Hotels 2020:Beyond Segmentation Strategies for growth in an era of personalization and global change
Hotels 2020: Beyond Segmentation 3Contents 1. Foreword1. Foreword 3 Think like your guest Unique, connected, informed: these are just three watchwords that will define the2. Executive summary 4 hotel guest, both today and in the future. Understanding a customer is a strategic imperative for hotels in today’s world.3. Drivers of change 6 We are operating in an era of unprecedented change. Brands that don’t recognize4. Opportunities / implications 29 and respond to this run the risk of falling behind the competition permanently.5. The emergence of personalized service spectrums 32 Nonetheless, change requires bold decisions. Change requires bold actions. Change requires hoteliers to think in different ways. It is no good just to think about how6. Mapping a path to 2020 36 hoteliers deliver services better or how to market more effectively. Hoteliers have to fundamentally think about the services they offer and how they relate to the7. Contributors 38 future guest.8. Technology timeline 39 At Amadeus, we are determined to stay ahead of this change. And we are as determined to help our customers stay ahead of this change too.9. About Fast Future Research 46 However, thinking from a business perspective, it will require all of us to think10. About Amadeus 47 about our businesses, not just as hospitality professionals, but as if we are guests. This will require us to challenge conventional thinking about how we sell, market11. References 48 and interact with guests. The winning brands will be those that can best meet the needs of the guest of the future.12. Survey Analysis 52 At Amadeus, we are curious about the future. We want to understand and make sense of the future. We hope that this report provides an opportunity for us all to think about the future of the hotel guest. A future that won’t be defined by past behaviors, preferences or habits but a future defined by how guests themselves will want to shop for, buy and experience travel. However, the danger in such a fragmented world is to think of customers as segmented groups as we have in the past. Instead, this report recognizes that guests no longer fit into the clean segments of yesteryear. Each guest will have their own preferences, demands and characteristics. The challenge for hotels is to understand and act upon these. This is why we have called the report Beyond Segmentation. What we hope to achieve with this paper is to get us all thinking about how we can meet the needs of future guests. By developing a model of ‘service spectrums’ we are closer to thinking beyond the obvious and no longer expect to continue as we were. We hope you enjoy reading this report and we hope you also respond to some of the insights with your colleagues. Jérôme Destors Director, Hotel IT, Amadeus
4 Hotels 2020: Beyond Segmentation Hotels 2020: Beyond Segmentation 5 2. Executive summaryAmadeus has commissioned Fast Future Research to undertake a study on the drivers of change for the globally brandedhotel sector over the next decade and the resulting implications in terms of hotel strategy, brand portfolio, business models,customer targeting and innovation.As hoteliers emerge from the recent The study evaluated a number of Hotel 2020 - Key characteristics of 3. Deep understanding of an 6. Open, listening, collaborative and 9. Asset light, insight richeconomic downturn and start drivers and focused in particular on successful players in tomorrow’s world increasingly geographically, financially, experimental approach to innovation With a focus on becoming lean, flexibledeveloping strategies for the next those shaping the global context Some key insights arise from the generationally and attitudinally diverse Hotels will increasingly adopt best and responsive, hotel groups willdecade, it is critically important to and environment for hotels and their research about the characteristics, and rapidly evolving customer base practices from other parts of the continue to shed their fixed assets andscan ahead and understand the guests, the needs of tomorrow’s nature and capabilities of the successful There is a clear expectation of a business world and start to integrate develop innovative financing modelskey external drivers of change and traveler, business transformation global hotel brand of the future: growth in tourism from the emerging the customer and other business for hotel investors. Analysts willemerging opportunities that could within the hotel sector and emerging markets although it’s by no means partners into their innovation processes increasingly start to value groups onbe shaping the agenda for the hotel developments in technology and 1. An organization capable of surviving clear how profitable that business will by using techniques such as open the depth and quality of their marketsector. It is clear that the decade ahead connectivity. The assessment of and thriving in turbulence and be. At the same time the fallout from innovation and crowd-sourcing. insight and their understanding ofwill be characterized by megatrends opportunities and implications for uncertainty the financial crisis could see an even emerging drivers of change.that promise economic uncertainty, hotels focused on developing strategy The path of the economy and hotel broader spectrum of customers and 7. Continuous search for ancillarya potentially massive shift in wealth in an uncertain world, management market over the next ten years is diverse needs from established markets. revenue streams 10. Continuous evolution –from West to East, transformational of the brand portfolio, evolution of uncertain. We have to prepare for a Traditional segmentation models will A range of approaches will be the hotel as a living laboratoryadvances in science and technology and business and revenue models, location range of possible future scenarios. no longer suffice as we try to capture considered to increase revenue Hotel groups will increasingly viewrapidly evolving needs and expectations and categorization in the era of This implies development of leaders, the needs and nature of tomorrow’s generation including discount offers themselves as being in a constantof the individual consumer. This report personalization. managers and staff who are curious, traveler. to capture a share of pre- and post- state of experimentation – with theis designed to provide a rapid scan of tolerant of uncertainty, capable of trip travel spend, introduction to the individual properties acting as livingthose drivers and offer critical insights The growing focus on personalization scenario thinking and willing to make 4. Delivering a personalized experience hotel’s own branded goods catalogue laboratories for the development andon the potential implications and of the hotel experience has given decisions with imperfect information. through a wide spectrum of service and extension of the range of business testing of new ideas. Every customeropportunities for the hotel sector. rise to the concept of moving beyond choice services provided. interaction could be viewed as a segmentation models towards the 2. A portfolio of strategies for an Customers will increasingly demand potential source of feedback,The report draws on a combination of introduction of service spectrums in evolving marketplace choice over every aspect of their hotel 8. Connected, adaptive and predictive new ideas and competitor insight.desk research, expert interviews (see which the guest is given choice over In response to differing rates of growth stay – encompassing check-in and Tomorrow’s hotel will be far moresection 7 for list of interviewees) and almost every aspect of their hotel and development, hotel groups will departure, service levels, the size of embedded in the internet, playing ana global survey on future strategies experience. The possible components increasingly adopt a portfolio approach the room, decor, the furniture in it, the active role in social media and usingand business models for the sector. of such a spectrum are discussed. to strategy with a range of different audio-visual facilities, amenities and it to highlight the changes on theThe survey received a total of 610 Finally a framework is presented of key goals and approaches being pursued in food and beverage options. horizon. Internally, a greater emphasisrespondents from around the world, challenges for leaders as they map their parallel within different geographies will be placed on flexibility to respondof whom 42 per cent work in the travel path to Hotel 2020. and market tiers. An increased use of 5. Immersive, tactile and multi- rapidly to a changing environment. Newindustry. The survey posed a range of co-branding with well known consumer dimensional technology interfaces advanced analytical techniques andscenarios relating to hotels in 2020 and businesses is expected, along with the Generation Y and those that follow software tools will be adopted to helpasked respondents to rate whether they emergence of unbranded hotel groups them are coming into the hotel as anticipate future patterns of demand.strongly disagreed, disagreed, agreed or providing ‘white label’ services to hotel both guests and employees with a verystrongly agreed with the statement. owners. Greater experimentation different relationship to the technology with business models is expected – they use. For them the boundaries with a proliferation of auction based between the physical and virtual world models, low cost airline style pricing have blurred and the range of ways in and a growth of 24 hour rental models which they’ll interact with their data replacing the fixed night option. will be far more visible and tactile than anything we’ve experienced to date.
