lure travelers to accumulate loyalty points when on a business trip and redeem those points when on personal trips. About 4% to 5% of hotel revenues are impacted by loyalty points, while another 4% to 5% go to the privileges promised to the loyal guests. Thus the hotel owner typically incurs 8% to 10% of the cost of running the loyalty and reservation program that is owned by the hotel operator.
A benefit to the owner is that the program keeps customers away from third-party players such as OTAs and tour operators that charge higher commissions, which they use to attract customers. However, these partners tend not to produce any longterm customer loyalty to hotels. Some use commissions to openly market against your property by offering extra discounts.
From an owner’s lens, having a hotel operator that brings in customers through its network is beneficial. But this begs the question: “Why are customers staying in my hotel?’ Is it because of the operator’s loyalty program? Or location close to business districts, conference centers, shopping malls, etc? Is it due to the hotel design?
Operators often require owners to invest heavily in design and facilities, with total construction costs per room varying from $80,000 to more than $1million depending on the brand. Some brands would insist on having a 45sqm room, while others would settle for 35sqm but focus more on interior design or attractive social areas. For resorts, these areas are now a priority. Increasingly, upper luxury resorts are also prioritizing unlimited room luxury and facilities.
Owners are naturally concerned about return per sqm, which could lead to a difficult compromise. “Brand standards” is often the reply when owners challenge operators why certain requirements are needed. Yet in truth, operators themselves often struggle to agree on standards due to regional and cultural differences, which vary enormously across states and borders.
What both operators and owners can agree on is that customer expectations and wishes are constantly evolving. While customers were historically considered homogenous, operators and owners are now fully aware that their customers are complex and diverse, each with a different set of needs. The days one could cater for all ages, nationalities and lifestyles are gone.
So how should they approach this issue?
Research on the consumer demand for the hotel should not be done just on the current base and expectations but the future. Hotels must adapt quickly to changing customer preferences, technology and trends.
But hotels are often designed and built before an operator is appointed, and only then the target audience is considered. Let’s take the current buzzword ‘lifestyle segment.‘ The term should be defined before a business model is built around it, not after. What does it mean and does it mean the same for every operator?
Owners must be careful when choosing an operator/brand because it is for five to 10 years. Their hotel should have a clearly identifiable target audience that has the volume, purchasing power and purpose of travel.
Between the typical five-year period from the initial idea of building the hotel to its grand opening, plenty can happen to demand in due to changes in fashion, taste and technology. Keeping the investment flexible to these changes is crucial.
For example, a well-known global brand aimed at younger guests managed to change the design of its interior by shifting the entire color scheme across the globe in just a few months. That’s clever design management that aims to differentiate by keeping up with appearances with its target audience.
Designing a hotel to inspire people is how hotels can keep their customers engaged. Once this is neglected, the hotel quickly becomes a homogenous commodity.
About the Expert
Stephan Vanden Auweele was the former chief hospitality group officer of Asset World Corp. He currently sits on the board of several companies