ATLANTA—Is brand segmentation a good thing for the hotel industry? Well, it seems executives agree: Demand and location are what matter.
Hosted and sponsored by Choice Hotels International Inc., the roundtable, titled “Playing the Field: Diversifying Your Brand Portfolio,” examined the benefits—or pitfalls—of more choices and the challenges of over-segmentation. It was co-moderated by Hotel Business’ Christina Trauthwein, editor-in-chief, and Allen Rolleri, publisher.
“Everything today is segmented,” said J.P. Ford, SVP and director of business development, Lodging Econometrics. “Everyone is trying to differentiate themselves.”
The key to avoiding over-segmentation in the hospitality space is to focus on market demand—go where rooms are needed. “Change is inevitable,” said Brent LeBlanc, SVP, Peachtree Hotel Group. “New brands are needed, but it goes back to the fundamentals. If there’s deep demand in a market—hotel rooms are needed—you build it, and it will work. If it’s not needed, it’s not going to work.”
“For us, fundamentally, we try not to get caught up more in the niche branding opportunities that are out there and try to focus on the core brands that the customer knows—and create value for them from those brandings,” said Chas Henry, director of development, GF Management. That includes “adding in additional value features and experiences that make the core-branded property they may know unique versus staying at one of the new micro hotels or something that gives a different experience; that’s been our philosophy.”
Are guests confused?
Hotel companies have introduced nearly 100 brands since January 2015, according to data provided by Lodging Econometrics.
Exposed to more brands now than ever before, guests are sifting through a lot of noise when searching for the right experience, but the truth is: Consumers aren’t the only ones in need of some guidance.
Even though they’re in the middle of it all, hoteliers also struggle to differentiate brands.
“We eat and sleep and live this business, right?” LeBlanc said. “Isn’t it a little silly? I mean, I’m confused. I look at Marriott, Hilton and some of the others that just every other week come out with a new brand, and I’m confused—if I’m confused, and we eat, sleep and live this business, what does the consumer think?”
When it comes to segmentation, not all guests are confused. Guests who travel often are more than likely aware of the differences among brands—or at least the major ones.
“I think there is confusion, but if you look at the sophisticated traveler, there’s probably a little less because they’re privy to the brands,” said Ravi Patel, president, Hawkeye Hotels.
On the other hand, the consumer may just be looking for something else out there. “I don’t know if the consumer really is confused,” said Kerry Ranson, chief development officer, HP Hotels. “I don’t know if they care. I think the consumer is looking for a different experience everywhere they’re going.”
One thing brands and franchisors can do is find a better way to help deliver to those consumers, he said.
“You’ve got to get back to what these tech companies have done; they’ve found a way to deliver a one-stop shop for these consumers,” Ranson said. “They’re tracking them at all points, and that’s what we need from the franchisor. Figure out what they’re doing, figure out what they need, and then start delivering these different segments.”
Educating the consumers
Educating the consumer is where brands can help owners. For example, Choice Hotels uses its loyalty program, Choice Privileges, to guide guests to properties best fitting their needs.
“You’ve got a loyal guest, and then you can target and direct the marketing for them to understand where the segmentation lies,” said Tom Nee, VP of franchise development, Choice Hotels. “I think the bigger the parent company, the less confusion there is with the consumer for segmentation.”
There are some types of hotel properties—especially when they’re new—where education is needed up front; otherwise, there could be head-scratching guests. Take micro hotels, for example. Known for their smaller room sizes, micro hotels are a shock to consumers not expecting unconventional guestrooms.
Patel recalled a recent experience at a newly opened micro hotel. “They spent a lot of time explaining to me what the room was going to be like, what the public space experience was going to be like because I have to assume that the first 60 days must have been a little chaotic with what the consumers thought walking in the door,” he said.
While the property did its best to educate arriving guests, should there have been additional work completed up front?
“I think it’s incumbent on the brands to keep the swim lanes in place and have the brands stand for something,” said Brian Quinn, head of development, new construction, Choice Hotels.
Some hoteliers don’t think the branding companies are doing enough to educate customers on new brands. “When have you seen a big national ad campaign for any of these new brands out there?” asked Ted Ent, CEO, Innisfree Hotels. “The onus is on us to get the message out and to educate the customer.”
