Can a single brand ever really own a customer? We think Hilton CEO Chris Nassetta is onto something here, but that won't necessarily stop his travel peers from trying to do that in their own ways.
At a time when a number of travel and hospitality CEOs are increasingly concerned with the idea of who “owns” the customer — and are attempting to build extensive “experience platforms” to do just that — Hilton CEO Christopher Nassetta has a slightly different take on those efforts versus peers.
Whereas AccorHotels CEO Sebastien Bazin and Marriott CEO Arne Sorenson see technology companies such as Google, Amazon, Apple, and others as direct competitors, Nassetta doesn’t necessarily see things in the same light.
“We’re not trying to compete with Google, Amazon, and Apple,” Nassetta told Skift recently at the Americas Lodging Investment Summit. “We’re not trying to. We’re a platform and a network, and our view is that we’re on the fulfillment side, that we’re the experience. We’re the hearts and souls that make that stay different, and we make sure that product is right, along with the amenities, and the service delivery. I don’t think those guys are going to want to be in that form of fulfillment for a long, long time. I mean, I may be wrong, but … we jointly own the customer.”
Not only that, but it’s imperative that Hilton make sure those customers stay loyal to Hilton when they choose where they want to stay.
“I think we own more of the customer because, here’s the deal: Shame on us if we don’t own the customer,” Nassetta added. “They sleep with us, they shower with us, they do everything personal with us. They don’t do that on there with anybody else.”
“We own the relationship in the sense that we have a physical connection to the customer that nobody else can replicate, and so we just need to make sure we don’t forget who we are, what we do, and that we’re in the business of fulfillment,” he said. In other words, Hilton doesn’t need to try to expand into other businesses, or attempt to be all things to all people.
That being said, the importance of investing in technology and the digital aspects of the guest experience aren’t lost on Nassetta.
“Now, that doesn’t take away from the fact that we need to be a great technology company too,” he said. “We need to connect the physical and the digital, so things like the Connected Rooms, Digital Key, all of this stuff we’re doing, we’re investing huge amounts of money into it. And we’re, I think, way ahead, objectively, of the competition.”
Nassetta’s claims aren’t without merit. Hilton has, in comparison to its publicly traded peers, invested heavily in many technologies that some are just now beginning to pilot or implement. Last year, Hilton had more than 4,100 hotels that featured Digital Key technology that allows hotel guests to open their guest room doors using their own mobile phones. That accounts for nearly 75 percent of its entire 5,500-hotel portfolio.
By comparison, Marriott today has keyless entry technology in nearly 1,400 hotels, which represents approximately 21 percent of its 6,700 hotels worldwide.
In 2018, Hilton also rolled out a total of 1,800 Connected Rooms that use Internet of Things technology to allow guests to use their mobile phones to control different features and settings inside their rooms, from streaming content on the in-room TV to adjusting temperature and lighting. Other brands, including Marriott, AccorHotels, and IHG are still piloting similar room concepts.
Hilton is still the only major hotel company that allows guests to choose their own room at time of check-in as well — a feature that peers such as IHG and Marriott are just now beginning to enable thanks to their new reservations systems: Concerto for IHG and ERS for Marriott. Hilton’s Choose Your Own Room feature debuted in July 2014.
“Our business is about connecting the physical and the digital, and distribution is part of that, but we’re always going to want to have distribution partners,” Nassetta noted. “We’re not going to get out and compete with Google on search or Amazon with Alexa. We don’t need to. If we do fulfillment really well, and we’re smart about how we connect our technology to the physical side, and we work well with the mega platforms there’s a wonderful place for all of us in that ecosystem.”
How Hilton Wants to Compete
Within that ecosystem, Hilton is placing tremendous emphasis on removing friction from the hotel guest experience and improving it through technology, and through loyalty. Both of those benefits are major talking points of Hilton’s newest ad campaign, “Expect Better, Expect Hilton,” which is an extension of its direct booking efforts from 2016 when it implored consumers to “Stop Clicking Around.”
Whereas before Hilton and its peers lured consumers to book direct with promises of the lowest rate, today, Hilton is emphasizing the perks of being a loyalty member who books direct in order to “own” the customer when it comes to his/her booking channel of choice.
And although Hilton, like its peers, competes with the online travel agencies such as Booking.com and Expedia, Nassetta described Hilton’s relationship and contract negotiations with them as being “in an OK place.”
“My view is the OTAs are here, and they’re going to be here,” Nassetta said. “What we’re trying to do is find ways where one plus one equals three, right? Where the relationship works for both sides and that means … finding incrementality … where I need them.”
He continued, “There are places where they [online travel agencies] have access to a certain type of customer for a certain type of stay occasion, a certain time of the week, in certain markets where it’s actually more efficient for me to access the customer through them than it is through my own channels.”
“Where you don’t want to play is where we have customers who would otherwise be loyal to us but go outside our system because they’re somehow led to believe they’re going to get a better deal and they’re not,” Nassetta added.
