Part 1 of 3, by Wallace E. Johnson
The year is 2030 and the last hotel brand i.e. last hotel chain headquarters representing Choice and Hilton Hotels have finally closed their doors. They lasted longer than most and to the bitter end because of their intensified fight against OTAs and the support and backing they gave to non-OTA intermediaries (tour operators, wholesalers, etc. …. thriving btw as they have consolidated and found their niche markets) which were the OTAs natural enemies.
Marriott lasted longer than most based more on family tradition than practicality while Hyatt, Wyndham and IHG (even with the iconic brand Holiday Inn) which itself had been a big early supporter of OTAs were some of the first to go.
It seems that these companies lost their focus on what really matters. Instead of heads in beds, they focused on developing hotels; instead of making franchisees rich, they focused on making corporate executives rich; instead of investing back into the business, they paid major dividends back to shareholders; instead of innovative market programs to consumers, they focused on corporate responsibility and green initiatives; instead of franchisee satisfaction, they focused on corporate employee satisfaction; and, instead of nurturing and maximizing distribution channels, they leaned heavily on OTAs which was the path of least resistance.
So what has filled the void in 2030? Well, the leading hotel companies are now as you would expect. Expedia Hotels and Resorts, Priceline Worldwide, Google Hotel Search and Book, Facebook Hospitality and, of course, Airbnb, a slightly different animal that took the industry by storm in the past decade. Hotels don’t have brands anymore; they have stars.
Twelve stars if you are the best of the best on 1) quality and service scores plus 2) the relative expensiveness of the market. What used to be a Four Seasons Hotel in Manhattan would get this designation. An aging budget hotel on an interstate highway in rural Oklahoma would likely get one star. A hotel’s rates are based on these two designations and dynamically rate positioned up or down based on demand relative to the rest of the star scale.
So how did this happen? Well, the brands early on really took the easy way out. Instead of strategic and workable promotions and sales initiatives aimed at various niches and segments, it was easier to turn it all over to the OTAs and say “go get um” via direct connections. The problem was once the camel got its head under the tent, there was no going back.
The OTAs kept asking for more and more, pushing rate parity to eliminate competition, buying up the competition and utilizing their ever growing independent hotel base to render the hotel brands powerless.
Billions of dollars going to the OTAs and no one saw this happening? Of course these hotel companies made a PR effort to fix things. Room Key was too little too late. Plus, it channeled these price sensitive travelers to the low cost brands owned by the midscale and budget chain companies. (Starwood was smart at the time to keep its distance). Discounts on brand.com to loyalty members did little other than reduce revenues to hotels with their best customers where demand was almost entirely inelastic. Meanwhile the frog (hotel brands) continued to swim in the simmering pot.
With OTA profits vastly exceeding the hotel brand profits and with OTA’s spending hundreds of millions of dollars in advertising (which dwarfed the hotel brands spend), the hotel brands found it harder and harder to fight the battle. So, as more and more inventory and discounts went the OTA way, finally hotel owners, the only ones with significant investment in land, steel and concrete, could no longer afford the ever growing chain fees (which included direct connect fees to the OTAs) as well as the OTA discounts themselves.
Something had to change and after examining and evaluating the value proposition of the brands vs the OTAs, it was clear who the winners and losers were going to be. With 80% of consumers not caring what hotel brand they stay at (up from 55% in 2012) and with the OTA’s implementing their own frequent traveler programs, the answer was an easy one.
Net, hotel brands had their day in the sun along with house calls from doctors, newspapers/books, land lines, movie rental stores, etc. which have all followed in the obsolescence footsteps of the infamous buggy whip. Did it need to happen? Not sure. Could it have been avoided? Not sure. Could it have been slowed early on with different strategies, tactics and priorities? Absolutely!
Today in 2017, the camel has it head and shoulders under the tent so the only question is how strong and with how much tenacity are the hotel brands/companies willing to pull on the tail to make sure the 2030 scenario doesn’t happen. Is it too late? Only time will tell.
Watch the Inbound Report for Parts 2 and 3.