According to forecasts for 2019, hotels in France are expected to generate €8.29 billion in sales through various online distribution channels. Direct and indirect sales have increased by 57% over the last ten years. Over the course of the next four years, these sales should even approach €10 billion (€9.84 billion). Online distribution channels have become an essential instrument for hotels wishing to maximize their sales. Part Two: Digital Innovation, The Challenge Of Tomorrow For Hotel Distribution.
Develop the digital tools to enhance the customer experience
However, the solution is far from being that simple. To be able to reach your customers, to increase “touchpoints”, you must be able to communicate with them, which implies being technologically up to date.
The human touch can be understood as an element that goes beyond the staff, who humanize the relationship with the client, as it can encompass personalization. The digital giants, namely GAFA (Google, Facebook, Amazon) collect a lot of information about their users through big data. They have a huge reach, for instance Google counts with two billion users (for a revenue of $136 billion) or more than 100 million Prime subscribers for Amazon (revenue of $177 billion). Even the Chinese equivalent of GAFA, namely the BATX (Baidu, Alibaba, Tencent and Xiaomi) which only entered the market in the 2010's, have an incomparable power. These companies are active in the travel industry through WeChat - an online payment application owned by Tencent (revenue of $45.5 billion) that already has one billion users. Fliggy - owned by Alibaba - which already has twice as many users as Amazon (although Alibaba has a total revenue of $54.7 billion, which is almost three times less than that of Amazon).
There are other successful platforms, "small" unicorns next to the "big" unicorns (the GAFA and BATX). These "small" unicorns include Booking.com (1.5 million nights booked each day, for an annual revenue of $14.5 billion), Airbnb (150 million users, for a revenue of $1.6 billion), Ctrip (300 million users, for a revenue of $4.5 billion), or Meituan Dianping (hotel booking, customer reviews, and delivery site with 400 million users and a revenue of $9.5 billion).
Their powerful algorithms can sort and cross-reference information to render big data relevant. At a time when "53% of French people book their entire trip on the Internet" (Vanessa Heydorff, Managing Director at Booking.com), hotel operators are not to compete with marketplace or OTAs, but rather to take advantage of them. Indeed, the arrival of new players such as Airbnb or Booking.com on the market has made it possible to intensify competition between distribution channels.
This situation has given the advantage to hoteliers, who now have more choice through a multitude of online distributors. Competition is therefore not against OTAs but rather alongside OTAs, because the real competition is vertical, between operators. Indeed, competition is based on product and experience.
However, to enhance experience, the relationship with the customer is to be personalized. Remy Merckx talks about “augmented” hospitality. On this point, it is the loyalty program that will make all the difference, because "loyalty is a key element" (Remy Merckx). But this should not lead to an accumulation of loyalty points as bookings are made. On the contrary, they must constantly improve the customer experience through the digital tools made available by the hotelier.
Therefore, Radisson Hotel Group completed a multi-million-euro digital project last June, which ended in a new and "completely revised" platform that had the clear objective of "integrating the hotelier into the management of the platform". The interest of this interface was -in addition to achieving technological parity with competitors- to allow "a real interaction between what we will do in terms of acquisition and the commitment of our hoteliers in the customer's journey" (Remy Merckx).
For Sébastien Bazin, CEO of Accor, it is necessary to go even further; "to widen the touchpoints". For him, “augmented” hospitality means meeting your customer, i.e. integrating all the moments of daily life, including “when you don't travel, when you need a concierge, to go out, to work, to go to a restaurant...” (Sébastien Bazin at the Global Lodging Forum 2019). According to him, hoteliers have 20 years to adopt the right attitude by making the “right decisions”. Beyond hotel reservations, they must create a holistic world, "create an Accor universe", where everything is connected, with the hotelier at the center: entertainment, music, catering... In other words, they must make the guest dependent on the hotelier, the latter becoming the point of entry to the various activities of former.
Partnerships with “pure players”
But sometimes the technological solution is not found on the inside. Another possibility can be to set up a partnership with a recognized player outside of the company, in the digital world. That's how Marriott chose Expedia as a new ally for its wholesale distribution.
Since October 15, you have to go through Expedia Partner Solutions, the B2B branch of the online travel agency, to have access to wholesale rates as well as to find out about the availability of Marriott Group rooms. This allows the hotelier to benefit from a wider visibility for his or her wholesale offer and to sell even more. A press release explains that “the optimized distribution model, provided by Expedia Partner Solutions (...) will eliminate the complexity and inefficiency of the current Marriott hotels' wholesale redistribution model”.
Brian King, Global Head of Digital, Distribution, Global Revenue and Sales Strategy at Marriott International, says that “with this solution (...) we can increase our reach with leisure travel suppliers while solving distribution problems and improving the profitability of our hotels around the world”.