Even though this may be the case, there are some branding companies making an effort.
“I think at Choice, though, we take that responsibility incredibly seriously,” Quinn said. “We’ve got an organic approach. You guys saw the ‘Badda Book. Badda Boom’ campaign—a big advertising buy for Choice.
“That messaging is going to evolve into a new message shortly, but the thought was to generate some demand, drive them to Choice.com, which is the lowest cost channel for our franchisees, and then hit them with the Privileges message, so we can start to dig in a little bit, start to message them, start to teach them about the brands and make certain offers. We absolutely see that as part of our responsibility,” he added.
Marketing hasn’t always been an industry strength, however. “Historically, as an industry, we’ve not been an early adopter of marketing,” said Brad Rahinsky, president and CEO, Hotel Equities. “We kind of followed behind other industries. Intelligent push marketing—to identify the consumer, where he or she is going to get in front of their travel decision—that’s something we haven’t been great at in the past. I think we’re doing a much better job of that now. We’re more focused on it. I think that will, more often than not, win the day if all things are equal.”
While marketing does play a role in educating guests, rate-driven markets have different needs. “Obviously, the marketing campaigns are going to help, but for us, in the markets that we’re in, it’s still rate driven, so the loyalty programs are really going to be what our guests are pinpointing,” said Kristen Myers, VP of development, Raines Hospitality. “They’ll go there—they’re searching for a certain location and rate, and to us, learning about the new brand is them physically stepping a foot in the brand.”
“We focus on market first,” said Judd Ledet, VP of development, Noble Investment Group. “We figure everything else out from there, so our segmentation is pretty focused. I think having multiple brands within a certain segment creates opportunity, which we’re able to capitalize on when needed.”
What about the millennials?
It wouldn’t be a roundtable without a discussion about millennials, and how they view segmentation within the industry. Some believe millennials aren’t loyal, but that’s not always the case.
“I think loyalty is still extremely important,” Myers said. “That’s where they’re going to start. They’re going to go to their preferred loyalty brand, and then look at rate and location from there, but I think that the brands are seeing a shift. Some of the hard brands are bringing in some of the local flair, culture, etc., even if it’s just an offering at the bar or artwork in the meeting room.”
Then, there are millennials who are in the market for something more. “Although loyalty is important, I think millennials are heavily value based,” said Adam Suleman, EVP, Equinox Hospitality. “They have probably the most accessibility to research pricing, from OTAs to apps. I think it’s no coincidence that Airbnb bought HotelTonight for that fact because millennials love Airbnb, so a lot of times, I think it can be confusing to a millennial what the brands are because there’s just so much noise out there—on social media and general marketing.
“Going back to that point about confusion, in terms of brands, when they start introducing new flags, one of the things on the branding side they don’t realize for an owner or operator or franchisee is they start cannibalizing their own reservation systems,” he continued. “So we’ve been in markets where we have a particular brand, and then they introduce a different type of segment in that market; we found that we have to add that new brand—even though that’s not a totally competitive brand—into our comp set because they’re actually taking away our loyalty guests and they’re staying at the other hotel, so that can be a tricky part. There’s an area of protection if you have a certain franchise, but in certain other brands, you start losing other market share. It’s the same guest you’re essentially competing for.”
Brands are doing their best to interact with this generation by focusing more on authenticity and attempting to connect with guests on an emotional level. “We went to an Instant Rewards program, so they get their points,” Quinn said. “They also get a nod when they check in: a Starbucks coupon or an Uber reward. We’re doing that on purpose because that traveler wants an instant recognition and an instant reward; they’re not so worried about the miles that they’re building up over time. And, it’s got to be rooted in the consumer.”
There’s another aspect to determining how millennials are interacting with brands.
“A lot of what we see is—who’s paying?” he said. “Are they traveling on their own dime, or are they traveling on somebody else’s dime? That has a big impact on where they stay and the amenity package they want.”
Branding to a particular generation does have its pitfalls, however: What happens when a particular generation ages?
Enter Gen Zs
Most of the talk right now is around millennials and what they want at properties. There’s another generation moving up, and eventually, they’ll be in need of rooms.
“In the next cycle, it’s interesting to imagine what the brands will be designing and what the standards [will be] like for a generation that maybe doesn’t use interpersonal skills as much; there’s minimal interaction with other people,” Suleman said.
