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Editor’s Note: This interview is part of Skift’s CEO interview series. This series is with hospitality CEOs talking about the Future of the Guest Experience and the evolving expectations and demands of hotel guests. Check out all the interviews as they come out here. Also, enjoy the previous series on the Future of Travel Booking, with online travel CEOs.
In the vast space between the independent hotel and the big brand sit multiple hospitality consortia and organizations that have some of the same marketing and promotional functions as the big operators while also staying focused on the unique properties that make up their portfolios.
And as brands get bigger and online travel agencies offer nearly everything, this segment is growing as hotels and groups seek to find a new way to group like-minded properties around the world. Just this week National Geographic entered the market with its Unique Lodges concept. It joins a field that contains both old-school marketing operations and digital savvy organizations.
The Leading Hotels of the World is one of the largest luxury hospitality collections worldwide with more than 430 hotels and resorts in more than 80 countries. The company was founded in 1928 with 38 member hotels across Europe, Egypt and Israel.
What started as a reservations service for independent hotels has evolved into a full-service organization that includes sales, marketing, financial services, and inspections. The company remains 100 percent owned by its members, putting it somewhere between a cooperative and company with services for hire.
Leading Hotels of the World and similar organizations, including Small Luxury Hotels and Relais & Chateaux, differ from hotel chains like Marriott International or Hilton Worldwide for a number of factors, including ownership models, pay structures, and branding.
These international chains, however, are now investing in independent hotel collections of their own, driven by consumer demand for more boutique, local hospitality experiences. Starwood launched the Luxury Collection in 1998 through its acquisition of Sheraton, Marriott launched the Autograph Collection in 2010, and Hilton Worldwide launched the Curio Collection in June 2014.
Skift recently spoke to Leading Hotels president and CEO Ted Teng about the business model behind the independent hotel collection, changing consumer habits and behavior, marketing trends, and increased competition from chain brands. An edited version of the interview can be found below.
Skift: What are the brand standards for independent hotels interested in joining the Leading Hotels of the World?
Teng: We certainly have our standards, but we don’t use an approach where they all have to be the same. We have 850 standards that we provide to our hotels and what we try to do is get them to achieve at least 85 percent of those standards.
They’re standards not of sameness, but of the right quality. We look for a lot of other things beyond just the quality part of it: architecture, history, who’s the owner, who operates it, what’s the market, whether we can support the hotel, and whether we have other members in the hotel. We look for a whole host of things before a member is admitted.
Skift: What fees do the hotels pay? Do you take a percentage out of the transactions?
Teng: We used to have a fixed membership fee and then a reservation fee, roughly generating 60 percent of our fees from membership and 40 percent from transactions. We are now in the process of completely eliminating all transaction fees and creating a new model that really gets back to the spirit of collaboration.
Skift: What sparked this change?
Teng: Two things, really internal and the external. Transaction fees have sometimes unintended consequences of unproductive behavior. Also, the marketplace, when it comes to distribution, has changed. We want to really differentiate ourselves from other transactional models.
My expectation is that Leading truly becomes an extension of the hotel sales and marketing infrastructure. We’re really looking to collaborate and help hotels generate business. We’re shifting away from a culture in which we have to be the watchdog over hotels. We want to have members who are truly committed to a high level of quality and service. Rather than be an after-the-fact inspection, we have put ourselves in the position of helping our hotels appropriate happy guests. That’s a major shift in the way the company has operated.
Skift: Let’s talk about booking and marketing channels for a moment. What have been some of the changes that you’ve seen around booking channels and where customers are booking your independent hotels?
Teng: For our hotels, there are obviously several sources of booking. There’s certainly direct with customers calling the hotel or booking on its website. There are also the bookings through Leading, whether it is via a phone call or global distribution system or the Internet. Then there are a lot of intermediaries including brick-and-mortar type companies. There are various channels and it seems to be very different from destination to destination as well as source market to source market.
Skift: Could you elaborate on some of those differences, please?
