The impact of the internet and social media on the hotel industry
How the internet and social media have changed the way hotels need to operate if they are to succeed in today's dynamic and global markets
Essay 2011 17 Pages
This paper deals with the impact of the internet and social media on the hotel industry. In particular, it points out how the rules of the game have changed in today’s dynamic and global environment and how hotels need to operate if they are to succeed from a long-term perspective. Likewise, it outlines how activities on both the buy-side and sell-side can be enhanced through the implementation of internet-enabled technologies. Furthermore, the paper highlights barriers that might inhibit further development of e-business. Practical examples are used throughout the paper and an industry analysis using Michael Porter’s Five Forces model and a case study are provided in the appendices in order to promote understanding.
Since the invention of the internet and the World Wide Web many industries have been dramatically disrupted. Numerous businesses found themselves unable to compete in the light of the digital age. In Schumpeter’s terms the internet emerged as a “gale of creative destruction” that has markedly changed the rules of the game (Grant, 2005). In fact, the internet has increased buyer power and reduced switching costs, limited the barrier to entry, intensified competition on a global scale and facilitated disintermediation. Today, virtually every company irrespective of its location has the potential to become a competitor (Porter, 2008). Moreover, the internet allows gathering competitive intelligence easier than ever before (Chaffey, 2009).
Companies that were keen to adapt to these changes could achieve both cost and differentiation advantages (Dess et al., 2010). In this regard hotels in particular could reap benefits on both the buy-side and sell-side of the supply chain. In effect, maintaining relationships with suppliers and exchanging information about the supplies needed was costly and time-consuming in times of paper-based systems (Laudon et al., 2007). Likewise, many individual hotels often lacked buying power over their suppliers and resources to compete with their bigger rivals.
New technologies have markedly facilitated the relationship between hotels and their suppliers. According to Chaffey (2009) the benefits of e-SCM comprise increased process efficiency, reduced complexity and costs as well as improved data integration and innovation. This is exemplified by Hogast, an Austrian purchasing association, which enables member hotels to combine their resources to improve process effectiveness, lower overall costs and increase collective buying power. Hogast developed a sophisticated e-procurement system that allows hotels to buy supplies from selected suppliers and compare prices, gain market intelligence and envisage trends 24/7. The system can be interconnected with a hotel’s enterprise and stock management system to enhance information processing and decision-making (Hogast, 2011).
When it comes to the sell-side of the supply chain, however, the impact of the internet has arguably had the most significant influence on hotels. In effect, hotels by their very nature have to cope with the perishability and seasonality of their service offering. A room which remains unsold today is virtually worthless tomorrow. Hotels therefore, more often than not, had to rely on intermediaries such as travel agencies or tour operators to sell their rooms to potential customers (Buhalis, 2003). In this respect, the increase in households with internet access and the rising acceptance of online payments paved the way for the development of online intermediaries and booking platforms, such as booking.com, expedia.com or lastminute.com. In fact, today more than 70% of households in many European countries have internet access (Internet World Stats, 2011), whereas the majority use the internet to gather information or purchase travel products (Burns, 2005; Cox et al., 2008; O’Mahony, 2009; BazaarVoice, 2011). As such, this shift comes with no surprise since online intermediaries, as opposed to their bricks-and-mortar rivals, provide customers with greater choice, convenience, price transparency and comparison, ease of use and access. Hotels, on the other hand, benefit from the vast reach of potential customers, dynamic packaging, direct bookings and specialist knowledge of sales representatives (Turner, 2011). There has been ongoing discussion about the negative aspects of online intermediaries. Whilst they can be particularly beneficial for hotels to fill empty rooms during a recession where people travel less often, they also entail high commission costs, lack of power and control (Enz, 2003).
However, the internet enabled hotels to overcome the dependence on any intermediary as they can cut out the middleman through developing their own direct channel online. For example, the Austrian wellness hotel “Larimar” attracted customers from France and Belgium via its website, even though it did not collaborate with intermediaries in these countries (Müller, 2007). Hotels can take advantage of the fact that “consumers are now used to this online approach, are locked into this new methodology, and are likely to continue the trend of internet research and booking” (O’Mahony, 2009).Yet many hoteliers seem unaware that it is not enough to merely be present on the web. A hotel website should “create a pleasant experience for the user”, ensure lock-in and provide an easy way to book a room in order to avoid customer defection (Huang, 2009). Given the popularity of smart phones it is also worth considering the costs and benefits of mobile-friendly websites and applications (Miniter et al., 2011; Chipkin, 2011).
