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by Patrick Quek

When the segmentation bug hit the industry hard and heavy in the Seventies and Eighties, we saw a proliferation of types of lodging products being offered.  The impetus behind this trend was the assumption that special types of accommodations would meet the special needs of the different types of travelers. By offering a distinct type of facility or service, each respective product type would have a unique competitive advantage when attempting to capture its target market segment.  Basically, this is a sound marketing concept.

In recent years, as the lodging industry has enjoyed its prosperity, we have seen a revival in product development:  the hybrid hotel containing an even mix of suite and regular units; vacation-ownership properties with nationally known hotel affiliations; corporate serviced-apartments; and most notably, the mid-priced extended-stay hotel.  Given this resurgence, we thought it would be appropriate to see if the different types of hotels actually possess any competitive advantages in their ability to penetrate different demand segments.

Judging The Mousetraps By Their Guests

To test the theory of niche product development, we analyzed the market mix data from our annual Trends in the Hotel Industry surveys.  In order to analyze the data without a bias, we examined data from both 1990 (near the bottom of the recession) and 1996, a year of record breaking performance.

The following tables compare the market mix by product type.
 
 

Shift In Limited-Service

By far, the product type showing the greatest change in market mix are the limited-service hotels.  Predominantly lower- or mid-priced, these hotels are typically designed to attract guests on a limited budget.  This certainly includes leisure travelers, as well as business travelers on a more restrictive budget.

During the recession, limited-service hotels achieved the highest penetration rate among all property types into the commercial market segment.  However, in 1996, the percentage contribution of individual business travelers to the overall mix of occupied rooms dropped 11.1 percentage points.  One can reasonably assume that the decline in commercial penetration is not because limited-service hotels have become less popular among business people.  Quite simply, it is just the fact the corporate travel budgets were much more restrictive in 1990 forcing business travelers to “trade-down.”.  In addition, the overall volume of leisure travel was depressed, therefore shrinking the size of the potential primary target market for most economy properties.

Meanwhile, the profile of guests staying at full-service hotels has remained relatively stable.  By offering meeting space, these properties have benefited somewhat from the recent increase in corporate related meetings.

Resort Properties Diversify

Another significant shift in market mix can be found in the resort segment market.  In an effort to temper the negative effects of seasonal dependency, we find that resort properties have reached out to business travelers and the meetings segment, therefore becoming less dependent upon leisure travelers.  The mix of leisure guests staying at resort properties has declined from 62.0 to 55.8 percent from 1990 to 1996.

For convention hotels, the contribution of meetings-related business has increased from 49 percent to 53 percent.  Of more significance is the change in the size of meetings accommodated.  In 1990, there was a fairly even split between small conferences and large conventions.  However, in 1996, the ratio of rooms occupied by conventioneers, as compared to the number of room occupied by attendees of small meetings, is 4 to 1.  Once again, as the economy has improved, we have seen an increase not only in the number of conventions and exhibitions, but the number of attendees as well.  This increase is consistent among meetings held by corporations, as well as associations.

Always-Suite Hotels

Perhaps the most consistent performers of the different property types are the all-suites hotels.  In both good times and bad, all-suite hotels have consistently achieved a high penetration rate among business travelers, the primary market segment for which they were designed.  To augment their strong weekday performance, all-suite hotels have also effectively marketed themselves to leisure travelers as viable price/value alternatives compared to the other types of hotels.

When analyzing all the different niche product types, all-suite hotels have the most distinguishable competitive physical feature.  When it comes to lodging, guests can more easily translate and conceptualize the meaning of the word “suite” as opposed to “limited”.  Then, once checked in, it is obvious that the guest room at the all-suite hotel is larger and frequently offers more amenities (refrigerator, microwave, glassware, dishes, etc.)  These tangible competitive features make is easier for travelers to discern the competitive price/value features that all-suite hotels have when compared to the other property types.  And since the price/value comparison can swing either way, all-suite hotels are better suited to compete in a variety of economic conditions than the other types of lodging products.

Differences Discernible During Depression

In general, it appears that the economics factors influencing the choice of the traveler have a greater effect on the market mix of a certain type of hotel than anything attributable to the innate operating or design characteristics of a specific property type.  Therefore, niche products tend to show their strengths not in times of prosperity, but in times of recession.

With current occupancies in excess of 70 percent in most markets, travelers of all types can’t be as discerning when deciding where to stay.  Frequently, they are forced to take whatever hotel is available.  In addition, with the rapid rise in prices, the ability to differentiate product types by rate becomes blurred.  Currently, all hotels are expensive.  Only in a depressed market, when hotels are forced to compete much more fiercely, do we really get to see the relative strengths and weaknesses of the competitive advantages that are supposedly built into the design of each product type.

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