Teng: In some of the European countries, wholesalers are still a big component. Wholesalers are the ones that go and negotiate with suppliers and their carriers; they produce packages to sell to retail travel agents. That’s a segment that is not nearly as big in the U.S. as it is in Europe. In the United States, online travel agencies are the biggest share of the market. In various countries in Europe, there is an adoption of online travel agencies as well. For our business, which is probably somewhat different than a lot of other companies, voice reservations do constitute about 20 percent to 25 percent of our business.
Skift: What do you think is driving that difference?
Teng: We don’t have a lot of what I would call tourists; we have a lot of travelers. Customers who travel to discover, learn, expand and grow. It’s a much deeper engagement. Their travel itinerary tends to be more complex and they tend to be more self-driven than buying a package tour; therefore, they want to talk to somebody to make sure all the details are correct.
We see some family travel where different family members are coming from different parts of the world. The itinerary is more complex and usually includes multiple destinations. They tend to travel far, which means time-zone and language differences are also more complicated for these travelers.
Skift: What are your largest source markets? Have you seen any changes in demographics over the past couple of years?
Teng: The number one market, globally, is the United States. About 40 percent of our global revenue is generated there. The UK is number two, but number three is always the most interesting spot to watch. For the last two years, it has been France. That’s surprising to most people, but France has always been a big destination for us. Before that, Brazil was number three for three years. Before that, it was Germany. The number three spot is the one that seems to change, and it’s an indication of some of the economic changes.
Skift: Have you seen any other changes whether it’s the age of guests, how long they’re traveling, or the kinds of travelers that book through Leading?
Teng: That’s more of an evolution. Right now our core business is filled very much by baby boomers, but we are seeing younger and younger travelers becoming our customers. We really try not to categorize our customers. I see a lot of conversations about personalization, but I think a lot of the personalization conversations are really more about categorizing — basically grouping people together and then treating them in a certain way.
I think personalization is really about creating something just for one particular person in a particular instance. I see the mass categorization based on nationality, gender, purpose of travel, age and all that, but there’s a lot more diversity within each categorization.
I know China, as an outbound market, is getting bigger for everyone and we’re seeing that. Some companies have a term called “China ready.” I think that is absolutely 180 degrees away from personalization. That’s treating Chinese travelers as if they’re all the same; therefore, if we give them these things then they will be happy.
You’ll never see “China ready” at Leading Hotels, because a big part of why people come to us is to discover the local authentic culture that our hotels are known for. We don’t want to change the product. What we want to see is “global ready” so that we are able to present ourselves in an authentic way to travelers regardless of where they’re coming from. At the end of the day, I’m not thinking about the mass chain brand market. I think that that makes sense for them, but for us it’s always going to be individually taken care of. We always present the product in a very authentic way so that people can learn about the culture.
Skift: What about competition? How has the competition changed, or has it increased at all with the other types of groups that do what you do, whether it’s preferred hotel group or small luxury hotels of the world? Is there competition increasing in this space?
Teng: There’s certain competition and I used to think of answering that question by saying there’s three or four levels of competition. One is the competition for affiliation, in which case Preferred, Small Luxury, and even Four Seasons are the competitors.
After that, there are three levels of consumer-facing competition. One is when a consumer hasn’t decided as to where to travel and we help our hotels compete at the destination. Once a consumer has decided where they want to go, then we help our hotels compete against other local hotels. When a consumer has chosen a hotel, we compete as to how they book the reservation.
However, we have recently really shifted that thinking. Rather than looking at who do we compete against, we are really focused on who we compete for so it is completely focused on the target customer rather than what our competitors are doing. We want to gain tremendous insight into our consumers as to what they want, what makes them happy, and how do we deliver on that.
Skift: What caused the shift?
Teng: I joined the company six years ago and we were really fixing the company from a quality and revenue standpoint. Once that was done, we started looking at how we reinvent the business model. That’s when we started looking at a lot of these things critically, looking at who we compete for instead of who do we compete against is part of that assessment.