6 Hotels 2020: Beyond Segmentation Hotels 2020: Beyond Segmentation 7 3. Drivers of changeThis section explores critical global drivers that are shaping the operating context for hotels and their customers in the next Figure 1 - Public debt in 2020 (per cent of GDP) (Deutsche Bank Research)5decade. While there are a wide range of drivers that could clearly have an impact we focused on four key clusters of drivers inthe discussion below: 300 2010Global context 2020Key developments shaping the customer’s operating environment and the impact for hotels 250Tomorrow’s travelerPersistent, emerging and potential needs and behaviors of tomorrow’s hotel guest 200Business transformation 150Trends in innovation, design and strategic thinking within the hotel sectorTechnology and connectivity 100The wired world of guests, bedrooms, staff and management in Hotel 2020 503.1 The global contextStarting assumptions Reshaping the economic landscape At the same time, the crisis has helped 0 siaIn the next decade, the global context Economic power shifts are forcing accelerate an ‘Eastward Shift’ in ne sia a n hoteliers to think about the geographic ilwill be shaped by many factors; we economic power that was already in a in do pa az di s US EU Ch Ru Br Ja In Inhave selected a few we consider of source and potential profitability of evidence. Since 1995 Asia’s real GDP hasprime importance to hoteliers. We have future revenue streams over the next grown at over twice the rate of Americaalso made some starting assumptions decade. or Western Europe3. In many casesabout other key drivers to help frame The key challenge is learning to prepare the emerging economies have come The Economist Magazine6 estimates that (i) by 2014, on a purchasing power parity A possible double-dip and lackour analysis: for a range of possible scenarios as through the crisis with more robust (PPP) basis, Asia’s share of the world economy should exceed that of America and of economic confidence will> Politics and security – Geopolitical there is clearly still significant risk left in banking systems, a lower exposure to Europe combined; and (ii) by 2020 Asia could deliver 50 per cent of total sales and impact the demand for travel. tensions, country failures, terrorism the system and the knock-on impact to derivatives and lower levels of debt profits for some Western multinationals, compared to 20-25 per cent in 2010. Ernst A deflationary world economy and reshaping of geo-institutions other sectors is still occurring – with the (Figure 1). and Young7 forecasts that the BRIC nations will contribute 40 per cent of global would stifle the industry since public sector one of the last to feel the economic growth in the decade from 2008 to 2018 while others suggest that even we are an experience economy> Energy – Rising demand, hesitant effects. The full costs and impact of the Among the world’s largest developed with a recovery in the developed world, emerging markets will deliver 70 to 75 per dependent on discretionary investment and a slow transition to global financial crisis may take longer economies, public debt is forecast to cent of global growth every year for the foreseeable future.8 income. alternatives - causing price hikes to assess, but the estimate so far is of a be an average of 118 per cent of GDP Ian Yeoman total of $20 trillion in bailout funding, by 2014 – up from 78 per cent in 20074. While Asian growth offers an important new source of customers, we can’t just Associate Professor of Tourism> Infrastructure – An uneven pattern stimulus commitments, guarantees and While the scale of sovereign debt is assume they will be willing to pay the same rates as their western counterparts. Management at Victoria of global investment – exerting increased spending by governments becoming clearer, what is less obvious In our survey, 70 per cent agreed that there will be a rise in Asian middle class University influence on hotel development plans worldwide1. Perhaps more importantly is how deep the potential government travelers who will be extremely cost conscious and drive down prices. for the longer term, we have become spending cuts will be across these> Aviation – Further restructuring far more aware of the scale of exposure economies and what impact they and consolidation in the search for and the size of risk resident within the will have on business and consumer Indonesia is a sleeper – sustainable business models system. The biggest single source of spending. There is rising expectation a continued stable risk is posed by the scale of derivative that many economies could experience government will catalyze it.> Space tourism – Commercial contracts in circulation – estimated at further downturns over the next It’s a difficult market as it’s very spaceflight takes off – but we won’t $700 trillion at face value – roughly 10 decade. The net effect for the hotel heterogeneous, but I think it will see space hotels by 2020 times the size of the global economy2. sector is that it will be very difficult to surprise many people. forecast future revenue streams with Peter de Jong> Future eco-shocks – We’ll experience any accuracy and hoteliers will have Former CEO, PATA regular natural and climatic disasters to plan for a range of possible future and health pandemics. economic scenarios rather than a single stable set of growth assumptions.
