Unbundling Hotels

The TWA Hotel brand, owned by one of the largest hotel ownership groups, recently announced that it will be testing a modified pricing approach that “unbundles” rates, following the model originated by the airline industry’s Ultra Low-Cost Carriers (ULCC). It’s a bold step, for sure. History has proven that the first to unbundle rates assumes all the public perception risk and opens itself to all of the negative backlash. However, the potential reward for being first to market can be transformative. And while the details of this story may appear to be specific to the travel and tourism industry, the lessons are unquestionably applicable to any brand that wants to shatter industry conventions and create new customer behaviors.

My history in the airline industry dates back to 2000, when, as a young, optimistic ad man, I was asked to lead the US Airways business as the airline was being attacked by Southwest in the all-important Philadelphia hub. To survive, we had to reverse decades of monopolistic pricing to reposition the airline in that market as a low-cost option. (But that’s a story for another time.) Of more relevance, I had the distinct privilege of working as the agency strategist and account lead for Spirit Airlines from 2004-2015 as it was emerging from yet another bankruptcy and re-imagining itself. I was in the earliest meetings with the president and CMO, sitting around a Florida swimming pool at 2am, sipping on whiskey and whiteboarding the core attributes that would turn Spirit into the most profitable airline in America. (And the most hated, but more on that later.)

So, as the hotel industry begins to embrace this journey, even with the loosest of grips, here are a few tips from someone who has lived through the highs and lows of unbundled pricing and industry renovation:

1. Brand Matters. Price is a powerful incentive. But don’t dismiss the power of brand. (And no, your price is not your brand.) Eventually, other companies will catch up or find ways to market against a price-first model. To maximize potential, find ways to tell the story of why your business believes that an unbundled model is advantageous for the people that should be your customers. What are your brand’s core values, and how are they supported by an ultra-low, baseline price? You may be saying to yourself, “I already have a brand.” And that may be true, but when you change your business model, your customers may very well change along with it, and your brand may no longer be as relevant as it once was. The traveler that will be open to an unbundled model is not the same as the traveler who is willing to pay extra for the convenience of the traditional hotel model. Do the research. Run audience tests. Evaluate segment opportunities. Ensure that there’s not only a gap in the market, but a market in the gap.
And once you hone in on the best target opportunities, learn everything about them. Know their interests, their motivations and their triggers. Build personas to personify the data. And make sure you evolve as they evolve. Through this depth of understanding, you’ll be able to build a brand specifically for the people who should be your customers that is relevant to their lifestyle… and their wallets. Your strong brand position will help lower the barrier for trial in the early days, increase loyalty over time, create differentiation when other brands eventually make the shift to an unbundled model and, ultimately, establish the building blocks for longevity.

2. Sales will outpace acceptance. I know this sounds like a contradiction. Acceptance leads to sales, right? Not in all cases. As I mentioned earlier, Spirit Airlines built a reputation as the most hated airline in America. Now, I will admit that our outlandishly disruptive and, at times, offensive marketing approach may have had something to do with that. But the greater challenge was that change is difficult for Americans. We expect to get everything we “deserve” for the lowest possible price. And when we become accustomed to a certain set of amenities, we don’t want those taken away. Plenty of people complained about Spirit Airlines. You heard the jokes: “Are they going to make me pay to use the restroom?” “How much will the flotation device and oxygen mask cost me in the event of an emergency.” People did not like that Spirit charged more to print tickets at the airport, to book flights with a customer service agency instead of on their website, to check heavy bags or to buy a beverage and snack once on board.But, the moral of the story is, as they were complaining, they were snatching up tickets at $29, $9, and sometimes even as low as $.01 (before the FTA insisted that taxes be included in the advertised fare). AND they spent for the extras, too. Because no one wants to do all the math, and even if they did, by traveling smart and doing a little planning, they could still save a significant amount of money. Fast-forward to 2021. Who books a flight anywhere but online? Kiosks and self-serve options are commonplace at every airport in the world. And travelers have grown accustomed to packing smarter or being prepared to pay overages. Culture will catch up. But, if your pricing is attractive enough, your profits won’t have to wait.

3. Data is king. When the CMO of Spirit Airlines first sat me down to explain his initial vision of the revamped airline, he made what, at the time, sounded like a pretentious proclamation. “We are not an airline,” he said, with a sheepish smile and distant visionary look in his eyes. “We are a data company that happens to be flying airplanes.” Perhaps that concept does not seem so revolutionary in 2021. But remember, this was 2004. The internet was just hitting its stride as a ubiquitous ecommerce platform. Data was not nearly as easy to capture, organize and analyze as it is today.And, as we started working together, building the brand and driving conversions, the data was at the center of everything we did. We had pivot tables so long they would crash computers. We got as granular as we could because in the data were insights, in the insights was understanding and in that understanding were actions we could put into place to become even more efficient.The world has evolved a lot since then. Data, in the hospitality world, is easy to come by. In fact, we now have more data than we could ever need. Now, the trick is knowing what data matters when trying to make business decisions, and how to translate it into actionable takeaways that are relevant for your brand. The inclusive room rate model is different from the unbundled model. Make sure you have the right tools and analysts in place because there are stories in the numbers, and money in the stories.

4. Don’t whisper. Shout. You can’t plan to be a disruptive force in the industry and go at it halfway. Own it. Be proud and be loud. You will have to make sure everyone knows who you are, and why you are different. The initial rate will need to be so attractive that customers will take notice. And wrapped in a creative message that they just cannot ignore. You don’t have to be raunchy like Spirit was, but you’d better find a way to capture attention and make people talk. You want to be the conversation around the watercooler. You want to be shared on social media. It doesn’t matter why you are being shared, as long as they mention the brand name and the incredibly low room rate.The shout technique translates to the booking path as well. Be loud and clear about the options. Make it simple for users to book and add on options. Take the user on a clear journey that provides attractive options at every click. And never apologize for giving customers more freedom to build their own experiences while only paying for what they need. Never cave to the voices who will inevitably try to bring you down, or make you the butt of the joke. Lean into it. Combat the naysayers with consistency, facts and a sense of humor. It may take time, but you will have the last laugh.

To talk more about the power of unbundling or the management of disruptive business practices, contact David Melnick, EVP of Brand Integration at [email protected] or 410.336.1000