Hotel 2020 the personalization paradox

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Buoyed by signs of global economic recovery and optimistic growth forecasts in developing economies, hotel chains will continue their rapid expansion in the coming decade. At the same time, intense competition in key guest segments, ever-increasing guest expectations and more diverse traveler needs will apply pressure to keep room rates down. To maintain profit margins, hoteliers will need to renew emphasis on cost reduction and break through the consumer perception of commoditization. Paradoxically, it is standardization that will pave the way not only to control costs, but also to provide the differentiated customer experience guests crave.

Transcript of Hotel 2020 the personalization paradox

  • 1.IBM Global Business Services Travel and TransportationExecutive ReportIBM Institute for Business ValueHotel 2020:The personalization paradoxDriving intimacy, consistency and efficiency for profitable growth

2. IBM Institute for Business ValueIBM Global Business Services, through the IBM Institute for Business Value, developsfact-based strategic insights for senior executives around critical public and privatesector issues. This executive report is based on an in-depth study by the Institutesresearch team. It is part of an ongoing commitment by IBM Global Business Servicesto provide analysis and viewpoints that help companies realize business value.You may contact the author or send an e-mail to iibv@us.ibm.com for more information.Additional studies from the IBM Institute for Business Value can be found atibm.com/iibv 3. IntroductionBy Steve PetersonBuoyed by signs of global economic recovery and optimisticgrowth forecasts in developing economies, hotel chains will continue their rapidexpansion in the coming decade. At the same time, intense competition in key guestsegments, ever-increasing guest expectations and more diverse traveler needs will applypressure to keep room rates down. To maintain profit margins, hoteliers will need torenew emphasis on cost reduction and break through the consumer perception ofcommoditization. Paradoxically, it is standardization that will pave the way not only tocontrol costs, but also to provide the differentiated customer experience guests crave.Hotel executives have frequently been chastened to know Over the past several decades, the hotel industry has becometheir guests what they want and when they want it. Only increasingly commoditized, with consumers seeing littlerecently, however, have advances in customer interaction difference between the offerings of one major hotel chaintechnologies enabled the industry to deliver on this maxim. In versus another. To break through this perceived sameness,todays highly competitive environment, knowledge of guest hotel providers must implement solutions that provide uniquepreferences is becoming more important than ever. Even as theinsight into guest preferences and apply this knowledge toindustry renews its plans for expansion in the wake of globaldeliver increasingly differentiated and delightful services.economic recovery, intense competition and increasinglyProviders should empower guests to personalize their own staydemanding consumer expectations will force hotels to maintainand communicate their preferences with the hotel in thecompetitive room rates, often at the cost of margin. manner with which they are most comfortable -- which often varies from trip to trip or even from day to day.Along with other dynamics within the industry, these pricingpressures will require hoteliers worldwide to look for alterna-tive sources of revenue and maintain due diligence in costcontrol. Gaining a better understanding of customer needs andOur job is to identify personalizedpreferences or guest intimacy can enable the delivery ofcharacteristics (e.g., temperature of the room,personalized services that will help increase customer satisfac-tion, lower service costs and improve guest loyalty. Ultimately,dietary preferences, TV programming ofpersonalization can result in the development of specializedchoice, language choice), capture thatservices delivered according to current preferences for information and provide it to the guestwhich guests will be willing to pay a premium.regardless of which hotel they visit. Nick Price, Chief Information Officer, Mandarin Oriental Group 4. 2 Hotel 2020: The personalization paradoxWhile personalization can provide opportunities to increaserevenue, standardization of operations in hotel chains canStudy methodologyreduce costs. Although less transformational than personaliza-To understand the issues and the consumer dynamics thattion, standardization the management of guest operationswill shape the hotel industry over the next ten years, thewith principles, processes and systems consistent from hotel to IBM Institute for Business Value surveyed a mix of 2,400hotel within each property, brand and chain is an equally business and leisure travelers from both developed andimportant imperative for global hotel chains. If rapid growth isemerging economies Once initial conclusions were derived,not coupled with stringent controls on the processes, proce-supplemental external research was conducted and in-dures and systems that support that expansion, hotel chains run depth interviews with subject-matter