Oliver Wyman
The digital travel revolution poses a threat to the hotel industry as new digital competitors are poised to disrupt distribution and capture significant market value. Large digital players have demonstrated the ability to rapidly gain scale in targeted segments. Winners will be those that solve customer hassles along the entire guest journey and build interactional and collaborative relationships rather than purely transactional ones. To respond, hotel companies must rethink distribution's role, build a holistic operating model, define segment and channel strategies, develop a comprehensive revenue agenda, and measure performance using RevPARD.
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- 1. © Oliver Wyman| NYC-MXD18401-002 Dan Kowalewski Email: dan.kowalewski@oliverwyman.com Mobile: +1 703 626 8064 NOVEMBER 10 2016 THE DIGITAL TRAVEL REVOLUTION A HOTEL INDUSTRY CALL TO ACTION
- 2. CONFIDENTIALITY Our clients’industries are extremely competitive, and the maintenance of confidentiality with respect to our clients’ plans and data is critical. Oliver Wyman rigorously applies internal confidentiality practices to protect the confidentiality of all client information. Similarly, our industry is very competitive. We view our approaches and insights as proprietary and therefore look to our clients to protect our interests in our proposals, presentations, methodologies and analytical techniques. Under no circumstances should this material be shared with any third party without the prior written consent of Oliver Wyman. © Oliver Wyman
- 3. THE RISE OFDIGITAL DISRUPTION
- 4. 3© Oliver Wyman| NYC-MXD18401-002 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Other transports Other OTA C2C Players 2014200920041999199419891985 Online--35,6% Intermediary–39,2%Transport–28,9% CruiseandLodging –31,8% Hotels and resorts Cruises Tours Operators OTA Classic airlines Low-cost airlines Rental cars The big picture Today almost 35% of the travel market stock value is captured by online players Note: 1. Stock value: average included the two previous years and two following years Sources: Datastream, Main companies of each market, Analyze OW Evolution of the travel market stock value 1 of the main players in Europe and in the US – 1985–2014
- 5. 4© Oliver Wyman| NYC-MXD18401-002 Traditional Competitors Future Disruptors The current distribution landscape has been playing out for several years with each segment seeking to extract value from the travel and leisure industry Companies controlling the access (hardware) and entry (search) into the booking funnel have the potential to radically transform the landscape and upset the value chain TMCs/TAs GDS OTAs Meta-mediaries Search companies Social Device makers Complete Pricing Plus Overall travel distribution landscape: competitors While traditional distribution competitors remain important, the new breed of digital competitors is poised to further disrupt the distribution landscape
- 6. 5© Oliver Wyman| NYC-MXD18401-002 Overall travel distribution landscape: online penetration and market value The industry could reach the level of complete disruption in the next 10 years as new digital competitors enter the landscape Traditional competitors have been very successful at creating value and disruption over the last 15 years… … but many of the new competitors are poised to create further disruption and steal value from hotel industry 0% 10% 20% 30% 40% 50% 60% 70% 20%+ of value was absorbed by online players in the travel industry in just 8 years! '01 '03 '05 '07 '09 '11 '13 '15 '17 % of travel market value owned by digital players Online agencies Metaplayers Social? Search Companies? Device Platforms?80% Today The question is not whether Google and Apple will be a threat, rather it is which part of the guest journey will they attack first US travel industry online penetration Traditional Competition Future Disruptors e ‘25