Designing a brand with one generation in mind could negatively impact properties down the road, especially since contracts are long-term deals.
“Isn’t there inherent risk if you just market to one generation?” asked Ent. “They’re going to get older, get the minivan and the kids, and their taste levels are going to change. Now, you’ve got a bunch of hotels that are geared toward millennials.
“Essentially, we were all millenials at one time. We were all twentysomethings with no money, but we still wanted to go see the world. How did we figure that out?” he mused.
There are ways for brands to target particular psychographics while staying flexible. “I think you can flex that muscle with the consumer, but do it in a very deliberate way,” Quinn said.
“My mom, who’s 80, is a millennial,” Rahinsky said. “She behaves like a millennial, and when she travels, which is now often, she wants to travel like a millennial. So, I think instead of looking at age categories or even a financial category, you’ve got to look at it as an experience category.”
Power of the purse
“Hotels, like generations, are a testament to the generation that had the spending power in that period of time,” Suleman said. “For example, my father’s generation, he was used to lounge access and getting the cocktail in the afternoon and maybe using pay-per-view at night, and then as you get through younger generations, brands start pushing better internet and things that are more geared toward the people who are purchasing them. I think when you look at Generation Zs, they’ll be rebelling against the previous generation, just like the natural sphere for the world. That’s kind of the exciting part to think about with what the future of hotels will look like.”
“The Zs and the Xers and the boomers do have one common element—the inspiration for travel is off the charts for those three demos, which is great for our industry,” Quinn said. “There are different stages of their earning power and what they value, right?”
Properties too narrow?
While it’s normal for hotel brands to target a particular market segment, going too granular could create problems.
“I think you do have to react to the consumer,” Quinn said. “Every brand, to a certain extent, is a lifestyle brand. The elements that are there are there for a reason. I do think you can create enough of a feel to be sensitive to that psychographic or behavioral thing that’s become important to the consumer, without overdoing it and creating too much cost for the franchisee or make it too hard to deliver. You can do that with color. You can do that with coffee. You can do that with amenities you can turn on and turn off.
“If you overdo it, though, and get too narrow, then you are talking to that consumer who may be powerful at that point, but then it does get hard to stretch, so I think you have to deliver on enough of it, but you’ve got to be able to scale or else you’re going to become too tight,” he said.
Even offering coffee in the lobby can get too granular at properties. Instead of offering just regular coffee to guests, which would be more inclusive by welcoming the majority of coffee drinkers, some brands try attracting another type of consumer, one with a specific palette.
“Most everybody is expecting coffee in the lobby, but [what about] that guest who really demands the gourmet coffee? To me, I won’t even notice the gourmet coffee, I’ll just see they’re offering it,” Nee said. “Are you doing that to incrementally attract that guest? It’s really important that the brand company, when they’re creating this, is not cannibalizing their other brands with that customer. They really need to understand and know that customer.”
Even though some hotel developers target a specific consumer when developing a particular property, that doesn’t necessarily mean the bulk of the property’s guests is going to be made up of that particular consumer.
“I think, even as a developer—and a lot of other development companies can speak on this as well—if I’m looking at developing a micro-branded hotel, I know that it’s geared toward a certain type of clientele, but I’m not banking on that clientele to fill that entire hotel,” Patel said.
“I think even though we are going granular, that’s not the only business that’s coming in the door,” he said. “You have to go into markets where you understand it’s very diverse in terms of the demographic of individuals coming there, lots of diversity of demand generators, and so maybe you’ll capture 20-30% of what the brand was built for.”
Location, location, location
Ultimately, when it comes to whether a particular brand will fit in a market, location is key.
“Location, location, location,” Ranson said. “Don’t paint yourself into a box. I think that’s the world we’re in—recognizing that there’s something for everybody out there. You’ve got to find what’s going to fit for that market and that consumer.
Typically, strong markets—such as Boston, Washington and Los Angeles—are ones with entry points into the country in cities that have strong economic and diverse demand generators.
“Many times, [these markets] consist of corporate 500 locations, state capitals, medical centers, financial service centers, historic regions and tourism,” Ford said. “If you find a city that has those six legs to a stool, if one of those legs breaks, that stool is still going to stand, and you’re going to be OK.” HB