Challenges in customer relationship management

2.3. Challenges in customer relationship management 2.3.1.

The “Y Generation” or the “Digital Natives” also called “the Millennials” is the new generation of people born between 1980 and 1999. They become the dominant segment in the hospitality industry in 2017. This new generation is used to being enabled by the technology, to using many devices, sometimes at the same time, and to having a limitless access to instantaneous information. This new using habits have given rise to special behaviors in the hospitality industry.

Before going out for dinner, this new generation checks the best restaurant on the internet, compares the recommendations on TripAdvisor and books for the best price on LaFourchette.com.

Before traveling this new range of customers compare the prices on Google, Kayak or any other comparative platform, and finally book through an Online Travel Agency searching for the best fare and value for money and with less regards towards customer loyalty. In fact, a survey lead by Google in 2012 reveals that amongst American consumers, a random user visits 17 websites of travel companies on 4 different research platforms before booking a hotel room!

To go deeper into details on these new trends for customer behaviors, studies show that smartphones have today a paramount and growing role in the online reservation of hospitality services because 40% of the people went on the reservation website via a smartphone in 2016, and this figure is expected to reach 50% by 2020. The growing use of smartphones as a reservation channel shows the need of these customers for mobility. At the same time, customers are very selective and expect a certain level of comfort and ergonomics when consulting a website from their smartphone. Indeed, almost 40% of mobile consumers give up on a booking because of a poor experience.

With this access to information from anywhere and at any time, customers have become more discerning regarding the value for price of the service. They are now able to compare prices on online comparative platforms and feedbacks on social networks, OTA and any user-generated platform, which make the customers more price-sensitive.

The new challenges brought by digitalization regarding the consumption habits are related to the limitless access to information, making the customer more discerning towards price and quality.

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Hotel reputation management has thus become a core subject for hospitality groups. Hotel reputation management is the practice of monitoring and influencing the perceptions of customers towards the hotel or the hospitality group through the Internet. The concept has emerged with the development of public relations and has turned to opinion portals, forums, social networks and search engines highly fed by user generated content (UGC).

The hospitality industry is certainly the most affected and vulnerable to online reputation. More than ever hospitality groups have to improve their customer’s satisfaction and to highly control the user generated content (UGC) on their own website, but also on comparative platforms and forums.

According to TripAdvisor, 93% of the people use online reviews to choose the hotel they want to stay in and a survey from Ipsos about technology and tourism in 2014 showed that 68% of the people trust peer reviews. So if a bad reputation management is prejudicial for hospitality groups, on the contrary a good one is a very positive opportunity to reach and retain new customers during their decision-making process.

Hospitality groups also face challenges to adapt to the new mobility expected by customers. This mobility is enabled by increasing technologic improvements that are taken as granted by tech-savvy customers, expecting hospitality groups to offer mobile solutions.

2.3.2. Tech savvy customers

Customers want to have a high-tech and digital experience, this is no longer a desired criterion but has become an expected one. The “6 hospitality tech trends for 2014” survey from Eleven Wireless, shows that 87% of guests consider that Wi-Fi should be a free amenity. They should not be cut from their high bandwidth Internet they enjoy at home or at work or even anywhere with the 4G connection.

On the other hand, a bad bandwidth would be a disaster especially for hotel hosting corporate events.

Customers are looking for an overall digital experience with new services available from their fingertips through their smartphones or any other device. The seek for mobility, with the possibility for customers to interact with hospitality groups from anywhere and at anytime is no longer limited to the reservation process but extends to the overall guest experience.

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Customers prefer automated services such as online services requests and check-in. The “Top 6 tech trends for 2014” survey from Elevenwireless shows that 85% of guests use online service requests (e.g. for housekeeping) when offered and 91% prefer to check-in online.

All these services are no longer optional and have become expected by a growing number of customers. Providing them enable hospitality groups to stay in the race but as well to differentiate from competitors by creating value.

The challenge for hospitality groups is now to be able to offer unlimited online services, through an user-friendly website or application, that can be easily and quickly used.