Skift: What about these big brands? Companies like Hilton, and Hyatt, and Marriott are also getting interested in the independent hotel space, launching collections like Autograph or Curio, during which they are creating these collections of independent hotels and people can book through them to kind of gain access. Is that a concern for you?
Teng: Not really. Curio was just recently launched and I don’t think they’re going to be in the luxury space. Autograph Collection was launched a couple of years ago, and they are clearly not in the luxury space. I was with Starwood’s Luxury Collection back in the 1990s when it was created and we do compete with that.
Mass chain brands want to be many things to many people and it really works for them. If you look at brands, there are mass-market brands and there are intimate brands. There are brands which excite and there are brands that reduce risk. Both are important. I see the mass brands as the ones that really reduce risk. There’s nothing exciting about staying at a Marriott, but there’s certainly something safe and consistent about it.
That’s not who we are. Our story is about discovery and about being different, local and authentic. We work very hard to be an intimate brand rather than a mass-market brand. It’s not a statement of which is better, it’s just they’re very different. What’s interesting though is seeing the mass-market brands migrating towards the individuality of hotels. For a long time they have been very successful, and I think a bit of what has made them successful has now become the Achilles heel. Consumers are getting mass brand fatigue.
People used to carry logo accessories as a statement of who they are. There are still lots of people doing that, but many others are now more interested in the consumption for themselves rather than making a statement to others.
The chains are now saying that they’re not cookie cutters, that their hotels are all very different, but there’s very little credibility with consumers because for the longest time chain brands had been saying, “Come stay with us because we’re consistent.” Now a portion of their company is focusing into the independent.
I think that’s just a lot of public company pressure. Arne Sorenson has been quoted saying that he wants to acquire or grow a brand every year. That’s how Marriott is going to grow, because most of the market is already saturated with Courtyards and the different brands that they have. The way to grow the company is to keep adding brands, and an independently branded hotel is a market that they see has potential for them.
We’re very different. We’re a single segment, a single brand, a single purpose company. We don’t do anything else. That’s all that we do, and we want to be the best at it.
Skift: How have your marketing channels changed over the past few years? Which are the most important today?
Teng: Marketing, as far as communication in travel, has changed significantly in the last five to ten years. I’ve seen a significant decline in the print advertising, even though I think it’s still important, and most people have gone to a digital approach.
Marketing is all about storytelling. I think that customers, with social media, are telling the stories today. Our brands can no longer think that they have control over how they tell the story. I see a lot of companies in the social media space with their brand Facebook page and tweets and all that. That’s fine. That’s a component of it. I think the most important part of social media is what your customers are saying about you, not what you’re saying about yourself. All of us have a lot to learn in terms of how to accomplish that. It’s the old word-of-mouth. How do you get customers to talk about you?
Historically luxury hoteliers would produce great service and product and the consumer would come in and be impressed and all that. That’s changed a lot. Today there’s a lot more collaboration and co-creation with the customer. To me, there are two challenges in guest service as a result. One is that hoteliers have to learn how to service guests from the guests rather than saying, “Here’s my standard and if I have standard then I have quality. Therefore, you should be happy.” We have to look at each guest and say, “What is going to make them happy at that instant?”
The second part, I think, is not being practiced today. It’s helping our guests learn how to get the most out of their stay. That’s a very, very subtle approach. I think we have a lot of opportunities to educate the guests to really enjoy our hospitality to the most.
Skift: What do you think is driving this demand for independent hotels? Travelers are looking for more of these experiences. They want to access this type of stay. Do you have any insights into kind of what’s driving that?
Teng: When quality is a concern, chain brands and their consistency provide assurance. When quality is no longer a concern, people want to discover and learn new things.
I always look at it this way. When we don’t have much, we want what other people have. When we have pretty much everything we need, we want things that no one else has. Part of it is also the social media phenomena. Someone posts, “I stayed at the Four Seasons last night,” and someone things, “Great, I was there for months ago.” What’s special about that? With bragging rights on social media, someone wants to feel like they discovered a place that no one in their social circle even knows about. They want to be in the know. It’s about discovery and being on the leading edge of knowing.