|By Max Starkov and Jason Price, February 2007
In 2007, over one-third of all hotel bookings will be generated from
the Internet in North America. This dramatic channel shift has created
unprecedented price transparency and price-driven marketing in hospitality,
thus further commoditizing the hotel product. How are hoteliers handling
the increased commoditization of the hotel product, especially in the current
rate parity and best rate guarantee environment? How can hoteliers de-commoditize
their product offerings and provide a unique value proposition to the hotel
Commoditization of hotel product has occurred over the past eleven years
or so, largely because of the unprecedented price transparency brought
on by the Internet and the unhealthy industry practices of competing online
on price and price alone. In addition, third-party online intermediaries
and their price-focused marketing initiatives have been responsible for
the further commoditization of hotel products and services.
Here are several important developments in distribution in hospitality
that have contributed one way or another to commoditization of the hotel
Commoditization of Hotel Product and the Travel Consumer
The shift from GDS, call center, and the offline channel to Internet Distribution,
which means a shift toward complete price transparency and easy “shopping
around” of hotel rates and offerings.
Working with third-party online intermediaries that propagate the Web with
price-driven hotel offers.
Rate Parity across all distribution channels has become the industry norm
over the last 5 years. Though a highly positive move aimed to prevent price
erosion, rate parity has contributed to the commoditization of the hotel
product and services.
Best Internet Rate Guarantee has become the industry norm—this is good
news. The bad news is that every player in the industry offers best rate
guarantees, and this marketing aspect has stopped being a differentiating
Matching the rates of the hotel’s comp set has become the industry norm.
Rate comparison reports provide a quick snapshot of the hotel comp set’s
current, 30- and 60-day out rates, so maintaining this “comp set rate consistency”
has never been easier.
Just imagine how the hotel world looks through the eyes of the average
Under the scenario described above, how would the average travel consumer
select a hotel? Obviously, additional factors play in the property selection
You find practically the same rates for comparable hotels (same room type/stay
period) in any destination (i.e. same rate for midscale limited service
hotels, same rate for economy hotels, same rate for full service hotels,
You find the same rates for the same hotel (same room type/stay period)
whether you research the hotel’s own website or Expedia and Orbitz, call
the hotel 1-800 number or speak to a travel agent.
Brand enhancement and appealing customer retention programs are expensive,
long-term objectives. Providing unique value proposition to the potential
customer and differentiating your hotel product from what the competition
is offering are much easier initiatives to implement.
Familiarity with the property (i.e. return guests, family and friend referrals,
Brand recognition (i.e. strength of the brand, etc.)
Customer retention programs in place (i.e. reward programs). Loyalty programs
are very popular with travelers and especially with people who book online.
Forrester reports that over 80% of Online Bookers belong to some kind of
travel loyalty program, and more than 60% to a supplier-sponsored one.
The problem is that many travel consumers belong to several reward programs,
including the ones that belong to your comp set.
Last, but not least, the “value proposition” of a particular hotel or hotel
offering. In our view this is the most important single factor to facilitate
the decision process. This factor alone is as powerful as all other 3 factors
Aspects of the De-Commoditization Strategy in Hospitality
A comprehensive De-Commoditization Strategy has the important goal of
providing a unique value proposition to hotel customers. This strategy
identifies unique aspects of a hotel product and destination, and develops
a differentiated approach to a hotel’s key customer segments. This strategy
allows hoteliers to create unique specials and packages, event-related
getaways, seasonal promotions, and launch marketing initiatives that provide
unique value to the customer.
A robust de-commoditization strategy involves the following:
Back to Basics: Value vs. Price Equation
Focus on the value side of the Price vs. Value Equation
Differentiation of the hotel product offering from offerings by the comp
Differentiation of the hotel offering from the indirect channels (i.e.
third-party online intermediaries)
Differentiated approach to the hotel’s different key customer segments
(i.e. family travel, business travel, meeting planers, wedding planners,
As described above, focusing on the price side of the Value vs. Price
Equation is the main driver toward commoditization in the hotel industry.
What should hoteliers do to change the current situation?
Specials & Packages: Hotelier’s Important De-Commoditization Tool
Stop competing on price only. Hoteliers will never be able to attract and
retain more sophisticated travel shoppers and more affluent customers if
they compete on price alone.
Re-focus the hotel product offering and marketing on the value side of
the Value vs. Price Equation.
When designing the hotel marketing strategy, create unique hotel offers
based on unique product attributes and attributes in the local environment.
Create distinctive product offerings designed to provide a unique value
proposition to your hotel customers, such as suite specials and romantic
getaways to boost sales of suites and hotel packages such as family packages,
weekend getaways, museum packages, seasonal packages, golf packages, and
spa packages, to name a few.