- 7. 6© Oliver Wyman| NYC-MXD18401-002 Overall travel distribution landscape: online penetration by market US and Western Europe have high penetration but are relatively mature; however, growth has been strong in more emerging markets 55% 48% 31% 29% 25% 23% 1% 6% 18% 7% 12% 8% 0% 4% 8% 12% 16% 20% 0% 10% 20% 30% 40% 50% 60% US Western Europe Eastern Europe Asia Pacific Middle East Latin America Online Penetration (2015) Online Penetration CAGR (2011–2015) Globalonlinetravelpenetration OnlinePenetrationCAGR(2011–2015) Global online travel penetration by region 2015 penetration; 2011–2015 growth rates Source: Phocuswright report - “Online Travel Agencies: More Than a Distribution Channel”; Oliver Wyman Analysis
- 8. 7© Oliver Wyman| NYC-MXD18401-002 Hotel distribution channel mix projections OTA and other online intermediaries are likely to represent over 1/3 of all hotel business in the next 10 years 31% 26% 14% 4% 12% 3% 19% 18% 1% 8% 15% 34% 8% 7% 2014 2025 26% Groups Property-direct (walk-ins) CRS Brand.com (w/o referrals) Brand.com (referrals/meta) OTAs & others GDSs Competing with OTAs and other intermediaries: • The strongest growth will come from online travel intermediaries as share shifts from traditional offline direct channels (CRS and property direct) Competing with referrals on Brand.com: • Additional share shift within the online direct channel (brand.com) will come from referrals from intermediaries such as Google and Apple For each 1% shift from direct channels to commissionable intermediaries (e.g. OTAs), commissions costs to the industry increase by ~$400 MM (based on 2024 market size) and equates to a $10 BN increase in the next 10 years US total room night demand by channel (transient & group) % share based on number of room nights Trend supporting channel shift Source: Distribution Channel Analysis: A Guide for Hotels, TravelClick NADR (2011–2013), and Oliver Wyman analysis
- 9. FUTURE WINNERS IN THEDIGITAL LANDSCAPE
- 10. 9© Oliver Wyman| NYC-MXD18401-002 Pattern description Hotel implications Pattern 1 Dominant accelerated growth models: The scalability of Internet distribution now plays in favor of the leaders Large scale digital competitors will: • Enter quickly and without warning • Target the “low hanging fruit” by focusing on specific customer and hotel segments • Take a loss leader position while they build capability and scale Pattern 2 Solving customer hassles: The big winners will no longer be the technological pioneers, but those who understand and solve the customer’s hassles • Understanding and addressing customer hassles along the entire guest journey is critical to success • Focusing on “the little things” will create a favorable consumer perception and the differentiation necessary to compete with “killer capabilities” of the disruptors Pattern 3 Winning the customer relationship: The relationship is being won by companies that transcend beyond purely transactional models to become interactional or collaborative • Purely transactional relationships with consumers will no longer win, even if targeted and personalized • Relationships must become interactional and collaborative, they must become more human and evoke a dialog based on trust How the new digital competitors will win Looking across industries, we can see emerging patterns in the digital economy that the winners will take advantage of
- 11. 10© Oliver Wyman| NYC-MXD18401-002 Amazon (US) Grainger (US) MSC (US) ANIXTER (Europe) Office direct (UK) Abrasives 15 K 10 K 7 K <1 K Fasteners 60 K 56 K ≈4 K 110 K Hand tools 55 K 39 K 7 K 1 K Paper 9 K 3 K 500.000 600.000 750.000 June 2012 January 2013 July 2013 December 2013 1,250,000 Pattern 1: Dominant accelerated growth models Large scale digital players such as Amazon have demonstrated an ability to enter (and exit) markets rapidly in targeted segments Amazon Destinations was launched, tested, and shut down in less than 1 year Speed of Amazon’s market penetration – Supply in the US (Number of Amazon supply products online) Selection of products in a few representative categories Note: Compared selection of products, December 15, 2013
