For years the online travel market has been a boon for travelers. We all know that.
But since 2009, the price of Chanel’s quilted handbag and Cartier’s Trinity gold bracelet have increased 70% and 48%, respectively.
However, the average price of a luxury hotel room has increased just 10% in the same period.
NB: This is an analysis by Scott Galloway, founder of L2, Business Intelligence for Digital.
Transparency, a fragmented market, and a near-zero incremental cost product (rooms) create an ecosystem where only the strongest and most innovative hoteliers can grow revenues.
As the global economy recovers from recession and travel expenditures return to pre-2009 levels, the biggest winners have been Google and travel firms born of zeroes and ones.
The search engine now garners five percent of its total revenue from two firms: Priceline and Expedia; and travel is its third biggest sector behind financial services and retail.
In addition, TripAdvisor and Airbnb, founded in 2000 and 2008, respectively, boast larger market values than Hyatt Hotels, InterContinental Hotels Group and Shangri-La Hotels and Resorts.
As margin gets starched from third-party purchase paths, some hotel firms have leveraged scale and brand to capture direct bookings via robust sites, reversing margin erosion.
In Q1 2014, hotel brand sites captured 27.1% of bookings, vs.13.2% by online travel Agencies. However, OTA share grew 9.2% year on year, compared to 6.1% for brand sites.
In addition, metasearch is playing a greater role in the decision-making process - 28% of US leisure travelers, for example, report using metasearch engines in 2013 (including 39% of travelers aged 18-36), up from 17% a year ago.
As we know, in March 2013, Expedia took a majority stake in European metasearch site Trivago, and Priceline purchased travel search engine Kayak in November 2012.
TripAdvisor also buttressed its massive review engine with metasearch capabilities. The company’s product focus for 2014 is the introduction of direct booking within its apps, moving the travel giant further down the transaction funnel.
Fighting back
For hotel brands, understanding technology and the surrounding ecosystem is not an upgrade, but a requisite.
First, the desktop revolutionized travel bookings and now mobile is revolutionizing bookings, forcing brands to develop a strategy.
A quarter of travelers who use smartphones during the booking process complete the transaction on a mobile device versus 75% who book via other devices, highlighting the influence of mobile on other channels.
The technology provides a significant opportunity to signal innovation; 61% of prestige hoteliers are experimenting with property iPhone apps, and 65% are experimenting with property iPad apps to enhance guest stays.
The news isn’t entirely bleak for so-called prestige hotel brands. Brand and a burning platform are a powerful cocktail.
Companies, including Starwood Hotels & Resorts Worldwide and the Four Seasons Hotels & Resorts, demonstrate that management teams that embrace a new world can defend and enhance their turf.
In an economy where digital escalates the culling process and creates a winner-take-all economy, online competence may be the point of variance that enables a hotel brand to outperform peers.
Loyalty programs that use digital as connective tissue, robust digital marketing, and new devices that enhance guest stays will likely be the signals of winners in an increasingly digital market.
NB: This is an analysis by Scott Galloway, founder of L2, Business Intelligence for Digital.
NB2: Download the full report - L2 Digital IQ Index: Prestige Hotels.
NB3: Digital hotel image via Shutterstock.