He further clarified, “That’s what we did not like. What we did not like, and I’m not saying it’s malicious intent by anybody, but the OTAs have spent gargantuan amounts of money trying to convince every customer on earth that you always get a better deal with them. Well, here are the facts: You always get a better deal with us. If you’re a Hilton Honors member I will guarantee you the lowest price you will get is always with us, but a lot of customers didn’t know that.”
Nassetta’s remarks came at a time when chatter about the ongoing negotiations between Marriott and Expedia were making headlines earlier this year, and at the ALIS conference. Hilton is not currently engaged in negotiations with Expedia or Booking.
However, many industry experts believe that the outcome of Marriott’s negotiations with Expedia could prove to be a bellwether for the hotel industry, and for other major hotel players with tremendous scale, Hilton included. If Marriott gets favorable terms out of its contract with Expedia, including a commission rate as low as 10 percent as some suspect it may, that could prove to be good news for Hilton and others — it could mean that the hotel industry has finally shifted the pendulum slightly back toward direct bookings.
Nassetta added, “I am happy and excited to work with the OTAs. Over time we’ve been sort of trying to bifurcate the relationship in a sense to say, ‘Let’s figure out a way to incentivize the right behavior on both our sides, right? Where you get paid fairly for when we can incrementally get business, but where we otherwise don’t need you we pay less.”
The Art of the (Non) Deal
Marketing the benefits of booking direct to consumers about is just one part of Hilton and the overall hotel industry’s collective competitive strategy, however. Another is to pursue growth, or scale, and unlike its competitors, Hilton prefers to grow organically rather than going out and buying brands.
But that’s not because Nassetta doesn’t know how to cut a deal.
“I’ve done lots of M&A [mergers and acquisitions],” Nassetta said. “I was part of one of the biggest M&A deals that was done in our industry, buying Hilton. I came in with Blackstone and bought Hilton. Jon Gray from Blackstone, the most acquisitive people on earth, owned us for half the time I’ve been here.”
The real reason why Hilton hasn’t been as much of a shopper as, say, an AccorHotels or a Marriott, is because it just hasn’t made sense, yet.
“We looked at Belmond; we did all the work,” he noted, referring to the recent sale of luxury hotel and travel company Belmond, which was formerly known as Orient-Express. Ultimately, however, he and his team felt that the deal wouldn’t work for Hilton.
“Every time we go through the process we have two very simple filters,” he added. The first is whether it “a better value proposition for our customers.” Nassetta elaborated, “Is it something that we’re going to have to go out and we’re going to have to fix it a la Sheraton? That’s why I didn’t want to buy Starwood.”
He emphasized, “I’m not picking on Marriott, that’s just a fact.”
The second is whether there’s a reasonable return on investment in buying, versus launching a new brand organically. “With almost 6,000 hotels we have a huge infrastructure, we can do anything we want on our own, right?”
Nassetta described Hilton’s M&A team as “a SWAT team” that’s “small but strong.”
“Every time we finish [the review process] we end up saying organic growth makes more sense. I’ve been there 11 going on 12 years, we’ve done nothing. Never say never, but I suspect that that is what I’ll keep concluding.”
Instead, Hilton has focused on building up its own network of original brands, and within the past four years it has launched four: Tru by Hilton, Tapestry Collection by Hilton, LXR, and Motto by Hilton. A fifth brand, which Nassetta described as a “premium Hilton brand” is set to launch this year.
The Next 100 Years for Hilton
Hilton turns 100 this year and Nassetta is determined to make sure the company not only lasts for another centennial, but that it continues to remain as influential as ever.
This year, Stanford University business professor Chip Heath is publishing a book dedicated to Hilton’s global influence, something he refers to as “The Hilton Effect.”
To maintain the Hilton Effect, it’s clear Nassetta is building the company into a technologically advanced experience platform of unique, homegrown brands, but not without also paying close attention to the company’s culture and its employees.
“Yes, the idea of technology is take friction out of the experience for customers … to delight them a little bit more, but we’re not trying to take the people out of it,” Nassetta said.
“In the end, fulfillment is about people,” he said. “We have 400,000 people that are our direct connection to the customer. Seventy percent of them work for franchisees, but it doesn’t matter. They have to feel like they’re part of the Hilton family, so it just means it’s harder for us, but I am obsessive about our culture, about having this be a great place to work.”
He continued, “The more that I can drive this culture to build even more pride, to inspire these people to go even more above and beyond, the more successful I am. The better customers’ experiences will be, the more they stay with us, the higher our market share, the more real estate investors will invest in us, and the faster we grow. The more places we have, thus we serve more customers, and it becomes a virtuous cycle.”
Nassetta said that when he first joined Hilton, his first objective was to focus on the company culture, and to ensure it’s one that continues for the next 100 years while also paying attention to the larger community, with initiatives like Travel with Purpose.
“We’re going to do more in our communities with our 2030 goals on social impact and environmental impact, and we’re going to create huge numbers of jobs and give, and train, and develop people to give them a much better future than they’d have without us,” he said.
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Photo credit: Hilton CEO Chris Nassetta at the 2017 Skift Global Forum. He recently spoke to Skift about his strategy for the company, which turns 100 this year. Skift