Best Western CEO on Airbnb, Direct Bookings and Virtual Reality

Best Western CEO David Kong isn’t afraid to speak his mind when it comes to fundamental issues impacting the overall travel and hospitality industry.

He even blogs about them on a regular basis. Kong has also served as chairman of the American Hotel & Lodging Association (AH&LA), as well as serving on the board of the U.S. Department of Commerce Travel and Tourism Advisory Board.

Under Kong’s leadership, when he became Best Western’s CEO in 2004, the company has transformed itself, and immersed itself heavily into expanding its international footprint, and innovating its digital and on-site guest experiences. Most recently, the company announced its plans to offer an online virtual reality experience for all of its 2,200 Best Western-branded hotels in North America.

Skift recently sat down to speak with Kong at the NYU International Hospitality Industry Investment Conference to ask him about his thoughts on the state of the hospitality industry and where he sees it headed. Here’s what he had to say:

Skift: What matters to you most or concerns you the most this year when you’re thinking about the future of your business?

Kong: It’s really about how strong a brand is going to be in the future, whether we’re differentiating ourselves, whether we’re building the right foundation for a future growth.

It’s all related to the strength of the brand, because if the brand is strong then you can drive business to your hotels, and you have better leverage with OTAs [online travel agencies] in terms of distribution costs. A lot of the problems that we face in the industry you can stop if you have a strong brand.

Skift: How do you make a brand strong or make it stand out, and make it well known when there are so many out there?

Kong: You’ve got to make yourself really easy to do business with, anything from the research, booking, and all those steps along the way. You make yourself really easy to do business with. When people are actually at the hotel, you provide a quality experience that they expect or you exceed their expectations. Even afterwards, the way that you engage with them. All ways that you can make a brand strong.

Making a brand strong also is about awareness. Your sales and marketing efforts and building that as well as your scale, meaning the number of hotels that you have. Are they in the right locations? All these hotels, do they become billboards for you so when people walk by they see you all the time? They are all ways that you can build awareness.

There are a lot of things that you’re going to do. It’s not one thing. It’s not one silver bullet.

Skift: Do you think that is becoming even more challenging because of all the consolidation taking place in the industry right now?

Kong: I think it’s not just because of the stage of our industry. A lot of people say that consolidation is happening because we’re a maturing industry. That’s true. However, it’s also based on the needs.

If you look at the Marriott-Starwood merger, I think it’s a good example. You’ll see that they can realize tremendous energy. Their salespeople go out there to sell, whether it’s their hotels or franchise. They have a lot more options they can sell now, so they can become a lot more effective.

You think about their loyalty program, too. The combined program, has a lot more options for earnings and redemptions. That makes the program that much stronger. You look at the overhead. There are so many redundant positions they can streamline and become far more efficient. They can save a lot of money.

More importantly, when you think about the combined scale, they have a million available rooms with 30 different brands, all kinds of hotels, all kinds of locations, all kinds of price points. They can be their own travel corridor. They don’t need to work with any OTAs.

So, you think about the time when they sit down with OTAs, they can walk away from the table. That gives them such a tremendous advantage when they negotiate with OTAs. I have no doubt they negotiated the best OTA commission ever. All the terms that go with it — they would have the best advantageous terms.

So, now they’re going to become even tougher to deal with because now think about the fact that when they go to a prospective franchisee, they say, “My commission with Expedia is only 12%.” All the other big brands are 15%. You think about that 3% commission on all the OTA business, and that’s a lot of money that you’re going to save immediately.

So, now they become so much stronger as a brand because their value proposition is so much more compelling as a brand. And they can say my loyalty program boasts a customer base of probably 50, 60 million people. But all your program is going to drive over 50% of the business when you open the door.

I mean, these are very strong, valued oppositions. That is tough to overcome for other brands that don’t have the scales. I think scale is really important.

Skift: And we see that scale being played out in the so-called direct booking wars, too. What’s your take on that?

Kong: I totally applaud what Hilton and Marriott are doing. I think it’s time we take back some control. It’s not that they [hotels] don’t want to work with OTAs, but there needs to be a right balance. The relationship can’t be tilted either way. We both have to work hard to earn the business.

I think what Marriott and Hilton have started, and now IHG [InterContinental Hotels Group] and all the other big brands are following, is something that we would do also. We just started doing it.

Skift: How have you started to do it?

Kong: We just launched our new digital platform, the new BestWestern.com, which enables us to offer a gated discount rate to the Best Western loyalty members. We promote to our Best Western loyalty members. If they book with us directly they would enjoy a certain discount. Typically, it’s about 10%. But that’s only available if they sign in and then make that booking.

That’s called a gated offer for that reason. Our contract with OTAs allow us to provide that kind of gated offer, and the OTAs can do the same thing. Now that we have that functionality, we’ve just begun doing it.

Skift: I know you mentioned sitting at the negotiation table with the OTAs and getting those rates down and how crucial that is. What are some other strategies hotels should be using to “win the direct booking wars.” What can hotels do to better position themselves?

Kong: I think there is a number of things they can do. First of all, it’s making the booking as easy as possible. The OTA websites are just so easy to use.

They do a very good job with engagement also. Even after you book with them, that’s not the end. They continue to engage you. When you book with them, they continue to market to you. Those are all things that we need to learn from the OTAs. We need to do that better.

I think it’s not only encouraging the direct booking. There will always be a sect of customers that are loyal to the OTAs. They’re going to use OTAs no matter what.