Christian Gerron, Senior Vice President, Enterprise Solutions, Expedia Partner Solutions at Expedia Group:
We believe in the power of the Expedia Group's platform for our partners to benefit from our significant investments in technology, support services and industry expertise. This agreement with Marriott International is an excellent example of how this philosophy can be put into practice.
But Marriott does not stop there. The group also entered into an agreement with Travelclick, a subsidiary acquired by Amadeus in 2018, to increase its revenue. Drew Pinto, Senior Vice President, Distribution and Revenue Strategy at Marriott, said of the alliance, “At Marriott, we are committed to providing our facilities with the tools and information they need to increase their revenue and profitability, and TravelClick helps us do so”.
Greg Sheppard, Executive Vice President of Business Intelligence at TravelClick, confirmed this statement by explaining the objective of helping hoteliers optimize their revenue from an observation of the “competitive environment”, to “help Marriott properties identify and target the best opportunities for their properties to win new business and increase profitability”.
OYO, a disruptive business model in the hotel industry
Ritesh Agarwal has understood the importance of technology in hotel distribution. In fact, it has even made it the basis of its business model, which is a real success in Asia and is beginning to be so in Western markets.
In 2013, Ritesh Agarwal founded OYO, an online hotel marketplace. The model is simple: OYO integrates under its umbrella hotels that are in accordance to the preferences of today (services, characteristics, personnel, prices, security, ...) and then sells their rooms under his own brand, in exchange for a part of the revenue. The interest was initially to structure and make the offer in India more reliable. But it is also and above all a solution for all those hotels that simply do not have a network, knowledge or budget for intelligent marketing.
OYO's great innovation is its application: downloaded more than 10 million times, it connects customers and hotels directly, a solution that brings to mind the features that are provided by key players of the collaborative economy such as Airbnb. A technical solution that offers a communication support. OYO also provides a PMS that manages revenue, prices, F&B functions, front desk and restocking. It also allows greater access to information on hotel room availability, which is the real challenge for the distributors.
The success of OYO's application and platform came very fast. In 2017, OYO launched OYO Home, an offer directly in competition with Airbnb - since it is a short-term rental service - the first establishment of which was inaugurated in Dubai in April 2018. A little later, the startup initiated other more targeted housing rental brands, namely OYO Living, a concept dedicated to millennials, as well as OYO SILVERKEY, for apartment rentals. It also targeted mid-range hotels with OYO Town House (74 properties at the end of 2018, according to OYO) and high-end hotels with the Palette brand. Finally, it has a cryptocurrency, OYO Smart Coin, to ensure the loyalty and fluidity of transactions on its platform. It creates a closed circuit bringing together all the brands in the OYO world.
At the end of May 2019, the startup entered into a partnership with Ctrip. The Indian company thus succeeded in reversing a deteriorating trend with regards to its relations with Chinese OTAs, as many of them had blocked OYO rooms off their platforms and also a giant merchant hosting company is soon teaming up with a web giant -Tencent; which is owned by one of the BATX (Chinese GAFA). According to OYO, synergies will consist in “supporting hotel owners in the areas of brand image, talent, technology, traffic and operations”.
Growth would not have been possible without the rapid recognition from angel investors that raised significant funds: SoftBank Group (which has also invested in Uber or Wework), Lightspeed India, Sequoia, Greenoaks Capital, Hero Enterprise, China Lodging Group, or more recently Airbnb, which can thus enter Asian markets. A total of €1.7 billion has already been raised since 2013. In addition to hotel modernization and employee training, these investments are also dedicated to technological development, the company's founding pillar and successful formula.
Today, the startup's international ambition is to surpass Marriott by 2023. It has 458,000 rooms in 8 countries as of January 1, 2019 (Hospitality ON data), an amount multiplied by 8.7 compared to 2018, placing it in the 8th place of the world ranking.
Actually, today's competition will not be tomorrow's. Indeed, the tourism market is already beginning to see the impact of the digital giants, namely the GAFAs (except for Facebook and Apple) and BATXs. With an unparalleled strike force, these companies, both "unicorns" and "pure players", already far exceed the market capitalization of the world's leading hotel company.
In an effort to further drive growth, these companies have already engaged in market cannibalism. Amazon has created a loyalty partnership with Booking.com (Amazon Reward customers represent 82% of American households, or 105 million subscribers), and Google has partnered with the German airline Lufthansa through a reservation service via voice recognition developed by the American company, in addition to offering a dematerialized and contactless payment method through Google Pay. The challenge for hoteliers will therefore be to create alliances, especially with OTAs, which are themselves threatened by Google.
Consequently, these are intended to create synergies with the traditional hotel industry by capitalizing on each other's resources - data for some and a fine knowledge of the sector for others. In other words, "Transformation Is Coming", hoteliers must prepare themselves and join forces with their former competitors in order to remain in the hotel distribution market of tomorrow
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