8 Hotels 2020: Beyond Segmentation Hotels 2020: Beyond Segmentation 9Globalization of business Regional economic co-operation Visa regimes Reorientation of global marketsDespite setbacks during the downturn, Intra-regional travel could be an The removal of travel restrictions is What proportion of the new Asian travelers over the next decade can the branded hotel sector attract and at what price?there are strong drivers that should increasingly important source of new critical to the attraction of guests from IATA reports14 that for 2009, of the 2.2 billion airline passengers worldwide, 647 million originated in Asia, against 638 millionhelp increase the volume of business business in the next decade. emerging markets in particular. in North America. By 2013, 217 million more are expected to fly within Asia – giving the region roughly a third of the globaltravel over the next decade. In the post-crisis era, a growing Hotels may have to play a more active market. In the U.S. there are three aircraft seats per year for each of the 300 million people who live there. China’s has 0.3The growth of multinationals from emphasis is being placed on increasing role in helping guests secure visas in seats for each of its 1.3 billion people, while India’s has only 0.1 seats per head for its 1.1 billion. Should Asians ever travel atemerging economies and developed all forms of trade within regional order to remove hurdles to attracting the same rate as U.S citizens, this would triple global passenger numbers15.economy businesses seeking out trading blocs such as ASEAN, the customers from the emerging markets.opportunities in developing nations will European Union and the Gulf Co- Almost all countries now require visas In Travel Gold Rush 2020, a report developed by Oxford Economics for Amadeus in September 2010, it suggests that lookingboth drive an increase in demand for operation Council (GCC). Promoting from certain non-nationals who wish forward to 2020, Asia will account for one third (32 percent) of global travel spend, up from only 21 percent today, whichhotel rooms. At the same time, the push intra-regional tourism has been to enter their territory12. The 2010 represents a dramatic realignment over the next ten years.to create new cities across the Middle targeted by ASEAN1 as part of a project Henley Global Visa Restriction IndexEast and Asia in particular will lead to to improve the region’s commercial shows UK passport holders can enter As these travelers are likely to have a different wealth profile and spending capacity, competition will emerge to win theirup-front demand for hotels to house competitiveness and create a fully the most countries (166) visa free while business. Even if they do want to stay in globally branded hotel chains, many may not be willing or able to pay the kinds ofthe professionals involved in such integrated economic community by Indian and Chinese passport holders rates currently enjoyed by the sector. In the survey, 79 per cent agreed that by 2020 ‘heavy investment in emerging tourismdevelopments. 201511. Similar initiatives are also can only travel without visas to 50 markets will widen traveler choice, increase competition and potentially drive down prices and profit margins across the underway in Central America and in and 38 countries respectively. In June spectrum of hotels’.Talent Europe with the Calypso Social Tourism 2010, Israel recognized the challengeThe ability to attract, motivate, develop program. Hence, competition to attract of attracting key Chinese tourists byand retain sufficient talent will be a key regional travelers and have them stay easing visa applications for organizedsuccess factor. ‘on continent’ will increase. 82 per cent tour groups from the main ChineseDespite the downturn, industries across of all survey respondents and 77 per cities13 . In our survey only 56 per centthe globe are facing the prospect of cent of those in the travel industry of all respondents and 51 per cent froma growing talent shortage as baby agreed or strongly agreed that ‘city the industry ‘expected a relaxation ofboomers retire and insufficient or country based alliances are likely, visa regimes to attract visitors fromnumbers of skilled workers come into resulting in preferential marketing / emerging markets and BRIC economies’the economy. As of August 2010, the pricing of certain destinations’. by 2020.World Travel and Tourism Council(WTTC) estimates that travel andtourism employs 235 million people Trading blocs such as ASEANworldwide and that this will grow to may open the way for freer303 million by 20209. movement. John KoldowskiIn a Manpower 2010 survey, ‘restaurant Director of Strategic Intelligence,and hotel staff’ was ranked 6th in terms PATAof the size of its talent shortage in theU.S., 7th in China and 9th in the UK10 .A poor corporate cultureamongst larger firms may drivetalent to more innovative firmssuch as Joie de Vivre. Leveragingbest talent will still be critical.Unless you have people withforesight and knowledge,technology will not be adifferentiator.Susan BlackFounding Partner, Black & Wright
10 Hotels 2020: Beyond Segmentation Hotels 2020: Beyond Segmentation 11Sustainability Carrying capacity The biggest opportunity and threat is how we manage the carryingIn the face of growing concerns about borrowing consumption from future Hotels have diminished their One of the growing challenges for the capacity of a given destination – not only fragile environments butgenerations, the sector is under increasing pressure to prove it is driving down its environmental impact – they sector is what happens when a site also more generally. We are not set up for the avalanche of newenvironmental footprint and developing truly sustainable operations. deserve to be complimented or destination reaches its carrying travelers – environmentally or socially. Travel must become moreTom Rowntree of InterContinental Hotels Group (IHG) says the average European and they are in general great at capacity. expensive but it has now become an inalienable right. There arehotel produces 3000 tons of carbon dioxide emissions per year while the operations. The World Heritage Committee names apostles for this sort of return to elitism. It will take courage that isequivalent in Dubai produces 6500 tons16. The capacity to identify and leverage Peter de Jong 34 sites on the list of World Heritage hard to find as it is self-defeating in the short term.best practices across a global portfolio offers a major opportunity for hotel chains. Former CEO, PATA in danger, including popular tourist Peter de JongIn the survey, 83 per cent agreed that by 2020 ‘environmental considerations will sites such as the Florida Everglades22. Former CEO, PATAplay an increasing role in the choice of business and leisure hotels’. Despite the Quotas have also been establishedconcerns, there are clear reasons for optimism as across the industry, significant for key sites such as Machu Picchu inadvances are being made to reduce its ecological footprint, for example: Peru and Kruger National Park in South Africa. Such quotas may become more> Hotel 1000 in Seattle Washington has a Guest Sensor which detects when the common as a mechanism to control room is empty and adjusts heating and lighting accordingly while alerting service visitor numbers and encourage high staff to clean the room17. value, low volume tourism.> The Crowne Plaza close to the Oresund strait that separates Denmark and Sweden has an 86-meter (232-feet) concrete and steel tower covered in around Tourism congestion is a big issue 1,500 solar panels, producing 170,000 kilowatt-hours of electricity annually, and has been for the last 10-15 which can power 55 households. In the tower’s basement, a geothermal well years. It rewrites the delivery of serves the hotel’s heating and air conditioning needs, reducing its energy bill by the experience product… about 90 percent. The 366 rooms have water-saving taps, low-energy light bulbs and restrictive facilities, in and biodegradable amenities18. general, will occur. David Jones> Guests using the gym of the Copenhagen Crowne Plaza can earn a meal voucher Former Director Genera, the worth about $36 by producing at least 10 watt-hours of electricity on an exercise WYSE Travel Confederation bicycle connected to a generator -- typically equating to around 15 minutes’ of activity19.> Botswana won the Tourism for Tomorrow 2010 award for its destination Environmental rules will be stewardship20. The country has a clear ‘low-volume - high-yield’ strategy, with mandatory across the board. conservative limits on bed and vehicle density. The question is whether other Carbon offsetting will be a huge destinations will adopt a similar stance and what impact that will have on the part of the ticket. When tele- business models and strategies for hotel operators in these locations. presence is a viable option then that will be huge, people will ask> Emirates Hotels & Resorts received the Tourism for Tomorrow Conservation - do I really need to travel for this Award at the 2010 World Travel & Tourism Council’s (WTTC) Global Summit, two hour meeting? in Beijing. Emirates’ first resort, Al Maha Desert Resort & Spa in Dubai, was Gerd Leonhard, designed and built on principles of environmentally sustainable development. CEO, The Futures Agency This know-how has been applied at the new Wolgan Valley Resort & Spa in Australia - the world’s first hotel certified as carbon neutral by an internationally accredited organization21.