Travel consumers look for product uniqueness, special opportunities
and value. Creating unique specials and packages, event-related getaways,
seasonal promotions and other marketing initiatives that provide unique
value to the customer should become an important aspect of the hotelier’s
According to typical traffic analytic reports of HeBS clients, Specials
& Packages, or Special Offers, is one of the top three most popular
visited pages. This suggests consumers are shopping for value. Our advice
is to give them value.
A recent online survey of visitors to a major hotel brand website, conducted
by HeBS, underscores the importance of Special Prices & Promotions,
which together with the Best Internet Rate Guarantee, comprise the most
important reason for people to book on the hotel brand site:
“Which of the following would influence you to book directly on the
brand website rather than on other travel web sites (e.g. Expedia.com,
Travelocity.com)? Please select all that apply:”
Here are the results (all are statistically significant):
Best Internet Rate Guarantee:
Special Prices & Promotions:
Easier to make/change reservations:
Better descriptions of rooms:
Ability to find more info about the hotel:
More photos of hotel/rooms:
Ability to find more info about the location:
More info on cancellation policy:
Can Book packages with hotel, air, car, etc.
A hotel special offer or promotion creates not only strong value proposition
to potential customers, but a highly marketable product the hotel can now
promote via search marketing, email marketing, online sponsorships and
display advertising, and in the print media.
Specials and packages, mandated by the major brands, have become the
norm in the industry. Good examples for brand-wide special offers are Marriott’s
“Stay for Breakfast” special package program for the family market, and
Choice Hotels’ “Summer Getaways” for the leisure market. Recent market
research conducted by HeBS found that there is at least one brand-wide
special offer on 9 of the 10 top hotel brand websites at any given time.
Many major brands are running 2-3 brand-mandated special offer programs
at any given time.
How do major hotel brands perform in the Value vs. Price equation?
HeBS answered this question by evaluating 7 major hotel brands. The
conclusion was that most major hotel brands were underperforming with their
product offerings. They consistently ignored the creation of differentiated
products and lost sight of offering unique value.
HeBS uses its proprietary CyberScore system to evaluate the unique value
proposition and availability of brand-mandated and brand-wide specials
and packages on the major hotel brand websites. Evaluated were a total
of 10 critical features that best represent the value equation. The maximum
score is 100 (10 features, 10 points each):
Starwood ranked first with 88 out of 100 points (88% utilization of
best practices), followed by Intercontinental Hotel Group (76%) and Marriott
and Best Western with 60 points and 60% utilization of best practices.
The remaining 3 brands scored in the 22%-49% range.
Starwood and Intercontinental Hotel Group best illustrated the Value
side of the equation by offering a diverse range of brand-mandated special
offers, and unique specials and packages. This value proposition is reflected
not only on their website, but in brand recognition, word of mouth, increase
in revenues revenue growth, and shareholder value.
The Value vs. Price discussion affects most industries and the resounding
conclusion has always been that consumers choose value. The unique value
proposition intertwined in the product offering, value of service, honesty
of price, and the additional touch of value fights commoditization. Competing
on price and price alone, particularly in the service industry is a last
ditch effort. Nowhere is this more important than in the hospitality industry
where pricing has become so competitive.
The trend toward commoditization of the hotel product is a fact of life,
due to a dramatic shift to the online channel and its complete price transparency,
price-focused online marketing, third-party online intermediaries, rate
parity across all channels, and best rate guarantees.
Working hard against further commoditization of the hotel product and
services should become an important objective in 2007. Hoteliers have to
identify unique aspects of the hotel product and destination and develop
a unique value proposition to the hotel customer, utilizing a differentiated
approach to key customer segments (i.e. family travel, business travel,
meeting planers, wedding planners, etc.). A good start is creating unique
specials and packages, event-related getaways, seasonal promotions and
other marketing initiatives that provide unique value to the customer.
Consider seeking advice from an experienced Internet marketing hospitality
consultancy to help you build a robust De-Commoditization Strategy and
focus your marketing initiatives on the value side of the Price vs. Value
About the Authors:
Starkov is Chief eBusiness Strategist and Jason Price is EVP at Hospitality
eBusiness Strategies (HeBS), the industry’s leading Internet marketing
strategy consulting firm for the hospitality vertical, based in New York
City (www.hospitalityebusiness.com). HeBS has pioneered many of the
"best practices" in hotel Internet marketing and direct online distribution.
The firm specializes in helping hoteliers build their direct Internet marketing
and distribution strategy, boost the hotel Internet marketing presence,
establish interactive relationships with their customers, and significantly
increase direct online bookings and ADRs. A diverse client portfolio of
over 350 top tier major hotel brands, multinational hospitality corporations,
hotel management and representation companies, franchisees and independents,
resorts, casinos and CVBs and has sought and successfully taken advantage
of the firm hospitality Internet marketing expertise. Contact HeBS consultants
at (212)752-8186 or firstname.lastname@example.org.