I stayed one day too long in a place and ended up analyzing
the accommodation business. It seems to be an interesting case because it is
another case where things are not as they seem to be.
Clear Market Segmentation
- Accommodation industry is one of the few market that has a clear natural segmentation with little overlaps between them, as the following:
- Business: These are the people who say the B-word when an immigration officer asks “business or pleasure?” They stay in four or five stars hotels, because ..their companies pay for them.
- Casual vacationers: The normal tourists that fill about a third of the accommodation industry. They stay in in one to three stars hotels or their equivalent. They have their holiday planned out, and all their accommodations booked in advance.
- Travelers: People who go around for a while, so they stay in wherever they can stay: a hostel, a guesthouse, a homestay. Also probably making up about a third of the accommodation industry.
- Hardcore travelers: The toughest of all, they are excellent money saver that have their own arrangements outside the system: they surf couches and pitch tents in camps.
- Permanent travelers: These are people who bring their home on their back, like a snail, and they are not rushing in their trip too. These are retirees who are travelling the world, or digital nomads who are living on their way. They are usually renting an apartment or other long-term arrangements.
The business segment is not as it seems to be
Four and five stars hotels may have high prestige, but there
is little real differentiator between them. I have stayed on Hilton, Sheraton,
Marriott, Four Seasons, and I could not tell them apart. They all have decent
staff, everybody gives me the same plastic card, all of their rooms are too
cold, the meeting rooms feels all the same, and I have never have the time to
use their facilities. As premium and luxurious as they seem to be, they are actually
in commodity business.
For these prestigious hotels, the star rating is just a key
to open their business, but it is not a driver to get more customers. The two
drivers that brings the customers are their locations (it is a big plus if it
near to the customers’ office), and the quote that their sales team gives. It
is a B2B operation. It is the same as if you are selling heavy machinery, but
instead of throwing in discounts and free spare parts to make your quote more
attractive, in accommodation you throw in corporate rates and shuttle bus services.
The bulk of the market is not as it seems to be
The bulk of the industry comes from the casual vacationers
and the travelers, and this is a very different market, because they are taking
their own decisions and spending their own money. They are the customers and
consumers at the same time. That means, these people are going to be more price
sensitive and yet more demanding.
Digital Transformation did not spare
the accommodation industry. Any accommodation can get listed online, customers
can view their facilities through the photos without visiting them one by one,
and more importantly, they can sort, compare, and filter the prices with a
click of a button. This is a very good model for free market, where the better
ones succeed and the bad bites the dust. It may even seem that accommodation is
a commoditized business, but it is not.
The lifeline of an accommodation
business runs on two R-words: ‘Rating’ (the overall score) and ‘Review’ (the
testimonials of your guests). Websites like AirBnB, Booking.com, Trip Advisor, or
Google Maps allow you to compare price, rating, and review between accommodations,
and this way the market players play a different game altogether. You could
rent out your room at $20, and still struggling to get customers if you have a
rating of 3/10 with bleeding reviews, while your competitor charges three times
higher and has 80% occupancy rate thanks to its of 8/10 rating.
If you see the big picture, you get to make the choice
Even if you are running a Bed & Breakfast, and assuming
you have the most comfortable bed made by angels’ feathers, and the most
delicious breakfast fits for kings, it may not be enough to be successful.
Despite its name, when you look at the big picture there is more to it than a
mattress where people sleep and a plate of meal the morning. The big idea? It
is about experience.
When you are thinking in terms of customer experience, the
commodity mindset is gone with the wind. What makes your place special, what is
your unique selling proposition? Great food, petting zoo, learning local culture,
private island, eco-friendly, kinky getaway, manhunt package? It will be your
differentiator, and if you can deliver that experience consistently, the
segment is yours.
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