12 Hotels 2020: Beyond Segmentation Hotels 2020: Beyond Segmentation 133.2 Tomorrow’s traveler Newly wealthy and ready to travel A deep understanding of the new middle classes will be critical to tomorrow’s hotel propositions.In this section we explore how the nature, needs and expectations of tomorrow’s traveler may evolve. Continued growth of the emerging nations is increasing the proportion of the population that can be considered ‘middle class’. The World Bank23 estimates that the global middle class will grow from 430 million in 2000 to 1.2 billion in 2030, defining the middle class as those earning US$10-20 a day (an average income range between Brazil and Italy). The BankThe evolution of segmentation to understand the buying triggers and Another source of frustration is the predicts China and India will account for two-thirds of the expansion. Homi Kharas of the OECD states that Asia accounts forWhat segmentation strategies emotional influences for those who need to provide similar data on a less than one-quarter of today’s middle class, but by 2020 that share could double.and techniques can be applied in choose one property over another. repeated basis – to travel agents, visaa decade where individualism and and customs agencies, airlines and He also notes that by 2020 more than half the world’s middle class could be in Asia and Asian consumers could account forpersonalization are coming to the fore? One of the benefits of such a focused hotels. A related concern is the apparent over 40 per cent of global middle class consumption24.Historically, the industry has placed data mining approach is that it will inability of such organizations to sharegreat importance on segmenting allow far deeper understanding of the customer profiles. Furthermore, the The rate of growth of the middle classes is clear from the Goldman Sachs projections (figure 2) on the share of populationcustomers with increasing accuracy true revenues by micro-segment and greater the desire to personalize the with incomes between $6,000 and $30,000 in PPP terms for the BRIC and so called ‘Next 11’ emerging economies25. Theto help define appropriately targeted what it really costs to service different customer experience, the more data will highlighting shows that by 2015 the majority of these economies will have 50 per cent or more of their population in thisoffers. Throughout this report, the types of clients and those from different be required to do it. If such information income range.highlighted drivers suggest traditional geographic regions. Indeed, 97 per cent has to be provided repeatedly, thisnotions of segmentation have to evolve. of survey respondents believe that by could mitigate against the benefits of 2009(%) 2015(%) 2025(%) 2040(%)As our identities become more fluid, so 2020 ‘hotels will increasingly consider personalization. Brazil 46 52 59 57the ability to define consumers by their factors such as cost of servicing, levelincome or buying behavior becomes of spend and average length of stay Social networks may offer one solution. Russia 71 71 56 29ever harder. How do we segment a when targeting potential customers in There is increased competition to India 6 16 46 89divorced female executive who buys different geographic markets.’ ‘own the social graph’ and provide a China 37 59 75 53value meals on weeknights, likes the single profile of the individual whichopera and her local football team, Hear me, study me, know me and is then shared across social networks. Korea 67 46 23 7prefers beer to wine, recycles but loves remember me Customers may be willing to provide a Bangladesh 0 1 6 38bottled water and has relatives on One of the big frustrations for travelers deep profile to a secure social network Egypt 39 57 84 82three continents? A greater emphasis is a concern that their voices aren’t if they knew it would then be used Indonesia 16 29 57 87will be placed on offering a consumer really being heard by the industry effectively by all travel providers. Moreled spectrum of choices from which and that hotels aren’t paying enough importantly, they need to see that such Iran 70 77 73 41guests can personalize their hotel stay attention to dialogues on social media. data would really be used to personalize Mexico 61 65 65 49– encompassing everything from room While some industries have embraced the travel experience and that hotels Nigeria 6 9 18 42size to linens, media and amenities. concepts such as co-creation with will continue to learn about the guest customers and open innovation to through each stay. The differentiation Pakistan 9 13 22 49In the survey, 71 per cent agreed that source ideas from outside, many and advantage for hotels comes from Phillippines 16 23 40 69by 2020 ’traveler motivations will hotels appear hesitant to adopt such what they do with the data to enhance Turkey 79 81 70 36become increasingly fragmented and approaches. In the survey, 96 per cent and enrich the guest experience. Vietnam 7 21 51 84diverse and harder to segment into agreed that by 2020 ‘hotels will need toclearly definable customer groupings’. develop strong social media ‘listeningAn implication is that the emphasis skills’ to understand how customerof segmentation might change from needs and perceptions of brands and Figure 2 - Tracking the rise of the middle class across the BRICs and N-1126seeking new customers to better service quality are truly evolving and toserving existing ones during their develop service propositions, marketingstay. ‘Micro-segmentation’ based messages, and pricing solutions thaton more sophisticated data mining reflect the needs of an increasinglytechniques may also help spot and diverse customer base.’market to those with similar profilesto recent customers. Advances incognitive science and techniques suchas neuro-marketing may make it easier
14 Hotels 2020: Beyond Segmentation Hotels 2020: Beyond Segmentation 15As individual income and wealth increases, travel becomes a natural aspiration. Chinese travel will be the Too busy to care not necessarily be cut from the budget. Craving simplicityFor many, a branded hotel stay at home or abroad could be a once in a lifetime equivalent of the baby boom - One of the most challenging groups to In the survey 83 per cent felt that by Another dimension of increasinglyor rarely repeated experience. Their expectations will differ from the seasoned it will change the world.’ serve will be those who demand highly 2020 ‘people will view travel as a right complex lives is that some consumerstraveler and will have been framed largely through the media and world of mouth. Joe Brancatelli attentive and personalized service but rather than a luxury and consider it an will crave simplicity when it comes toWhile some first time guests may have a strong desire for deep personalization of Former Executive Editor, who consider themselves too busy to increasingly important part of their their holiday choices.the stay to suit their own preferences, many may simply come wanting to be awed Frequent Flyer Magazine spend any time providing the necessary lives.’ Against this backdrop, the role This may mean de-cluttering the hotelby every aspect of this new experience. The importance of these new travelers was information on booking or check-in. of the holiday will change in people’s room, simple, natural food choices andrecognized in the survey with 75 per cent agreeing that by 2020 ‘the Asian middle The expectation will be that the hotel lives, providing a crucial outlet to relieve a preference for ethical, authentic andclasses will make up the largest share of international travel.’ Hence the emphasis will use technology to find out about stress and offer a much needed break potentially cheaper options across thewill be on the warmth of the welcome, the friendliness and helpfulness of staff, them – e.g. from the internet and learn from increasingly pressurised routines board. In some respects, catering for thewhether these new guests are put at ease or daunted by the experience and the about their needs and behaviors based of daily life. Holidays for this group guest who wants less may be easier –ease with which they can use all of the room and hotel facilities. on what they actually do in the hotel. may become shorter and less frequent. particularly in terms of room fit-out. They may opt for easily accessible localDespite UNWTO predictions of 130m inbound travelers making China the world’s Complex lives, pressurised finances destinations rather than those whichpremier destination by 202027, in the survey 67 per cent did not believe China will How will hotels serve those in the require more complex travel planningbecome the world’s number one destination by 2020. Indeed, 79 per cent of those developed world, for whom life could and lengthier journeys. With literallyin the Middle East believe Chinese destination supremacy by 2020 is unlikely and get harder over the next decade? every minute counting on such trips,whilst those in Asia are most inclined to agree with the proposal, it also had the Cuts in public sector spending, layoffs the expectation of the hotel experiencehighest rate of people strongly disagreeing, at 16 per cent. of government workers, a cautious and the pressure to ‘get it right’ will be private sector and the potential for immense. This group could indeed be further economic shocks could combine the most resource intensive in terms of to drive down the real value of incomes their demands for quality service and and savings. As a result, spending their willingness to complain and seek patterns could experience some redress. fundamental long term changes. A January 2010 PayPal28 study found that Financial drivers may also lead to a one in six British people said they would change in the consumption habits of80% now save up for things they want rather such travelers – with greater demand70% than using a credit card to buy them. for refrigeration and food heating Shoppers have also become more price facilities as they opt to self-cater. We60% aware, with nearly six in ten people in could also see a rise in time-share and50% Strongly Agree the study saying they’re more conscious vacation rental demand. Some may40% of how much things cost and more than decide not to pay for accommodation Agree half claiming they’ve started bargain at all and choose instead to go for the30% hunting. Such attitudes will inevitably increasingly popular option of house-20% Disagree carry through to the booking of travel swapping.10% and hotel stays. Strongly Disagree0% Pressure on personal finances may force us into increasingly complex lives – ia ica as performing many of the tasks we would t pe er s a l Ea ica ra ric ro Am ia have outsourced in more affluent times st e er Eu As Af dl Au Am tin – from elderly care to cleaning and id La M h home maintenance. We could also see rt l& No ra a rise in those taking further education nt alongside their work commitments. Ce However, holidays willChina will become the world’s number one destination by 2020. 602 Respondents
16 Hotels 2020: Beyond Segmentation Hotels 2020: Beyond Segmentation 17Wealthy and hard to please An aging societyThose with wealth will continue to play One of the biggest and most persistenta role both in terms of their demands trends hotels will need to address is theof hotels and their influence on the changing age profile of society in bothaspirations of the rest of society. the developed and developing world.The 14th annual World Wealth Report29 Globally, the UN projects that thefrom Capgemini SA and Merrill Lynch population aged over 65 will rise fromhighlights that overall global wealth 5 per cent in 1950 and 7 per cent inof those with liquid assets of high net 2000 to 16 per cent in 2050. Withinworth individuals (HNWIs) – those developed economies the proportionwith at least $1 million - increased over 60 is expected to rise from 22 per19 percent from 2008 to 2009 to $39 cent to 33 per cent between 2009 andtrillion. North American wealth rose 2050, and in the developing world, it is18 percent while Europe had positive forecast to grow from 9 to 20 per centgrowth of 14 per cent. The value of over the same period30.Asia’s HNWIs leapt by 31 percentfrom 2008 to a total wealth of $9.7 Allianz (2010) projects that, driventrillion, exceeding Europe’s $9.5 trillion. by the emerging markets of Asia, theNevertheless, Americans still constitute global retirement market could grow tothe wealthiest region with 3.1 million $46 trillion by 2020 from $28 trillion inHNWIs worth $10.7 trillion in total. 201031. This implies catering for an older traveler and broader family groupings.This HNWI segment expects 24/7/365 In the survey 57 per cent said that byservice, experiences constant service 2020 ‘multigenerational holidays willinnovation elsewhere – especially in become increasingly popular’, withthe online environment – and drives Europe – the most advanced continenta general rise in societal expectations. in aging - having the strongestHotels may need to get used to conviction about this. A possiblecustomers who expect perfection, may counter force could be the growingnever be satisfied and are reluctant to trend towards increasing the retirementprovide feedback. age across many developing economies. This could lead to the baby boomer generation delaying major travel plans. The client is king and will become Hotels haven’t updated their The majority of Chinese Long term, the most important impact comes more powerful and demand a personas – behavior has travelers as well as European from the aging population and demography. deepening customization of changed but an update is and Americans will be old Key global outbound markets – such as travel. Value can be tailored and needed every 2 years. They people. There is a serious Germany and the UK - are aging rapidly and this will continue to be. may have changed their persona graying of populations. Our will impact the whole industry but especially Peter de Jong many years ago but need to infrastructure planning, Europe where much travel is intra-regional. The Former CEO, PATA realize that yesterday’s 50 year environmental planning and end demographic question has big implications for olds are not the same as today’s products have not come to terms government and the provision of infrastructure. 50 year olds. with this. Ian Yeoman Susan Black Peter de Jong Associate Professor of Tourism Management, Founding partner, Black & Wright Former CEO, PATA Victoria University
