Blue Ocean Strategy For Hotels: No Competition, No OTA’s, 100% Direct Bookings.
Have you ever wondered what life would be if you were in a place of non competition? A place where you could afford to kick out all the OTAs. A place where 100% of your reservations are direct. Utopia? Maybe. But not for everyone.
All oceans are blue. Except the one you are swimming in, which is red.
As weird as it sounds, this is exactly what happens in business, all businesses, as beautifully showcased in what I consider a sort of Marketing Bible: Blue Ocean Strategy (W. Chan Kim, Renee Mauborgne).
In the hotel industry, this is not any different. Actually, it’s even more obvious than other businesses.
However, I found no examples that could showcase and relate what having a Blue Ocean Strategy means for hotels.
So I decided to conduct my own research and have finally come up with a real example of a hotel that wonderfully created its own Blue Ocean.
And today I’m going to share the outcome of this research with you, so that you can see what it means and how this approach can help boost your business, revenue, direct bookings and distribution health.
Ready? Let’s go!
What is a Blue Ocean Strategy?
If you didn’t read the book, nor intend to, in very few words, an Ocean is the metaphor that represents our business environment, in our case the Hotellerie.
Hoteliers are the fishes, who swim either in a red or in a blue ocean.
It’s the known marketplace. In our case, all hotels of the world represent a so-called Red Ocean.
Here’s the definition as it is explained on the official site of the book:
Here, companies try to outperform their rivals to grab a greater share of existing demand. As the market space gets crowded, profits and growth are reduced. Products become commodities, leading to cutthroat or ‘bloody’ competition. Hence the term red oceans.
Blue oceans, in contrast, denote all the industries not in existence today – the unknown market space, untainted by competition. In blue oceans, demand is created rather than fought over. There is ample opportunity for growth that is both profitable and rapid.
In blue oceans, competition is irrelevant because the rules of the game are waiting to be set. A blue ocean is an analogy to describe the wider, deeper potential to be found in unexplored market space. A blue ocean is vast, deep, and powerful in terms of profitable growth.
In Other Words…
… the red ocean is where everyone is, in our case, where all hotels are, competing with each other using the same weapons, dealing with the same problems, marketing to the same target, etc.
For example, 2 hotels in the city centre of whatever city of the planet, same category, same size, same room types, same services… these are 2 hotels swimming in a red ocean.
What do you think customers will base their decision upon, when having to choose either one of these 2 hotels?
Exactly, price. And little else, eventually.
These 2 hotels are being seen as commodities.
Isn’t it the same case for all hotels of the world? Ultimately, all hotels have competitors, right?
If you do have competitors, then you are in the middle of a red ocean.
You do NOT have competitors? Then you are likely in a blue ocean.
Hotels With No Competition: Do They Really Exist?
Yes. They do exist (yet extremely rare to find), when either one of the following 2 conditions is met:
- Hotel is the only one in a specific and relatively wide area. This non-competition status is simply driven by the fact that there are no other hotels.
- Hotel which is being seen and perceived as unique, no matter how many other hotels around, category, room types, etc.
Whilst in the first case the non-competition status completely depends on external factors, in the second case this status has actively – and proactively – been acquired. And when acquired, it’s almost impossible to lose it.
What Does “Be Unique” Mean?
This article is intended to be a practical guide and, as I promised, the focus is going to be on a real hotel example.
However, before getting into details of the example, I need to quickly guide you through what stands behind a Blue Ocean strategy and I will first show you a given example of the strategy from another industry, so that you can better abstract your thoughts from your current situation and environment and focus on what matters in the first place: the strategy itself.
So let’s pause this “be unique” question for a while. If you keep reading, I promise, the answer is soon to come.
The 2 Most Important Tools (out of many others).
All tools needed to create a Blue Ocean Strategy are available for free on the official Kim-and-Mauborgne website.
In my opinion, 2 of them are the ones we should be focusing on:
These are also the 2 tools I will be basing my case study upon.
Here’s what they are for.
The ERRC Grid is as simple as the principle it represents.
The vast majority of businesses are in a red ocean because, essentially, they do the exact same things.
So, if they want to create their own blue ocean, they need reconsider what they do, in order to:
- eliminate what everyone else does;
- reduce things that everyone else does but cannot be eliminated;
- raise what everyone else does but no one makes use of to its fullest;
- create what no one else does.
Here’s how the grid looks like:
Well, ok, maybe the grid itself is easy, but I guess you are now very sceptical, right? Because if you have been doing certain things for a long time, it’s because you think they are needed, essential elements of your product (hotel) or services.
But what if you realize that some – or most – of those things can be eliminated completely? Or, at least, reduced?
