Is the pandemic an advantage for hotels in a sharing economy?

Imagine this – you are booking a hotel room for beach vacation for your family. You have narrowed down your choice online, to a renowned resort in your choice of geography. The prices are great, the package is attractive, and you like the ambience of the resort based upon the pictures of the property. Almost at the ‘tipping-point,’ you chance upon a customer review, saying how in a recent stay at the said property she was horrified to see a rat running around in her room…! You baulk and restart your search. You then come across a home available on rent near the beach and around the same location as the resort, promising an independent stay possibility at a much lower price albeit with a limited range of services.

It is evident that online booking of hotel rooms has changed the consumer journey completely with the increased degree of transparency with which comparative information is available. User feedback or reviews provide a very revealing look to whether the value proposition as promised by a hotel is valid, as potential customers trawl the internet for a deal.

Add to this mix the TravelTech companies and their ability to provide quick comparisons and display ‘Homes for Rent’ alongside chain hotel brands. In the price discriminating segments, this can actually increase the probability of such home-stay options getting traction.

Sharing economy platforms like Airbnb and Oyo Rooms have disrupted the hotel sector, creating a new class of competition, which really has taken business, away from hotels, especially in the economy segment of the market.

To compound this the Covid 19 pandemic has played further havoc with the hospitality and travel industry, leaving it gasping for breath.

A 2020 report by Hotelivate, estimates the loss incurred by India’s organized hotel industry due to Covid-19 at US$1.3 to 1.55 billion (Rs. 97 to 115 billion), constituting a 27 per cent to 32 per cent erosion in the overall revenue compared to 2019. Indeed, the sharing economy (including the unorganized sector) has suffered equally, with India losses estimated at US$ 4.2 to 4.7 (Rs. 313 to 351 billion) in the same period.

So what should be the strategy for hotel companies to counter the sharing economy going forward.

Target the Gen-Z and the Millennials: The role of search engines and travel platforms in changing the way people plan their travel or vacations is a moot point today. But this becomes even more accentuated with the rise of the Generation-Z (consisting of those born in the mid to late 1990s through the early 2010s).

A recent Bank of America report estimates the Gen Z’s combined income to reach $33 trillion by 2030, accounting for 27 per cent of global income and surpassing the millennials’ income starting in 2031.

Known as “digital natives,” Gen-Z have grown up in an internet-enabled environment with access to social media and smartphones. Previous generations watched TV shows and commercials designed and created by adults, Gen Z is well accustomed to having a wide array of online influencers who create content for their peer groups.

Hotel companies will have to become more pro-active in their almost digital-only marketing and engagement strategy, if they want to target the Gen-Z and the millennials. This is especially true for vacation or leisure tourists.

The key seems to lie in an online reputation marketing strategy, which addresses feedback received by hotels via customer reviews.

Research indicates that hotels that visibly and actively respond to customer reviews and demonstrate improved quality in service areas where home sharing typically leads, receive higher sales (Chen et al. 2019).

The specific areas where comparisons usually are made between hotels and home-sharing options include - check-in/out process; cleanliness; excursion opportunity; room/other services; and room condition.

In contrast, hotels that respond less - apparently lose to not only home-sharing but also to peer hotels, who respond more to customer reviews. It is to be noted that research also reports hotels as not being significantly responsive to home-sharing’s entries online. The hotel responses are usually generic and delayed, and do not really leverage any data analytic insights culled from customer review feedbacks received online.

While home-sharing’s entry alone may not significantly affect a premium hotel’s customer satisfaction, the hotel has an increase in satisfaction if it has a higher management response ratio to customer reviews received.

On the contrary, economy hotels do experience a drop in satisfaction when facing home-sharing entries appear online. Therefore, it is a bigger imperative for economy hotels to be highly proactive in responding to customer feedback, while continuously tracking what the sharing entities are manifesting online and leading/countering them with their own initiatives.

The World Wide Web could be the proverbial Waterloo for hotel companies as they face the onslaught from the sharing economy. They have to become nimble and invest in analytics and machine learning based platforms that identify, collate and use online customer feedback and sentiments to predict and outline the future roadmap for the company.  

The pandemic is clearly an opportunity to leverage the higher trust that customer repose on hotel brands compared to sharing economy entities. And this could be done by being absolutely proactive about responding to customer feedback and manifest changes made thereof.