2.3.3. The rise of new digital actors, the Online Travel Agencies (OTA)

The rise of technology and the slow adaptation of traditional hospitality actors have opened the opportunity to new actors to intermediate and uberize this market. The traditional travel agencies, with physical corners, have opened new online distribution channels offering the possibility to customers to book their travel online and new 100% online actors have also developed.

Pure players have taken advantage of this opportunity and have become new intermediaries between hospitality groups and final customers. They offer the chance to hospitality groups to sell their unsold rooms at lower price on the Internet. These OTAs are very successful because they offer to customers the ability to compare prices and characteristics of the venue and participate to the limitless availability of information.

As pure players, they offer a 100% online and digital experience, which is highly valued by their customers looking for a mobile solution.

These OTAs represent a source of revenue for hospitality groups as these rooms would probably not have been sold without their help. But at the same time, the OTA retains a commission on the price of the rooms sold in return, which represent a loss on the room revenue. This loss of revenue is growing with the success of OTAs. They have gained power to the detriment of traditional hospitality groups and are able to bargain a rise of their commissions. For example, Booking.com has an average of 10% commission on the room price with AccorHotels (previous work experience at AccorHotels).

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With the rise of these new actors, the challenges for hospitality groups are to gain back some market shares and to limit the loss of revenue through commissions by re-attracting the customers on their own website and application.

2.3.4. The sharing economy

According to the website www.thepeoplewhoshare.com: “The sharing economy, or collaborative economy, is a socio-economic ecosystem built around the sharing to human, physical and intellectual resources”. In the case of the hospitality industry the sharing-economy refers to the online sharing of commodities such as apartment, private rooms or even couch, but also the sharing of experiences and memories. Today the sharing economy is worth around $15 billion USD dollars.

Airbnb (https://fr.airbnb.com/) is one of the biggest disruptors in the sharing-economy market. In 2015, Airbnb counted more than 2,000,000 of rooms in 34,000 cities, which is in figures more than the double than the biggest hospitality group Marriott-Starwood. Airbnb has developed a marketplace that enables a customer to compare and select a vacation property and connect with another individual who provides it. With the success of this new economy, other actors have risen such as HomeAway (https://www.homeaway.tw, houses exchange platform for holidays, since 2005), Wimdu (http://www.wimdu.fr/) and 9 Flats (https://www.9flats.com/fr).

These actors take advantage of the financial crisis pushing individuals to rent their home and apartments to make some profit, but also the new trend of the willingness of the people to share their experiences, their culture with visitors and strangers.

In 2015, 9% of UK and US travelers had already rented space in a private home. However, the US customers are less likely to use these services as the European ones. The awareness of sharing amenities among US consumers is about 32%, while it reaches around 58% in Europe according to the article “Here's Proof Airbnb Is Shaking Up the Global Hospitality Industry” from TheStreet in 2015.

The sharing economy has a consequent impact on hospitality groups. Indeed, the survey “the rise of the sharing economy: estimating the impact of Airbnb on the Hotel Industry” released in 2016 by

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Boston University shows that each 10 percent increase in supply on Airbnb causes a decrease of 0.37 percent in monthly hotel revenue. Traditionally, hotels have responded to these new competitors by lowering the room prices in area with a high offer from the sharing economy, which lower the revenue of the hotel but also the value of the perceived service.

Beyond offering lower prices, the sharing economy actors offer added value services to their customers by using localization services they advise their customers about the best area to stay depending on activities and amenities around.

Hospitality groups have to keep a very close eye on these new actors, because people are gaining trust on their services, which was before the first brake for using them.

But if these actors offer interesting services for leisure customers mainly looking for cheaper prices or a more autonomous or independent experience, the corporate segment is not significantly affected yet. Some actors such as Bird Office (https://www.bird-office.com/) are developing the sharing of meeting rooms in busy areas and aim to disrupt the corporate hospitality industry but are not likely to do so for now.

The challenge related to the rise of the powerful sharing economy is that the actors are not driving demand but they are shifting demand from other hotels. They also increase the number of amenities available, and as a result participate to lower the prices for hospitality groups. The hotels have to re-attract the customers by offering them new highly valued services that are worth to pay for.

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3. Research approach