The classic model of competitive advantage is Michael Porter's five forces shown below. This is still a useful model for the hotel industry. The most interesting part of this in 2015 is the “substitute” portion of the grid.
This is what Airbnb is all about and it will have had a huge impact on our industry by the time most people wake up to it. According to Porter, “the existence of products outside of the realm of the common product boundaries increases the propensity of customers to switch to alternatives.”
As we see it, this sharing economy is a new reality hoteliers are still grasping to embrace. The challenge here is that users like these services; government legislation is not generally keeping up with these rapid developments; and hoteliers are unsure of how to react.
Is Airbnb a complement to hotels or is it a threat to the traditional hotel model? Given the penchant of millennials to chart their own path and their increasing share of the traveling public, expect to see Airbnb, Uber and other sharing-economy players continue to dominate the conversation and hoteliers continuing to focus on gaining a competitive advantage. At the end of the day, the key is to watch this trend and all others so that your team can strategize on income opportunities and value optimization.
Technology as a competitive advantage
According to Geoffrey Moore in his book “Living on the Fault Line: Managing for Shareholder Value in the Age of the Internet,” stock price is a measure of future potential based on present competitive advantage.
Competitive advantage consists of two components. The first is the distance between your hotel offerings and your nearest competitors or the competitive advantage gap (GAP for short). The second is CAP, or competitive advantage period. In other words, if a hotel company has superior products and significant barriers to entry it has both a competitive gap (product differentiation) and a competitive cap (time lag for competitor entry).
Moore asserts that “catching the technology wave” will be most paramount to success going forward. If that is the case, keep your eyes on the stocks that have technological advantages.
Moore believes that capturing market share is the next most important followed by market segment leadership, then company execution and differentiated offerings. Moore offers a nine-point checklist for creating these offerings, and while he discussed this during the last economic cycle, it is just as fresh today as it was then:
- identify and characterize the target customer;
- establish a compelling reason to buy;
- define the whole product;
- recruit the needed partners and allies;
- field the appropriate distribution channel;
- establish an appropriate pricing strategy;
- identify the competition;
- establish a differentiated position; and
- look ahead to the next target customer.
What immediate and practical steps can we employ?
Differentiate from the competition and get some hotel marketing technology background quickly. Differentiating from the competition could include reevaluating your distribution processes and channels. The large amount of demographic and psychographic information available about the make-up of today’s traveler requires analytical skills and creativity to correctly respond to the marketplace.
As an example, offer packages such as: hotel and dinner, movie passes, attraction passes, tours of the city, romance and spa packages and wine dinners, and bundle these through various channels.
Implement real-time marketing strategies that take place on a regular basis and incorporate guest-generated content, especially via social media. This must be a crucial component of the marketing mix.
In addition, Facebook pages need to take advantage of custom apps that can highlight a hotel’s unique features, characteristics and charm. Use review sites to present travelers with a visually appealing summary as opposed to the layers of typo/grammar/spelling errors/verbosity that many reviews have.
Ensure that your website is truly up-to-date by checking your bounce rate, quality of content, load speed and broken links as well as making certain it is mobile-optimized. Understanding the impact millennials have is essential to gaining a competitive advantage.
Sending digital marketing pieces to a concentrated market segment makes economic sense and it works. Is your website cross-promoted with other businesses via links? Do you have an online newsletter? Have you entered the social media marketing fray full-throttle, and are you monitoring the results and comments?
Now is the time to position your company and give yourself a competitive advantage. Soon it will be time to draft your 2016 business plans and budgets. Will you be ready?
As President & Founder of hotel management and consulting firm R.A. Rauch & Associates, Robert A. Rauch, CHA, is an internationally acclaimed hotelier with over 35 years of industry experience. Widely recognized as the “Hotel Guru," Rauch expounds upon insights and trends in the hospitality industry in his blog and “Hospitality Innsights” e-newsletter. He has been directly involved in developing several leading brand hotels, some of which the firm still owns and manages, and is a Faculty Associate at Arizona State University, where he teaches Entrepreneurial Recreation and Tourism. Contact him at rauch@hotelguru.com.
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