Big Data: The “Invisible Hand” Helping Achieve Hotel Guest Loyalty Through Brand M&A and Organic Brand Creation

Guest loyalty is mission-critical for hotel operators. The traditional thinking goes: If (and it is a big “if”) you provide the right level of experience, physical product, and service at a fair price, the customer will return again and again, driving the financial performance of a hotel and the related hotel brand company. Even if that thinking is correct, how does a hotel brand company know it is getting it right, or at least “right enough,” in the quest to achieve high levels of guest loyalty? The proliferation of hotel brands and distribution channels in recent years further challenges both the traditional thinking and a hotel brand company’s ability to know if it is indeed “getting it right.” This, in turn, makes it more difficult to achieve high and sustainable levels of guest loyalty.   

As hotel brand companies look to further optimize the guest experience, physical product, and service-level offerings and, therefore, achieve high guest loyalty levels, two related trends have emerged in the hotel sector to assist these “optimization efforts”:

1. M&A activity among hotel brand companies, such as LVMH’s recent acquisition of Belmond Hotels and IHG’s recent acquisition of Six Senses; and
2. The organic launch of new brands by hotel brand companies.

Whether acquiring a hotel brand or launching a new brand, both options pull significantly on the resources of a hotel brand company, measured by financial capital or various forms of internal human and intellectual capital. Yet, if the new hotel brand – whether accomplished via acquisition or organic brand creation – addresses a key piece of the “guest demand equation” that was previously missing or not fully addressed, the investment of resources to acquire or establish the new brand will likely be justified in terms of return on investment through higher levels of guest loyalty.

Technology and, in particular, “Big Data” is an increasingly important tool that can be used to shape and inform judgments about whether to acquire an existing brand, launch a new brand, or simply hold steady with the current brand offering. To be effective, this requires both sophisticated data analytics systems and data protection systems. There are countless definitions of, or meanings ascribed to, “Big Data” in today’s marketplace. As applied to the hotel sector, we will use the following definition: “The collection of information, both ‘on-line’ and ‘off-line,’ about actual or potential hotel guests for use in the ongoing growth and operations of a hotel.” 

There is a myriad, and evolving range, of sources of “Big Data”: historical guest information, website trackers, concierge data, subscriber lists, customer feedback, online reviews, point-of-sale transactions, and so on. This data is used by hotel brand companies for a variety of operational purposes, such as driving customer segmentation, understanding guest preferences, and yield management.

Beyond these ongoing operational uses, a system to organize, collate, and interpret Big Data can assist a hotel brand company to identify “gaps” in its customer offering. In some cases these gaps, once identified and understood, can be addressed through incremental refinement of the existing brand offering whether from an experiential, physical product, or service standpoint. However, the data may reveal more fundamental gaps in the platform that cannot be solved by simple refinement of the existing offering — trends in the preferences of a critical mass of core customers can, in those cases, represent a deeper, more systemic business risk. For example, a shift in preference away from “full service”-type services and amenities to a more streamlined, “select” set of services (and vice versa) or a shift in preference to smaller guest rooms in return for larger, more robust public spaces (and vice versa) — “Moxy” by Marriott or “Motto” by Hilton address these shifts in the respective customer preferences at Marriott and Hilton. Faced with these more fundamental gaps, a hotel brand company can “stay the course” and try to limit customer fallout by attempting to address the gap through its existing platform. 

Alternatively, a hotel brand company may try to bridge the gap through a brand acquisition or a new brand launch. Each of these routes, of course, carries risks and rewards on the “guest loyalty” spectrum. Hence, the decision on how to proceed once the gaps are identified through data analytics has high strategic impact.

Given the significant impact on internal resources — both financial and human — that the acquisition and launch options have on an organization, it is critical to ensure, with as much precision as possible, that a brand acquisition or a new brand launch will actually solve a “gap” identified through data analytics. 

This places a premium on the ability to effectively harvest, organize, interpret, and utilize Big Data in a manner that actually reveals an existing target brand or the concept for a new, organically developed brand that would solve, or at least have a high likelihood of solving, the identified “gap” or “gaps.”  The data analytics systems to drive strategic decision-making around possible brand acquisitions or new brand launches must take measure of the global regulatory environment around the accumulation and use of customer data or information. This environment has become ever more sophisticated and complex, with serious adverse implications for noncompliance. Therefore, in the strategic use of Big Data to shape brand acquisition or new brand launch decisions, hotel brand companies must be thoughtful, diligent, and proactive in the development and ongoing monitoring of systems and protocols to protect, and maintain the privacy of, customer data in a manner that satisfies applicable regulatory requirements and customer expectations.

If a hotel brand company develops and implements a data analytics system geared to shape and inform brand acquisition or brand launch decisions, and combines it with appropriate data protection and privacy systems and protocols, Big Data can be an effective tool for such companies to create, maintain, and grow a brand platform that delivers a level of experience, physical product, and service that meets, or even exceeds, their customers’ ever-evolving expectations and definition of value. In doing so, Big Data can serve as the “invisible hand” helping achieve higher and sustainable levels of guest loyalty through strategic brand M&A and/or organic brand creation.