Consumer Understanding of Hotel Market Segments

white paper Brand Strength Part 2: Do the price based market segments make sense to travelers?

ONLY ONE IN THREE TRAVELERS IN A RECENT SURVEY SAID THAT FOUR SEASONS HOTELS BELONGS IN THE “LUXURY” SEGMENT, WHILE 58% SAID RITZ CARLTON BELONG IN THAT GROUP.

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ore startling is the opposite side: more than one in three believe Four Seasons hotels belong in the same segment as Marriott, Sheraton or Westin Hotels. More than half of the respondents suggest that Marriott is in the same segment as Four Points or Crowne Plaza, while nearly a third see Four Points in the same segment as Hampton Inns.

So what?

The purpose of branding is to help people make sense of the ever growing landscape of choices. The fundamental role of a brand is to clarify the nature of the product relative to price and other potential options (position). The art of branding is to do this in such a way that the product is relevant and clearly differentiated: i.e. meets the specific needs of the customer(s) and does so in ways that other brands cannot. All other components of brand strength (such as awareness, empathy, trust) are important, but are moot if the customer does not know what the product is or where it fits in the competitive landscape.

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The hospitality industry adopted a price based segmentation strategy

some years ago. Quite rightly, the industry designed a stratified hierarchy of price-based segments in order to clarify for marketers, operators, owners, developers and finally, customers, what brands competed with each other and therefore what could be expected from each brand.

The segmentation has changed over time, but, using Smith Travel Research’s current approach, can be seen in 6 layers. Based on average daily rates STR slots brand chains into the segments according to rates reported by operators. (The brands we included in our research are presented below in their appropriate, STR determined, segment).

An organized market place would be one where the empirical positioning (i.e. the price based positioning as measured by what people pay) corresponds with the brand position (that is, for purposes of this discussion, the position in which consumers understand the brand to be).

Because travelers don’t think in the same language, we opted for a 5 point star-based “consumer friendly” segmentation system that was more in tune with real world talk; and we added a description for each to ensure all respondents had the same understanding of each segment.

50% (that is, over half the respondents placed the brand in the same segment as STR places the brand).

For the most part in the, Upper Upscale and Upscale segments, consumers positioned the brands in lower segments. In the Midscale segments (Upper and Lower) the respondents were less sure, with about the same number placing each of the brands in the “correct”, higher, and lower segments.. The chart shows the percentage of respondents who placed each brand in the “correct” segment (as per STR), and those who placed the brand in lower price segments (orange) and those who placed them in higher priced segments (green) Accepting that travellers are confused by which price category hotel brands occupy, the question arises whether they see the other half of the branding equation – the competitive set – reasonably accurately. A case could be made that it is not all that important that people know which segment a particular hotel brand falls, as long as they are consistent in this evaluation: that is, as long as they put like brands into the same segments.

As the chart on the next page shows, the verdict is mixed, pointing to a reassuring level of congruence coun-

We then asked 398 US travellers to associate each of the 13 brands with one of the five segments to see whether travelers and hotel brands are in synch in terms of relative price positioning of various brands.

The short answer is: they are not! Only in the highest (luxury) and lowest (economy) was the “correct” attribution over

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tered by a disturbing level of confusion. The chart shows the segments allocated by respondents, with the STR Chain Hotel Scale segments identified on the left. For clarity we have indicated, with actual percentages, the segment for each brand with the plurality of responses.

In the luxury segment, the largest number of respondents placed Ritz Carlton into the highest segment, but they were equally divided on the subject of Four Seasons (around 31% said FS is a luxury chain and about the same number said they are an Upper Upscale chain).

The brands STR places in the Upper Upscale segment are, for the most part, seen as belonging together in the same segment – the largest number of respondents assigned each of these brands to the same segment. Unfortunately in all cases it was not the “correct” segment – all these brands are seen competing with each other, in the Upscale (Four Star) segment.

The two brands STR places in the Upscale (4 Star) segment (Four Points and Crowne Plaza) are correctly assessed by a plurality of respondents. However, this suggests

that respondents see these two brands competing in the same segment as the Upper Upscale and some of the STR Luxury brands as well (JW Marriott, Intercontinental and Conrad).

