Digital: The next frontier for hotels

Established companies in the hospitality and tourism sector are having to work harder than ever to grow further. A series of recent events have disrupted demand in the short-term, but in the longer term, the rise of the digital economy is threatening traditional operating models and sales channels.

Businesses in the sector need to be alive to the challenges posed by online travel agencies and aggregators (OTAs), as they try to build their brand and maintain market share.

The most recent data from our International Business report, which tracks business sentiment across the globe, finds the hospitality and tourism sector to be relatively downbeat on growth prospects for the next 12 months. Less than a third expect to increase revenues (30 per cent), compared to 50 per cent or more in all other sectors, and just 14 per cent are forecasting an uptick in profits (against 43 per cent in other sectors) globally.

However, in the UAE the prospect is somewhat different. Dubai is one of the most universally gathered cities in the world, which is why the tourism and hospitality sector contributes significantly to the country’s economy and GDP.

According to analysts, in 2011, over eight million visitors came to Dubai for either work or leisure, while over 11 million visitors were recorded last year with more than four million visiting in the first six months.

The UAE’s hospitality industry is further anticipated to develop at a compound annual growth rate of 10 per cent. With the World Expo 2020 in Dubai being the key driver of the hospitality industry in the UAE, it is estimated that the leisure travel market will be valued at $23 billion.

As a result, hospitality and tourism businesses are clearly ramping up investment in marketing and salesforce effectiveness, with figures sitting above the all-sector average.

With the rise of sharing economy competitors such as Airbnb starting to squeeze some profit margins, there is no doubt that the dominance of OTAs is reducing customers’ exposure to branded content and spreading demand over less well known establishments.

Businesses are therefore looking at how to retain their customers and attract new ones through better marketing and sales as well as collaborating with strategic partners to offer new services. This can counteract the ‘de-branding’ in the digital space caused by OTAs and respond to the perceived benefits of the new low-cost challengers in the sharing economy.

A focus on differentiation is vital.

Our recent Hotels 2020 report suggested businesses in the sector are not moving fast enough to embrace the age of mass personalisation. Our megatrend report on mass personalisation stated that over the next five years, the so-called ‘digital natives’ or ‘millenials’ are set to become key customers. With this in mind, businesses need to make digital a part of everything they do – from marketing and distribution to in-room entertainment.

Hotels can make their brands stand out in the digital environment by adopting mass personalisation to meet the needs of tomorrow’s guests.

Of course, businesses must be wary of de-humanising the hotel experience and of data security concerns. The winners and losers will be separated by those who adapt best to the digital revolution. Investment in sales and marketing on its own will not be enough. It has to be targeted to drive a better customer experience, but not intrusively so. Businesses that can balance automation with a personal touch will thrive in this new landscape.

With Expo 2020 set to come to the UAE in five years from 2015, the leisure and hospitality sector will continue to see a number of key developments and investments.

But to meet the needs of tomorrow’s guests and remain competitive, mass personalisation and digital innovation should be seen as key.

This will continue to support economic diversification, along with further supporting the UAE to become the central hub of the Middle East.