Another pivotal advantage of the internet is the myriad of opportunities with regard to communications. Prudent hotel marketers integrate traditional offline campaigns with online initiatives, such as search engine or affiliate marketing, in order to generate website traffic and sales. For example, the Intercontinental Hotel Group (IHG) advertises via Google AdWords and enables independent media owners to promote its products in exchange for a commission (Google, 2010; IHG, 2011). Furthermore, IHG could increase sales through mobile advertising and a dedicated mobile version of its website (Google, 2011). There are also other online services offered by ebay.com, priceline.com or groupon.com that can be integrated in yield management initiatives to increase customer demand, yet it must be born in mind that heavy discounts might adversely affect brand equity (Killian Branding, 2011).
It is worth mentioning that the internet has enabled a plethora of new business models to arise, which is exemplified by the Omena Hotels case study in the appendix.
The wide-spread use of digital technologies has also had a profound impact on customers and their behaviour, needs and expectations. They are now more independent, knowledgeable, assertive and mobile (Davenport et al., 2006). In fact, it is argued that customers have become co-creators of value as they are enabled to actively share valuable ideas, information and feedback (Senge et al., 2001). Alvist Toffler, a US futurist, referred to this phenomenon as “prosumerism”, which is particularly prevalent in internet-enabled markets (Toffler, 1980). Prahalad et al. (2000, p. 80) argue that “the market has become a forum”, where customers actively engage in dialogue with businesses. In the hotel industry, this shift from passive to proactive customers was facilitated by the development of interactive hotel websites, travel-related social media platforms such as Tripadvisor and Holidaycheck as well as social networks such as Facebook and Twitter. As these platforms make customer feedback virtually obtainable for anyone, “word of mouth is now both global and immediate, which presents a major challenge for anyone working anywhere in hospitality” (Nand, 2010).
Nowadays the majority of travellers rely on hotel reviews as they increasingly seek value for money (Lewis and Chambers, 2000; ZDF, 2011b). This, in turn, requires hotels to place more emphasis on service quality and effective communications if they are to compete effectively. Every year, Tripadvisor, the world’s biggest travel-related social media platform, publishes a list of the dirtiest hotels (Tripadvisor, 2011), which is evidence that some hoteliers underestimate the power of customers in the digital age.
Even if online hotel reviews have increased in significance, a commonly discussed problem is their credibility. Some hotels are even accused of faking reviews and providing misleading information which might increase bookings in the short-term, but eventually leads to low perceived value and even more negative reviews which tarnishes a hotel’s image in the long-term (ZDF, 2011a). Nevertheless, hotels need to adopt effective reputation management techniques, take customer feedback seriously and take appropriate action to avoid adverse effects. However, in order to increase the probability of positive word-of-mouth hotels need to ensure guest satisfaction and try to prevent problems in the first place. For this purpose, IHG deployed a web-based guest-service-system called “goConcierge” which enables staff from all departments to log and access guest requests and issues in order to meet their needs and expectations and learn from mistakes (Hotel Online, 2010). In addition, guest feedback can be easily obtained via email and web forms or online questionnaires administered by the hotel.
Despite the advantages hotels can gain of e-business there are major barriers to further development which stem from a hotel’s inability to develop a sound strategy and appropriate strategic capabilities. In fact, the conditions of the 21st century, such as the fast-changing and unpredictable global environment, the tendency towards virtual organisations, the rapid development of new technology and changing customer characteristics are having a serious effect on companies and require them to rethink their strategies if they are to survive and prosper (Davenport et al., 2006).
Given the dynamic nature of the hotel industry traditional management approaches have proven to be dysfunctional. In order to compete effectively hotels need to adopt dynamic thinking and develop deliberate and emergent strategies “that reflect the conditions at hand, notably the ability to predict as well as the need to react to unexpected events” (Mintzberg et al., 2009, p. 13). Likewise, it is essential to develop “dynamic capabilities” that allow hotels to cope with change, exploit opportunities and eventually stay ahead of rivals (Brown and Eisenhardt, 1998).
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