- 12. 11© Oliver Wyman| NYC-MXD18401-002 Hassles solved Perceived added value Easily find risk-free carpooling solutions A movie suggested in a few clicks without paying per view, no matter what device I use for the service A vacation home without the hassle 50% cheaper than the train 90% cheaper than owning a vehicle Unlimited offer (25,000 films in the US), $9 a month versus 1 film = $4 30–40% cheaper than residences or hotels A car when I need it without the hassle of ownership (purchase cost, parking, maintenance) Pattern 2: Solving customer hassles (1/2) Digital players are stimulating latent demand by focusing on customer hassles…
- 13. 12© Oliver Wyman| NYC-MXD18401-002 Customers feel compelled to use multiple sites to shop and compare rates Pattern 2: Solving customer hassles (2/2) …and the travel industry is no exception, with tech-enabled competitors seeking to solve hassles along all points of the guest journey Guest journey Customerhappiness Explore and discover Research and plan Book and buy Travel and stay Share and rate Refine and add‐on Customers want content that inspires and appeals to their travel intentions Customers plan airfare, hotel, and destination activities in separate places Coordinating multiple traveler itineraries (e.g. one car for two people) is difficult Information about entertainment options on property or in the local vicinity is limited Many aspects of the reserved experience are not guaranteed (e.g. adjoining rooms) Consumers don’t feel rewarded for sharing Tech-enabled competitors (examples) Owned by Priceline Owned by Priceline
- 14. 13© Oliver Wyman| NYC-MXD18401-002 2000 2004 2008 2011 2014 Phase 3 Interactional Phase 4 Collaborative Mobile economy Phase 1 Search Phase 2 Transactional Phase 5 Connected objects Massive spread of digital INTERACTIONAL MODELS 3.8 h 5.8 h 12% 21% 49% 2.6 h Average time connected in US Total time online (h) Time mobile device (% of time online) 2017F 6.5 h 55% Pattern 3: Winning the customer relationship (1/2) Consumers will gravitate to more interactional models of engagement as they increasingly spend more time on their mobile devices… Source: Oliver Wyman analysis, E-marketer, Adage advertising, The Digital future project
- 15. 14© Oliver Wyman| NYC-MXD18401-002 Market value 2009–2013 Billion USD – Top 30 digital firms (excluding Apple) 1,000 600 200 Search Transactional Interactional Collaborative (Google, Yahoo, etc.) (Amazon, Priceline, Rakuten, Expedia, etc.) (Facebook, LinkedIn, Netflix, YouTube) (AirBnB, Uber, HomeAway,Blablacar) 2009 2010 2011 2012 2013 2014 Pattern 3: Winning the customer relationship (2/2) …and these collaborative and interactional models represent 31% of the value of the Top 30 digital firms • Seek interaction that transcends beyond purely transactional in an effort to build trust and make them select your brand as their brand of choice (e.g. Convey a sense of always helping) • Develop favorable consumer perception as a defensive posture against strengths like aggregation • Look to partner early • Work to find areas for mutual value exchange (e.g. content for leads) • Find ways to guide customers to your direct or preferred channels Sample strategy Recent value growth has been strongest for collaborative and interactional models… …and hotel companies must develop strategies that address both traditional and “new” competitors Source: Thomson, Bloomberg, Forbes, E-marketer, Adage advertising, Analysis Mason, The Digital future project
- 16. 15© Oliver Wyman| NYC-MXD18401-002 Given the rapid evolution of digital and the next wave of disruptive competitors, what do hotel companies need to do?