18 Hotels 2020: Beyond Segmentation Hotels 2020: Beyond Segmentation 19Rising female spending power Personal genetic profiles Engaging Generation i Corporate spendingThe pressure to cater more explicitly to Hotels will soon be facing the challenge The historic assumption that future The sector now has to plan for a range of possible scenarios for the speed, scalethe needs of the female guest will rise of responding to customers’ genetic generations will want to travel more and nature of the recovery of corporate travel spending after the downturn.as the understanding of their spending profiles. than their parents is being challenged. An August 2010 study by The US National Business Travel Association Foundation,power and influence increases. The mapping of the Human Genome Lastminute.com’s report on The Future sponsored by Visa, found that worldwide spending on business travel fell 8.8The World Bank estimates that by has enabled rapid advances in the of Free Time (May 2010)35 argues that: per cent in 2009 – reported as the largest drop the industry has seen since the2014 the earning capacity of females genetic profiling of the individual. “… a new generation will reject travel recession in 2001 and the events of 9/1136. The study predicts that Asia, Latinwill reach $18 trillion - more than Today, websites such as 23andme. altogether in favor of gaming, social America, and the Middle East will grow faster than North America and Europe. Thethe estimated 2014 gross domestic com offer us the ability to perform a networking and ‘always on’ media.” study also found that China, the only nation to grow business travel in 2009 (8.5product of India and China32. Analysts comprehensive genetic test against The challenge for hotels will be to find per cent), and other Asian markets currently increase business travel spending atrecognize that the balance of power a variety of traits to understand a range of equivalent attractions that about four times the rate of the United States. China is forecast to add nearly $130is definitely shifting and that women our disease risks, carrier status and entice this group of ‘Go-Nowhere- billion in business travel spending by 2014, potentially surpassing the U.S. marketare now a strong economic force to potential drug responses. Such tests are Gamers’ and captures their interest. by 2015.be reckoned with. Boston Consulting available today for less than $500. By This may imply providing access toGroup estimates that by 2020 females 2020 such information could be carried the kind of rich immersive technology The issue is whether recession-led changes in travel spending patterns will last orwill control $15 trillion or 70 per cent of on our phones and shared with airlines, environment that individuals couldn’t evolve with the business cycle. Clearly some have turned to alternatives such astotal global consumer spending33. hotels and restaurants to ensure that afford at home and offering the virtual meetings and videoconferencing – with Marriot and Starwood introducing the food we are offered matches our opportunity to try out new games, videoconferencing facilities to tap into this revenue stream. Others have sought personal health profile. consoles and devices which individuals to centralize meetings in easily accessible locations, traded down on the class could then go on to purchase at home. of accommodation and reduced the frequency and duration of trips. HoweverIn Asia, ladies’ only floors the increased focus on developed economy firms seeking out emerging marketare coming in more so than Case Study opportunities to counter domestic economic sluggishness will lead to a rise inpreviously, which brings about a The Hilton Arlington Hotel travel to certain markets. For hotels the issue is whether rates are the primarydesign issue. In Japan there are mechanism for capturing business from their rivals when overall demand isfemale only carriages on trains. The Hilton Arlington Hotel sluggish or there are additional service options, loyalty rewards and support thatIn general targeting is becoming introduced 15 new PURE Allergy can be offered to attract clients and maintain pricing levels.more refined, not just based on Friendly Rooms with the goalgender but on a whole host of of creating an allergy-friendlyfactors. environment and removing upJohn Koldowski to 98 per cent of bacteria andDirector of Strategic Intelligence, viruses. The rooms use an air Every recession drives awakenings. This recession is driving awayPATA purification system which is business class to be replaced with premium economy. designed to provide air quality Joe Brancatelli averaging four times cleaner Former Executive Editor, Frequent Flyer Magazine than the threshold necessary for asthma patients. The system is classified as a Class II medical device by the FDA. In addition, micro-fiber, hypo-allergenic pillow cases and mattress covers are used to reduce allergies triggered by dust mites. Source: Hotel Interactive34
20 Hotels 2020: Beyond Segmentation Hotels 2020: Beyond Segmentation 21Always on Immersive technology Beyond the experience economy –The growth in 24/7 access to the Case Study Generation Y and those that follow The rebirth of personalization Case Studyinternet via mobile phones could have Hilton Hotels are growing up immersed in the Personalization is forcing industries into a mindset shift from ‘producer-led InterContinental Hotels Groupsignificant service implications. digital world. This is shaping their segmentation’ to ‘consumer-driven choice’.The picture most commonly painted Hilton Hotels in Germany and expectations of hotels as guests, Much has been made recently of the desire for consumers to go beyond the IHG is installing Microsoft’sof our world in 2020 is one where the the UK have launched mobile employees and business partners. acquisition of material goods and to engage in experiences. The concept is now Surface technology in selectmobile has reached every segment web and iPhone apps that enable By 2020 the range and nature of evolving to take account of the desire for that experience to be personalized and properties to enable guests to findof society and is the most common full booking capability while technologies we use and interact with for the consumer of that experience to be a key player in its design and delivery. the information they need wheninternet access tool and means on the go. The service includes and the number of customer ‘touch While our parents and grandparents grew up with high levels of personalization, they want it. Surface is a ‘multi-of interaction for the bulk of the the ability to access and change from the 1960s through to the 1990s automation and standardization became touch computer that respondspopulation. Nokia forecasts that the booking info, preview hotel the order of the day. The internet and mobile phone have given new life to to natural hand gestures andtotal number of mobile subscribers will images and is fully integrated into the personalization agenda. The internet is providing the choices, while the real-world objects, helping peoplerise from 4 billion in 2009 to 5 billion Hilton’s loyalty program. Hilton Smartphone and tablet PC’s and a range of other devices like the Apple iPad interact with digital content in aby 2015 and expects extraordinary Mobile uses MTT’s intelligent