So the distribution strategy has to have a component where you have better conversion of the OTA websites. Meaning that your Best Western people are more likely to book with you rather than somebody else. Creating that affinity is really important.

Booking directly is not the only component of the distribution strategy. It’s a huge or larger strategy with many components to it.

Skift: What are your thoughts about so many soft brand collections emerging?

Kong: We have our own. I think it’s very much needed for several reasons. I think it’s the best of both worlds. There are hotels that want the independence, the freedom, and flexibility to also benefit from a major distribution channel like Best Western’s. We attract about 64% of total business for our hotels on average. We don’t need that much OTA business because we attract that much business ourselves.

So, for independent hotels, our worst fear is we become too reliant on the OTAs. Imagine if your independent hotel has 70% of its business coming from OTAs. You are basically at their mercy because they can dictate anything to you. Because if they pull out, you’re dead. They have all the leverage.

So, if I were an independent hotel in that situation, I’d want an alternate source of business to counter my reliance on OTAs. That’s why a soft brand like the Best Western’s BW Premier Collection is really important.

But a lot of soft brands actually have a different business model. For the other soft brands, whether it’s Choice or Marriott, they basically have a relative fee kind of approach to it. Whether the hotel generated the business themselves or not, they take a cut of the total business.

Whereas in our case, it’s only business that we generate. We don’t charge them for business we generate ourselves when we charge a 15% commission on business that we generate for them.

Skift: Let’s talk about Airbnb. Do you feel like there’s a level playing field as it is right now for the sharing economy and for short-term rental platforms like Airbnb?

Kong: Of course there isn’t. Look at the regulations that we’re subjected to. We look at the health and safety or accessibility requirements. They don’t have that kind of requirement. You look at the taxes that we are forced to impose on our guests. They don’t have to pay most of those taxes. So, it isn’t a level playing field.

Skift: What do you think could make it more of a level playing field? What types of restrictions or things should be put into place to make it a more level playing field?

Kong: Well, first of all, I think if you look at Airbnb, it’s a platform that capitalizes on a sharing economy. There are different hosts that use this platform. There are people that might just want to rent out their spare bedroom every now and then. That’s the sharing economy.

That’s not what the [hotel] industry is concerned about. We are more concerned about commercial operators that are operating full-time. They basically buy up apartment buildings and rent them out as hotels.

That’s the one that we are more concerned about. So, I want to emphasize that we have nothing against a sharing economy, nothing really against Airbnb, per se. It’s the commercial operators that leverage a platform to circumvent all the health and safety protections that consumers should have or accessibility that consumers should have.

They don’t pay the taxes. There’s power to destroy their needs. I think if there are regulations that require them to abide by all those requirements for commercial operators only. I think that would be a pretty good thing.

Skift: Under your leadership, Best Western has invested a lot into its digital platforms and technology and most recently, a lot of it has been put into virtual reality. What prompted Best Western to invest so heavily in terms of virtual reality both for marketing to consumers but also for training your own employees. Why make such large investments in that technology?

Kong: It’s really recognition. How people want to do research, how people want to learn. This is what they want. This is more relevant to them. Marketing is always about relevancy so we are basically making our content more relevant to any user. Besides, if you look at our images through virtual reality, they’re so much more vivid. It allows to user to do so much more than just look at a plain photograph.

And in terms of learning, if you are sitting in front of a computer learning, it’s one way. It’s always one way. There’s no dialogue. There’s no two-way communication. Therefore, it’s hard to learn. But through the avatar learning that we have put in, we can make it more engaging.

Skift: What do you say, though, to people that think virtual reality is just a gimmick, or it’s a fad?

Kong: Just wait. [He laughs]

Skift: Where do you see the future of hospitality headed? What will we be talking about at this conference five, 10, or 15 years from now?

Kong: Well, I’ve been coming to this conference for a long time. We seem to still be talking about the same thing. [He laughs] We haven’t changed too much because we are a service. We’re not really a product, per se. We have a box and design and might change at times, but it’s really not that dramatic.

This is just a sidebar, but I saw the introduction of this TV show recently. They were showing these 6 year-old kids the rotary phone. They were asking these little kids what this thing is, and they couldn’t tell what it was. [Kong laughs] I was thinking, that’s how fast technology moves. It wasn’t that long ago that we still had rotary phones, and now the kids don’t even know what it is.

But the hotel industry doesn’t move at that [quick a] speed. However, our thinking needs to move at that kind of speed. It’s not about the product or service, but it’s about our thinking, how that needs to rapidly evolve.

Skift: What are some areas where you think hospitality could be more focused in terms of innovating itself?

Kong: I think enabling people to have the kind of experience they have at home is really something that we’re doing. So, that’s again related to the product. I think, in some ways, we need to think more like the disruptors, whether its Airbnb or any one of these people that are disruptors in this industry. We need to start thinking like a disruptor. How can we positively disrupt the industry?

I don’t have specific examples right now to give you, but we’re going to make an announcement in October — you will see that it’s a different way of thinking about our industry.

Skift: At the beginning of our conversation, you mentioned how much strengthening Best Western’s brands weighs on your mind. When people hear Best Western, what do you want them to think of?

Kong: The one thing that I really want everyone to think of when they think of Best Western is trust. They can trust the brand. They can trust that the brand will provide a right experience for them when they go and stay there. If something goes wrong, we will always stand behind it and make it right.