Based on this, it appears travelers view the landscape in essentially three categories:

This undifferentiated model is further supported by looking at the aggregation of ratings for each brand. To do this we assigned a value to each segment (Luxury=5, Upper Upscale=4, etc.) and aggregated the total ratings for each brand (see chart next page) What is most startling about this list is the closeness of all the hotels in the middle group – at least in the Page 3

travelers think they should pay about the same for these hotels, when there are obvious differences in brand standards? The problem might be that these brand standards are not experienced as different: what is the actual difference between a JW Marriott and a Crowne Plaza in an experiential sense, and is that difference really relevant to the traveler?

tiered segmentation system, there is very little differentiation in the minds of the consumers between these brands.

This is not to say that there are no other attributes that help travelers choose between the brands, but it goes a long way to explain the reason for commoditization: the data suggest that travelers are saying that in any given location they would expect to pay about the same for a room at a JW Marriott as they would for a room at a Westin or Conrad or Crowne Plaza. The fact that they do not (as determined by STR Chain Hotel Scale data) apparently does not affect their brand perceptions, probably because, thanks to the gift of complexity, they don’t actually know that they are paying either more or less than they would hypothetically if the other hotel were in the same place at the same time under the same circumstances.1 A bigger question might be: why do

There are two factors that influence the degree to which experiences are remembered as differentiated – the first, obviously, is the actual difference (is the experience truly different) and the second, is the salience of the differentiation (how relevant or important is that difference). Slight differences that are extremely important will be imprinted in the evaluative mind; big differences that are unimportant will not make any impact on recalled evaluation.

None of this is news. The major hotel brands have been dealing with this dilemma by designing ever more new “brands,” which, until they are copied, Do indeed deliver different experiences. But, once the brand has been duplicated, the question of salience comes into play – unless the brand has real salience, travelers will simply gravitate to the next new brand that offers the same experience for less money.

However, the question of how to isolate the core brands, remains unanswered. This is the big issue that hotel brands need to address. What’s needed is an imaginative focus on meaningfully differentiated experiences and the ability to convert these into “remembered” experiences. This is where the future of hotel branding is to be found.

It is true that many travelers will price various hotels in the same location before making the reservation. However, because they understand that hotels charge different rates at different times, they do not see that one hotel brand is necessarily more expensive in essence than the other and they definitely do not draw conclusions regarding the brand relationships. They know with some certainty that that hotels of the same brand in different locations deliver very different experiences and charge different prices that lack any consistent relationship either to each other or to other brands (e.g. brand.com rate for June 28, 1 night, the Sheraton Boston was $269; the Westin Boston (Copley Plaza) $269; the Sheraton New York (Times Square) $229, Westin New York (Times Square) was $199.

In other words, in Boston, the Sheraton is the same rate as the Westin; in New York the Sheraton is 13% cheaper than the Westin. But the Sheraton Boston is 17% more than the Sheraton New York, while the Westin Boston is 35% more expensive than the Westin New York).

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APPENDIX

Looking at these relationships based on the complete universe of travelers might not be reflective of the degree to which actual potential guests understand the segments. We drilled down in the research to look at three sub-groups – males and females; those in the higher income bracket (HHI $100,000+) and members of the specific loyalty programs for each of the brands.

Overall the pattern of confusion is pretty much the same, with a few interesting variances: Higher income travelers don’t have a better understanding of the higher end, but strangely seem to be less confused at the lower end of the scale..

Men and women are pretty much as confused as each other, except that females may be slightly better at associating high end hotels.

With the exception of SPG, membership in a loyalty program does not seem to help clarify the marketplace.

SPG members are more clear on where Westin fits, but even more confused about Sheraton.

Protean Hospitality is a boutique brand strategy advisory firm focused on helping our hospitality clients drive growth. We combine our business/category expertise with tenacity, balancing rigor and creativity, to uncover new opportunities for hotels, resorts and hospitality brands.

For further information on this and other Protean Hospitality studies contact: Laurence Bernstein, Managing Partner, 416 967-3337 x 101 Bernstein@proteanstrategies.com Page 5