Onefinestay founder Greg Marsh used his keynote speech at the 2016 Revenue Strategy Summit to distill hotels’ chances for fighting back against OTAs to one D-word. And it wasn’t “disruption.” It was “differentiation.”
“Differentiated does not mean made differently,” Marsh told the crowd gathered at the Renaissance Washington, D.C. “It means made differently in a way that the customer is willing to pay more for.”
He cited an example of a Ferrari sports car fetching nearly $250,000 — more than 10 times the price of the best-selling car in the United States, the Nissan Altima — due to unassailable standards for quality and nothing in the manufacturing or distribution of that car being outsourced.
To contrast that with the commoditization going on in the hotel industry, Marsh showed side-by-side pictures of two hotel rooms, one from Hilton and one from Marriott. He switched the logos on the pictures back and forth, and the audience couldn’t tell one brand’s room from the other’s. That was the point.
“These [hotel rooms] had better be different,” Marsh said. “Because if they’re not different, then you’re selling a commodity. And if you’re selling a commodity, there’s only one way you can win selling it, and that’s to do the selling and not the manufacturing of it. Or it’s to be a cost leader.”
The onefinestay Difference
Years ago, Marsh had an epiphany — what he called his “no lights moment” — walking through a fancy London neighborhood filled with million-dollar homes, none of which were occupied or had any lights on. The idea for his luxury-home rental business, onefinestay, was born from Marsh asking himself how a company could make it easier for the owners of these properties to have them occupied and taken care of while they were away.
He said onefinestay occupies a differentiated niche because of the smaller number of super-high-end properties it rents out, as well as the level of service provided to owners and guests that goes far and away above Airbnb and other sharing economy sites. It serves a very specific guest with very specific travel needs, Marsh said.
“Maybe all this hype about disruption and change and threats is just journalists creating column inches,” he added.
France-based Accor Hotels bought into the hype enough, however. In April, it purchased a 49% stake in onefinestay for $169 million. But Marsh reiterated that Accor sees onefinestay as differentiated, not directly in competition.
Accor is letting onefinestay continue to operate like an independent company “precisely because they’re looking at what we do and say it’s very different from the hotel operations they know,” he said.
The True Hotel Disruptors: OTAs, Airbnb and Uber
The online travel agencies and other intermediaries are the real disruptors and “have been eating your lunch,” Marsh told the audience. And they’re going to keep eating it because the product is undifferentiated.
Booking.com has revenues that exceed the revenues of all the major hotel chains combined, he said, and it’s growing faster than any hotel chain, and that won’t stop unless hotels act.
“Not only is it taking revenues, but it’s going to start taking customer relationships and loyalty,” he said. “Why would I start with a hotel brand when I could start with a brand that provides a better booking experience, more choice, more selection and price parity? Why wouldn’t I start with the aggregator?”
The OTAs’ competitive advantages are likely to only widen if the status quo remains, Marsh said, because those distributors are continually reinvesting their profits into technology, faster than most hotel brands can. The OTAs are effectively “doing nothing else but building the best booking experience.”
Sharing economy services like Airbnb and Uber, not to mention on-demand services for food delivery or even massage therapy, only strengthen that disruption, he added. “I have in my pocket at any one time, because of these apps, a set of lifestyle services that allows me to live in a princely fashion and on a pay-as-you-go basis,” he said, waving a smartphone.
The app economy is changing the way consumers treat their homes — and their hotel rooms.
“This is what hotels provided: They gave me access to those kinds of conveniences and services while I was away from my home city,” Marsh said. “Now I don’t need that from a hotel anymore, certainly while I’m in urban centers. I’ve been trained to use the remote control in my pocket.”
How Can Hotels Respond to Threats?
Marsh said hospitality companies have three choices in response to OTAs and digital disruptors capturing their revenue and customer base.
First, they could be the true cost leaders, offering the lowest possible price for a no-frills experience, automating and outsourcing every part of a hotel stay they possibly can. It’s not the way to engender consumer loyalty, Marsh said — citing low-cost European airline Ryanair, which “everybody hates” but nonetheless uses.
Second, a company can aggressively differentiate like Ferrari or Apple, having the highest-cost product on the market but justifying it through uncompromising quality and branding standards.
A third choice, for which onefinestay opted, Marsh said, is to own a particular niche of customers. The investments in people and product development are no cheaper, but the singular focus on a core customer base increases a brand’s chances of differentiation and success.
“We picked one particular set of customers with a particular set of needs,” Marsh said, “and we said that if we can meet that group’s needs, we don’t need to be meeting everyone else’s.”