experts werethe risk of creating a level of complexity that their current costs completed to review and validate the main hypothesis andconclusions in the Hotel 2020 study.structures cannot support.Hotel chains that embrace standardization will move forwardinto the next decade with a plan to implement commonplatforms, tools and standard work programs. They will workPersonalization: Paying the premiums forto eliminate duplicate systems and will use systems and revenue growthsolutions that leverage common data sources to capture more A number of market forces commoditization, fragmentation,consistent guest information across enterprise touch points.competition and guest expectations are among the catalyststhat will drive increased guest personalization over the nextProperly implemented, the combination of personalization anddecade (see Figure 1). These forces will require hotels to lookstandardization can provide transformational results over the at the services they provide through a transformational lens, orlong term and, ultimately, serve to delight guests and share- risk being rendered irrelevant.holders alike in the decade ahead. CommoditizationCompetition Guests know what they want and are not willing to pay for generic services; many guests see hotels asCompeting hotels will continue to expand their presence commodities. in high-growth emerging markets.Fragmentation ExpectationsA larger and more diverse group of hotel guests willHotel guests will increasingly find that their experiencesresult in more fragmented preferences.do not compare favorably to other, more technology Personalizationenabled sectors.Source: IBM Institute for Business Value analysis.Figure 1: Four industry forces will require more personalization of guest services. 5. IBM Global Business Services3Commoditization nents of their travel journey. More than 10 percent ofHotels have been fighting the specter of commoditization forconsumers dedicate eight or more hours to this seeminglydecades, but research suggests the situation is getting worse.simple task.2 These figures indicate that travelers are willing toSixty-eight percent of travelers we surveyed said they saw little devote an inordinate time to research to avoid paying even ato no noticeable difference between hotel chains. And onlyslightly higher price for what they perceive as undifferentiatedslightly over half of consumers said they were willing to pay a offerings.10 percent premium to stay in their favorite hotel. Evenairlines, where commoditization has been a long-standingFragmentationissue, rank above hotels: 57 percent of consumers see signifi-Fortunately, other forces at work in the travel industry willcant differences among airlines, compared to only 37 percentactually make it easier to address commoditization. As bothwho say the offerings of hotels are significantly differentiated.1population and discretionary income increase, particularly inemerging markets, more people from a wider range of social,These figures should trigger alarms in the halls of globalgeographic and economic origins will be travelling (see Figurehoteliers. This suggests that, like other commodities, price2). As the travel population expands and becomes moresupplants experience and other factors as the primary driver of heterogeneous, the preferences of travelers will come to mirrorhotel selection. Commoditization provides an explanation forthose of the population at large. As a result, the traditionalwhy so many guests spend so much time searching the Internetone-size-fits-all business model common among many hotelfor the best possible price. Fifty-five percent of leisure travelersbrands will make it increasingly difficult to meet customerspend more than two hours searching for the various compo-expectations. Travel growth forecast for emerging economies 160060% International arrivals (millions) Emerging economies share of 1400 50% 1200 international arrivals 40% 1000 800 30% 600 20% 400 10% 200 0 0%19901995 20002005200620072008200920102020ETotal international tourist arrivalsEmerging economies share of international arrivalsSource: IBM Institute for Business Value .United Nations World Travel Barometer, June 2010, World Travel & Tourism Council Data Extract, 2011.Figure 2: Global travel growth continues to fuel the expansion of hotel chains beyond the markets that defined competition inprevious decades. 6. 4 Hotel 2020: The personalization paradoxThis fragmentation of guest preferences increasingly diverse The logic of ever-increasing service expectations also applies toneeds from more numerous but smaller traveler segments personalization services. Today, a few of the most sophisticated can provide a foundation for hotels to differentiate their online shopping web sites construct highly customizedofferings. Hoteliers should seek to harvest, understand andrecommendations from customer data. Merchandise retailersserve these diverse needs. Unusual preferences must be and online movie rental companies, for example, compilesatisfied with correspondingly special products and services.personalized suggestions for shoppers based on past purchasingHotels that manage to identify and tap these preferences and habits. If shoppers on these sites find the recommendationsdevelop specialized offerings for smaller target segments areuseful and accurate, they may well spend less time search