provide the means of access. simple and intuitive way. With agrowth in mobile data traffic - rising mobile hotel platform, m2bed, large, horizontal user interface300-fold by 201537. At the same time, to meet Hilton’s requirements, A number of advances are combining to suggest that the decade to 2020 will multiple users can collaborativelythe boundaries between how we automatically directing customers herald massive advances in the field of technology enabled personalization, and simultaneously interact withuse technology at home, at work or to a view of the site optimized promoting individual choice as a right and heralding a shift away from ‘one size data and each other. ‘41 IHG haswhile traveling are blurring. A January for their particular device. The Mind Control Headsets fits all’ solutions. The emergence of ‘App culture’ is creating a generation which loaded the system with custom-2010 survey by Lowcostholidays and site is designed to minimize believes that whatever they want, whenever they want it, there’s an App for it. If tailored information such as WebDixons Travel (UK) found that 73 per scrolling, clicking and typing and points’ will expand dramatically. there isn’t an App, the social networks provide a platform to discuss it, and if the site content, video interviewscent considered a mobile phone as an features a ‘click to call,’ feature The challenge for hoteliers will be demand is there, someone will develop it. and local maps, guests can selectessential gadget to take with them on that offers users an alternative to accommodate, provide when activities, plan and print theirholiday and 87 per cent actually used way of contacting Hilton should required and understand the impact Luis Castillo Vidal, an associate professor at the University of Granada in Spain schedule.42their mobile while away. A further 59 it be necessary. Source: Hotel of these technologies on the hotel and an expert in artificial intelligence, says ‘The better adapted the product isper cent said they accessed the internet Marketing39 environment. For example, technologies to a person, the more valuable it will be for this person.’40 He suggests that truewhile on holiday38. such as augmented reality and mind personalization becomes possible at the point when our devices are intelligent control headsets are already with us enough to learn our characteristics and behavior through experience. Ideally, weMany already baulk at the idea of and developments such as gesture will be able to transfer this information between devices much as we transferpaying for hotel internet access. By interfaces and 3D mobile phone computer files today.2020 it seems likely that not only will displays could be common by 2020.free access be demanded, but the (These emerging technologies are These developments provide a means of fulfilling an increasing culture ofaccompanying expectations of the explored in the next section.) The individualism, backed by rising personal wealth in developing economies, andspeed, bandwidth and functionality desire for customers to converse in an already demanding western consumer. In the survey 92 per cent felt that byprovided will have increased their own language will also grow as 2020 ‘hotel guests will expect their stay to be personalized around a set of choicesdramatically. will the expectation that hotels will they make at the time of booking or prior to arrival’. This shift towards intense accommodate multiple touch points personalization starts to challenge and potentially limit the value of traditional through all of the current and possible segmentation approaches and places greater emphasis on the concept of a future customer contact channels. customer focused ‘service spectrum’ – a menu of choices from which guests can configure and personalize their hotel stay should they wish to do so at or after the time of booking.
22 Hotels 2020: Beyond Segmentation Hotels 2020: Beyond Segmentation 233.3. Business transformation drivers Innovation in hotel design The aspirations of hotel owners and the imagination of their guests will continueIn this section we explore examples of how hotels are driving innovation and strategic change in the sector. to be inspired by innovation in hotel design. Two distinct themes appear to be emerging in the designs that are being put Case StudyOpen innovation and collaborative design forward for the hotels of the future. The first is radical concepts for the location, Mosaic - Winner of the HospitalityTapping the innovative talent and ideas of those outside the organization is now form and feel of hotels – with ideas as diverse as cliff side hotels, air cruisers and Design Radical Innovation Awarda priority. flat pack designs gaining Radical Innovation commendations and awards52. The (2010).Across the business world, firms have been adopting a variety of techniques Case Study second theme focuses on driving innovation into the visual design and operationalto open up the innovation process. Proctor and Gamble are seen as pioneers of Marriott effectiveness of mainstream hotels. Amongst the designs coming through, key Mosaic is designed to deliver‘Open Innovation’ – an approach that positively encourages those outside the features include a strong focus on customer centric-design and rethinking the affordable, pop-up hospitality—organization to share their ideas – sometimes for a share of the reward – but often Courtyard by Marriott won end–to-end experience from arrival to departure. Understanding the pressure of prefabricated and portable tofor free. Apple has built an entire business model on this basis – with over 100,000 Hospitality Technology magazine’s our daily lives, hotel designers are also placing greater emphasis on presenting the virtually anywhere. Destinationdevelopers who’ve developed an estimated 300,000 apps for the iPhone – at no 2010 Hotel Visionary Award hotel of tomorrow as an immersive experience with everything we desire offered designers, WATG conceivedcost to Apple. Within the sector, experiments have taken place. For example Hilton for installation of the 57-inch under one roof. Mosaic to be entirely flexible,Hotels participated in an open innovation challenge targeted at MBA students interactive LCD touch screen comprised of individuallyand addressing the question ‘what kinds of partnerships does the hotel chain GoBoard™ in over 130 hotels in This also leads to the notion of offering a safe and convenient place for guests configured, modular Prisms,need to cultivate in order to grow the business?’ Hilton said a number of the ideas the U.S. and Canada. Developed to escape and experiment with activities they would normally pursue at home. outfitted as needed as spas,presented ‘have a significant potential to enhance the way we shape the Hilton specifically for Courtyard by Recognizing a growing reaction against standardization and environmental excess, salons, guestrooms, mini-guest and Hilton team member experience’43. Marriott by Microsoft and Four many designs are emphasizing localization and authenticity, a low environmental homes (multiple Prisms such Winds Interactive, GoBoard footprint and even modular construction of properties that can be removed after as kitchenette and bedrooms),Service innovation provides guests with information the tourist season. or tented villas (an addition toIncremental and radical innovations are being undertaken to refine the guest on the local area, airport, weather, a luxury resort at peak season).experience. maps, news, business and sports Looking ahead, what can be delivered and the cost of doing it will be influenced Grouped together, Mosaic PrismsInnovations have been introduced across the spectrum of hotel activities from headlines. Guests can use the by new materials and techniques. Advances in fields such as nanotechnology and are designed to be attachedcheck-in to housekeeping. While some are to be expected – such as the provision system to find and print travel biotechnology offer the potential for a whole new generation of construction organically to Mosaic Hubs thatof free Wi-Fi, many have been more unexpected. In an effort to drive efficiency, directions to restaurants and local materials. These materials will have the ability to monitor, adapt, clean and repair contain lobbies, restaurants, bars,Marriott has co-located a JW Marriott and a Courtyard on the same site at the attractions51. themselves and will offer a significantly lower environmental footprint. lounges, and other amenities.Hangzhou Towers in China with a single management and common back-end Source: Hospitality Design53localservices to support both hotels44. To enhance the guest experience, Hyatt Andaz attractions51.offers free mini-bar snacks and bottled water, has replaced check-in deskswith ‘hosts’ equipped with tablet computers and opened up the kitchen in itsMidtown Manhattan property to encourage guests to talk to chefs45. It has alsoexperimented with the reduction of housekeeping services to assess the impact on Emirates Hotels and Resortsservice and costs. All Hyatt Place hotels have installed food ordering kiosks in the invests in ongoing collaborativelounge areas so guests can order 24 hours a day46. research in all its destinations and implements architecturalThe sector has been embracing mobile technology and social media. To speed Beyond 15 years, hotel styles designs that not only encompassup arrivals, the Holiday Inn has introduced a Smartphone based Fast Check-in will begin to change drastically environmentally sensitiveservice47. Starwood’s ‘Better When Shared’ campaign48 enables guests to share in terms of design and materials building, but also create antheir experiences on the website. In the case of Joie de Vivre, regular weekly used – that will mark a period of authentic ‘sense of place’.exclusive special offers are promoted to the Twitter and Facebook communities true differentiation. Anja Eckervogtwith great reported success49. There has been a proliferation of travel related social John Koldowski WTTCmedia tools ranging from sites that allow you to rate your trip to those that enable Director of Strategic Intelligence,groups to form, create shared travel plans and potentially reverse auction them PATAto providers. One example is Dopplr. Members share personal and business travelplans privately with their networks, and exchange tips on places to stay, eat andexplore in cities around the world. Dopplr presents this collective intelligence - thetravel patterns, tips and advice of the world’s most frequent travelers - as a SocialAtlas50. In the survey 90 per cent agreed that by 2020 ‘customers will increasinglyuse social media and collective intelligence travel services (like Dopplr) to definethe desired ‘product’ for a temporary self-forming group’.
24 Hotels 2020: Beyond Segmentation Hotels 2020: Beyond Segmentation 25Hotel group strategies and business models 3.4 Technology and connectivity driversThe economic downturn has encouraged all of the major brands to re-evaluate Offering more for less is the goal Remote check-in kiosks willtheir strategies and business models. -only technology can solve this In this section we explore how emerging developments in technology and also be developed for guests toWhile there are common themes to the resulting plans, there is also considerable problem. connectivity could influence the way in which our guests will work and play, the be checked into their room by adiversity in what is considered a winning strategy. For example both Carlson54 Mike Blake design of the guest environment and how hoteliers manage their business. For hotel “experience expert” whoand Hyatt55 have recognized some clients downshifting and are developing CIO, Hyatt the decade ahead, technology will be central to better understanding customers, will be able to give the guest theirpropositions to target mid-range customers (e.g. $130 / night) in response. delivering on guest expectations, managing operations and refining sales and key while walking with the guest marketing approaches. In the survey, 95 per cent agreed that by 2020 ‘hotels will to their room.Many such as Accor56 and Wyndham57 are continuing their programs of selling increasingly look to new technologies to drastically increase efficiency, reduce Jerad Bacharoff hotel assets, extending their expansion into franchising and Management costs, personalize the customer experience and improve service’. Director, Dubai Convention BureauServices Contracts and identifying new models of hotel ownership for both theirown portfolio and for the development of new properties. Hyatt and Wyndham are Technology, media and telecommunications convergenceconsidering taking new brands into their portfolio while they and Accor are placing The next decade promises massive acceleration in the range of technologiestheir main focus on extending the existing portfolio. and communication methods available to hotels and their guests. Key will be the convergence of information technology, entertainment media andExpansion in Asia, Latin and Central America, Europe and increasingly Africa is telecommunications functionality. A generation is emerging that doesn’t wanta common feature for many, with India a particular focus for brands such as or need to know the difference between them. The challenge for hotels will beCarlson, Hyatt and Starwood58. There is also a growing focus on driving operational to stay abreast of developments in these fields, monitor changing customerefficiency for Accor, Carlson and Marriott59 with particular focus on marketing, expectations, understand the storage, bandwidth and security implications andsales, distribution and technology. Accor and Carlson have both emphasized the adopt a consistent strategy for managing the introduction and exploitation of newdevelopment of online capabilities coupled with development of their loyalty technologies. The more technologies converge, the greater the likelihood that theprograms as key drivers of customer acquisition and retention. customer will bring with them that which was previously provided by the hotel – from entertainment through to broadband connectivity. Listed below are examples of technologies we expect to see in hotels in the next decade, broken down under six key domains of use although most will have applications across multiple domains. They are described more fully in appendix 1: 1. Relationship management 2. Personal technology 3. Guestroom functionality 4. Meeting support 5. Guest services 6. Business operations and management