In this fourth chapter, Starwood’s ex-Director of Revenue Strategy provides a framework to understand competitive forces for hotel suites.
In the previous three chapters of this series, I’ve detailed why we should sell more suites, how to measure our efficiency in selling them, and how to spot suite demand. The next logical chapter in this series then is about competition – it’s important to understand how we stack up against our competitors. But, who are our competitors for suites anyway? I’ll share my views on how to figure out your real competition for suites, because once we know that, we can tailor our strategies to win.
Competition is healthy, and it’s not just a cliché. The collective effects of offering a product range are far more beneficial to everyone than we’d like to admit. For example, certain districts in cities are known for a particular specialization of shops – like Yashow market for clothing in Beijing or Garment district in New York. Sure, there is a lot of competition in one place, but the amount of consumers that will pass by your store are a lot more than what you’d find by setting up shop in an area without this congregation of suppliers. This is particularly true in heavily competitive industries selling a commodity (let’s face it, a hotel room has become more of a commodity than a unique product). I’ve long argued that the past decade and a half has been a red ocean for travel where market forces have limited growth overall for the industry and performers do well when they steal market share from one another.
There are also other significant factors which have altered how we must look at our competition. First, companies like Airbnb (addressing the elephant in the room upfront) have created their own space in alternative lodging. Second, branding is not what it used to be – a handful of glamorous brands commanding the luxury space. Boutique brands are fast establishing themselves as agile competitors to legacy brands and that is catching the consumer’s eye. Third, the demographic of the consumer has changed. For the first time in history, we’re seeing three generations in the workforce and hence three generations of consumers.
Competitors are not those who sell similar products, but those who your consumers buy from as an alternative to yours.
Each generation considers different alternatives to your offering and now you have to battle on many different fronts. Finally, transparency in competitive offerings driven by technology and globalization is creating new challenges in making your product stand out from the rest. Bottom line is, competition is good, but it's ridiculously intense in our industry and I doubt there’s any one of you out there who still firmly believes that your hotel’s STR competitive set is your true and only competition out there.
So how do we make sense of it all?
As I have done in the past chapters, I’ll try to create a framework for understanding your competition as it relates to your suites. Before I do, a caution. In the following paragraphs it may seem that I am in favour of reducing the benefits of standard rooms to make suites stand out. The airlines are doing this, and it seems to be working, so why shouldn’t hotels do the same? There is plenty the hotel industry can learn from airlines, which I’ll cover in a future chapter, but this is not one of them.
With that said, I’ll broadly divide the attributes that hotel suites compete for business in four categories – Market segment, Product, Service and Brand
Market Segment: As obvious as this sounds, some market segments book more suites than others. In big cities like Shanghai or Sydney, it could be business travelers or leisure. In resort locations it’s probably all leisure customers, but I’m talking about going a bit deeper in your market segmentation to realize exactly who is buying your suites. We need to figure out who – convention attendees, family travel, business executives, baby boomers, millennials, men, women etc. – is likely to buy more suites. Then look at who we compete with the most in that particular segment.
For example, our research shows that leisure travelers in groups like families and convention attendees are the two largest segments that have made the shift from hotels to Airbnb. Families, because it’s easier and cheaper to rent an apartment – with a kitchen and less pricey than getting two rooms. Convention attendees, because the typical Airbnb host doesn’t know enough of revenue management to raise prices during conventions – but hotels do. Demand flows in to cheaper accommodation options. This is evidenced by the fact that convention attendees turn out in full force yet hotels struggle to fill their room blocks. If any of these is our target market for suites, then we know who we’re up against. Maybe it’s time to start checking prices of the best Airbnb apartments in the neighborhood when pricing suites. But of course the product is different, you’ll argue, and so will be the price. No doubt, but there are high end rental sites like onefinestay that cost just as much as a 4 or 5 star suite.
Product: Here competition is more traditional. Hotel suites are not apartments and those who want to stay in hotel suites for the product will rarely choose an apartment. No matter how high end the apartment is, it does not have maintenance at its beck and call; it doesn’t get refurbished every 4-5 years or completely renovated every so often. They simply do not have the means to replace a carpet patch every time there’s a stain. So, in that respect, hotels compete with other hotels at the product level. But which ones? Besides your STR compset hotels, suites in smaller boutique hotels could be really nice and compete only with suites not with rooms. One could also argue that your own rooms compete on product. Do you offer anything in your suites that is materially different from your rooms? If you do, that can be a huge selling point over rooms.
Service: Having someone to make up a guest’s bed means that sites like Airbnb are out of the competition here. But service is also increasingly a commodity with similarly tiered hotel brands offering the same ‘level’ of service. So looking closely at who offers the same service for suite customers will help hotels determine the competition here. This is also where hotel suites fiercely compete with their own rooms for customers. If all of the services a hotel offers are available for every customer no matter the room type they book, then what is the incentive to book a higher product? Here hotels could do well by offering suite-specific services – not just in the suite but also outside the suite, like confirmed restaurant reservations or reserved space in the lounge, separate line at check-in, priority for in-room dining orders etc.
Brand: Let’s not underestimate the power of brand loyalty. Starwood’s SPG program has a fierce following and no one will sway these stalwarts from staying in a Starwood hotel. Similarly, boutique brands are making a name for themselves. A hotel could compete with remarkably different brands that they do not compete with for rooms. It’s important to consider brands that may not usually fit your competitive landscape, but when it comes to suites, their offering and branding goes head to head for the same business that you do.
The four attributes above are only the more important in understanding your true competition, there are hundreds of other market specific factors at play that hotels will need to consider for themselves. But it’s clear that just like we compete with some hotels for groups and perhaps others for business transient, we compete with a whole range of alternatives for suites. Addressing each one is difficult and requires some thoughtful calculation. But, knowing who your competition is will shine a light on your exact opponent rather than just swinging in the dark.