- 17. 16© Oliver Wyman| NYC-MXD18401-002 Hotel industry call to action Hotel companies must think differently about the role of distribution and the revenue agenda they develop and manage 1 2 3 4 5 Understand the role of distribution in the revenue pipeline Build a holistic operating model for distribution Define the desired segment and channel mix Develop and manage the revenue agenda Measure performance through RevPARD
- 18. 17© Oliver Wyman| NYC-MXD18401-002 Strategy Revenue Management Merchandising Advertising and Marketing Sales and Distribution Product Delivery Loyalty and CRM Product Design Property Portfolio Planning How can our loyalty program help us reach customers earlier in the funnel? Are our partnerships and reward mechanisms aligned? What changes are planned on property that can further differentiate our strategy How well does our existing partnership strategy support our new strategic intensions? Where do the “killer apps” we wish to developed fit into our ecommerce and digital roadmap? How does our price positioning by market vary? Where do we need the greatest assistance with generating and capturing demand? What variations must be considered by brand and geography? Do we have critical mass in supply to achieve winning distribution in the market? Understand the role of distribution Developing a compelling and thoughtful strategy requires an understanding of the role of distribution along hospitality revenue pipeline Hospitality Revenue Pipeline 1
- 19. 18© Oliver Wyman| NYC-MXD18401-002 Properties Voice Web OTA MetaGDSProp ConsumersChannels Partner and Channel Management Partner and Channel Monitoring Trouble- shooting and Support Hotel/Product/ Partner Setup Content Management Standards and Communication Partner and Channel Connectivity Distribution Marketing Partner and Channel Performance Partner and Channel Strategy Commercial Agreements Technology Process Organization Distribution strategy activity Distribution operations activity Build a holistic distribution operating model The responsibilities of a distribution function must cover strategy, operations, technology, and commercial agreements 2 Illustrative
- 20. 19© Oliver Wyman| NYC-MXD18401-002 1) What are the current and planned initiatives that are part of the today’s distribution strategy? 2) What are the key beliefs and assumptions underpinning these strategies and initiatives? 3) Value mapping analysis: What is the current and desired demand mix? 20%0% 0% 100%80%60%40% 20% 100% 80% 60% 40% Group Corp. Call Center Property Direct Whlsle Web Leisure Retail 40% 60% 80%20% 100%0% Corp. Property Direct Leisure Retail Whlsle Group Web Call Center Current Desired 1) What are the current customer preferences for accessing content and transacting across each step in the guest journey? 2) How are these preferences changing? What new offers are the most appealing? 3) What are the biggest perceived hassles in the guest journey? How do the most valuable customers want to book? High Medium Low Opaque OTA TMC Property direct Call center Web Group Whlsle Corpo- rate Retail Leisure Segment and channel mix Customer channel preferences Illustrative value mapping analysis output Illustrative customer research output 3 Illustrative Define desired segment and channel mix Isolating and targeting the channel preferences of your most valuable customers is integral to your strategy Where are customers booking today and in the future?
- 21. 20© Oliver Wyman| NYC-MXD18401-002 Develop and manage the revenue agenda A comprehensive revenue agenda include initiatives that drive compliance, optimization, and innovation REVENUE AGENDA Compliance with best practices and agreements Optimization of existing products with improved strategies Innovation of rate products and distribution capabilities Distribution and Revenue Management Initiatives “Walk-up” discounting Dynamic Pricing by Segment Online group intermediation Wholesale online platform Loyalty Member Rates Digital CRMOTA margins Ancillary sales Rate parity Illustrative Standard rate programs Opaque channel availability Book direct campaigns Distribution and revenue management strategies can collectively drive 2–5% increase in revenue while controlling or decreasing distribution costs 4
- 22. 21© Oliver Wyman| NYC-MXD18401-002 Net RevPAR (RevPARD) Inventory Mgmt. Scorecard Pricing Scorecard Distribution Scorecard Do we have the right rates in the market? RevPAR and RevPAR Index Distribution Cost (as % of revenue) Do we make the right rates available at the right time? Do we distribute our rates as efficiently as possible? RevPAR × (1 – DistCost%) Measure RevPARD Tracking your cost of distribution will enable you to measure the true net-revenue of your distribution and revenue management strategies Illustrative 5
- 23. 22© Oliver Wyman| NYC-MXD18401-002 Hoteliers, disrupt before someone else does 9 September 2015 Reserving the travel experience 06 February 2014 Creating a digital ecosystem 13 August 2014 For more information and insight Oliver Wyman has a wide range of publications available on its website, www.oliverwyman.com Hotels, OTAs battle for guest experience 11 March 2015 Cutting edge whitepapers Industry surveys and points of view Industry journal articles
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