Coping with Commoditization and Disintermediation: Riding the Second Wave of the Online Booking Life
By Michael DiLeva Executive Vice President, The IDT Group | January 27, 2012
As an industry that combines hands-on services with bricks and mortar "product," hospitality is generally at the trailing edge of the technology adoption curve. Like many industries, hospitality did not anticipate the rapid emergence of the Internet, which created an opportunity for nimble upstarts such as Expedia, Travelocity and Hotels.com to exploit the growth and consumer interest in on-line travel services.
Thanks in large part to first-mover advantage, those intermediaries have not only gained remarkable penetration, but - like many Web players - have changed the operating paradigm by disconnecting the supplier from the customer (disintermediation) and driving down room rates by effectively commoditizing the hotel product.
Until now the answer has been to attempt to beat these new-breed competitors at their own game. One example is the popular "best rate guarantee" that has been implemented by virtually all major brands. While the basis is sound - encourage travelers to book via the chain's direct channel to ensure that they will get the best price - in reality, it merely reinforces the focus on price as the sole determining factor and serves to push us further down this slippery slope toward commoditization.
Doubtful? Well, consider this - despite an all out push by brands against the intermediaries, PhoCusWright reports that hotel-branded Websites' share of online bookings has actually dropped from 56% in 1999 to 52% in 2002. And 2003 provided only a minor gain - to just 53%. The report states, "Growth will not come at the expense of online travel agencies. Consumers simply prefer the property selection and choice online retailers offer."1
In the broadest terms, enterprises compete on one of two dimensions - price or value. You're either Econo Lodge or Ritz-Carlton. And as PhoCusWright notes, online intermediaries have captured the "price" mindshare in consumers' consciousness. And for consumers, perception is reality. Even if hotel Web sites truly offered better rates, they are too late, because the consumer has already decided where to expect to find the lowest price.
If competing on price is not an option, what is left? Value. And while it may be the default position, "best price" claims by intermediaries could be a blessing in disguise. To be successful marketing a product - whether hotel rooms or household goods - you need to give the consumer what they want. That's the obvious part. The trick, of course, is determining what that "want" is. It's the "holy grail" that the renowned Dr. Noriaki Kano of Science University of Tokyo focused his research on - shifting efforts from simply measuring customer satisfaction and loyalty to influencing it.