The classic model of competitive advantage is Michael Porter’s “Five Forces.” 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.”
Because of the pandemic and the lack of new supply over the past few years, the hotel industry has been somewhat immune to new competitors. Airbnb, Vrbo and other short-term rentals are competitors for tourist dollars as well as soft brands, the ones that brands added so that they could both boost revenue streams and compete with these short-term rentals.
As we see it, short-term rentals and soft brands are a new reality that hoteliers are still grasping to embrace. Is Airbnb a complement to hotels or is it a threat to the traditional hotel model? Are soft brands a great way for hoteliers to have some design flexibility and still have the horsepower of a brand? Or is it just another competitor adding to supply?
Given the penchant of millennials and Gen Z travelers to chart their own paths and their increasing share of the traveling public, expect to see Airbnb and other “short-term rental” players continue to dominate the conversation and hoteliers continuing to focus on gaining a competitive advantage. Additionally, the brands are updating their legacy brands to make them more competitive — yes, at the expense of the owners, but the products look good!
Technology as a Competitive Advantage
Competitive advantage consists of two components. The first is the distance between our hotel offerings and our nearest competitors — or the competitive advantage gap. The second is competitive advantage period (CAP). 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).
What immediate and practical steps can we utilize to optimize our competitive advantage? We can reevaluate our distribution processes, promotions and channels as well as adding robotics and guest-serving communications technology. The large amount of demographic and psychographic information available about the makeup of today’s traveler requires analytical skills and creativity to correctly respond to the marketplace.
When direct bookings result in repeat business, costs are reduced rather dramatically and owners are happy.
Many hotels do not have qualified staff to develop these direct bookings — so which is better? Paying an online travel agency or developing a team? For a quick fix, opt for the OTAs. For the long haul, we must work on our teams to increase our profits and use OTAs to complement our direct bookings to obtain a healthy mix of business.
Pay-Per-Click Strategy
We can refresh our pay-per-click strategy by doing more than just bidding on keywords that persuade people to click our ads. We can tailor keyword combinations to clearly outline the benefits of booking direct, and include direct links to the specific rates displayed.
Cleaning up our phrasing and clarifying benefits by experimenting with different verbiage is critical. Ensuring that changes are made as needed will help amplify our profile for guests looking to book. Other social strategies can be employed by our digital team to enhance results.
Finance
Today, credit is tightening at a time when there is a significant amount of hotel loan maturities on the short-term horizon. Almost $400 billion of bank commercial real estate loans are maturing in 2023. Meanwhile, limited access to capital and higher interest rates have already begun to negatively affect property valuations. This will stress the takeout on these upcoming maturities. Those who are prepared to refinance in advance of these maturity dates will have a major competitive advantage as they will not need to increase their rates materially in the event of a recession.
Summary
Competitive advantages that are guest-facing must be made known to potential guests. If we think this way with all facets of travelers — group, corporate, leisure and international — we can optimize performance. If we also have our finances in order, we will be in a position to own our future without stress.
Robert A. Rauch is founder of R.A. Rauch & Associates, a hospitality management and consulting firm based in San Diego.
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