And what if you can use those resources that you freed up, to improve other areas of your business or even create something new that prospects might be happy spend money for?
Again, I understand your scepticism. And this is the exact reason why I first wanted to show you the appliance of the blue ocean strategy to a business that nothing has to do with the Hotellerie.
Straight to the point, here it is:
In a nutshell, everything that you have listed in the ERRC grid, is going to be represented in this chart, on the x-axis; On the y-axis, we simply give a value for each item.
For example, price is one of the x-axis factor. Are we going to apply prices that are generally higher or lower as opposed to what we consider our competition in the industry?
Ok then, enough theory, let’s get practical now.
The Example: South West Airlines.
Southwest Airlines, Apple, Canon, Yellow Tail, NetJet, Circ du Soleil. I could go on for hours, but you get the point: leaders in their respective sectors.
Guess what, they all created their own Blue Ocean Strategy.
My lab-rat is Southwest Airlines, simply because it’s one of the most known, complete yet easy to understand.
The term low cost didn’t even exist, before Southwest had entered the marketplace.
With its revolutionary approach, SW destroyed what, till then, seemed to be the only business model possible for airlines. Or, at least, the only one known.
Here’s Southwest’s ERRC Grid, the easiest way to explain this new approach:
I took this example directly from the book, but I made a couple of additions myself, re “Secondary Airports/Cities Connected” and “Add-Ons” under the Create category.
Why are all others stuck in the red ocean?
Despite little details, they all had been doing the exact same things: before SW, all airlines used to offer meals included for all customers, lounges for VIPs, very high prices, same First, Business and Economy class differentiation.
The exact copy, one of another = Commodities.
3 Tiers of Noncustomers.
The above ERRC Grid was not only the outcome of SW to deal with the same customers of all other airlines.
Instead, SW rightly abstracted and observed the situation from a way higher yet simpler point of analysis, by asking themselves the right question: Why do people get on a plane?
In essence, for one simple reason: they need to go from point A to point B.
What’s another industry that serves people who want to go from A to B? Right, cars.
Car industry was a different type of business though, meaning airline companies did not consider car users as their prospective customers.
SW, instead, did.
What follows is the representation of the 3 tiers of non-customers, that SW smartly made use of, to expand their target market.
Let me explain what it represents:
- 1st Level of Non-Customers: “Soon-to-be” noncustomers, on the edge of the market, just waiting for better options.
- 2nd Level of Non-Customers: “Refusing” noncustomers who intentionally choose to stay away from the market.
- 3rd Level of Non-Customers: “Unexplored” noncustomers who are in totally different markets.
Why did car drivers use cars to go from A to B, instead of flying?
- Airlines too expensive.
- Poor or non-existent connections with secondary cities.
- Low flight-frequency.
We can go on further, but you get the point: those who used cars for intra-state trips (within the US) did so because they didn’t have any other suitable option.
This is the 2nd-level of non-customers that SW made use of to create their new Blue Ocean Strategy.
So here’s the final strategy canvas:
If you will be applying the same exercise, the general rule is: the more your line diverts from the one of your industry, the bluer your ocean is going to be.
Just like SW’s line above.
Ok, it’s time to get back to our own world: Hotellerie.
Blue Ocean Strategy For Hotels: Case Study.
Spring 2007, Milan, Italy.
1 month after starting my new job as Front Office Agent, the management of the hotel I was working for organized an in-house 2-day Revenue Management workshop, conducted by José Roblès, one of the leading exponents of this relatively new subject back then.
I was 22 and even though I had been working 4+ years in the industry, so little did I know about RM.
But I remember that day, the first day of the workshop. That night, I couldn’t even sleep.
I was too excited, my head was spinning, what I heard and learnt that day blew my mind. But most importantly, it felt damn right.
You know, that feeling that comes from within when something in the outer world magically matches your inner world and you can’t help but think “this is what I want to do“.
Revenue became my first love because of that workshop. But when you are so new to a specific topic, as it always happens, you tend to remember the examples given, rather than the theory.
In the end, examples strengthen theories.
The same example I was given during the RM workshop back then, is going to be my case study for you today.
A great case study to support Revenue Management in 2007, a great case study to support the Blue Ocean Strategy today.
Now, listen, before revealing its name, I want to try to blow your mind too: this hotel was and is soooo successful, that it does NOT need any OTAs to make its business and revenue skyrocket!
If Hotellerie were a religion, this hotel would be our unquestioned God: Hotel Cavallino Bianco, Ortisei, Dolomites, Italy.
Oh, hey, welcome back. I know you stopped reading and went check their website. Fair enough. Actually, I’m glad you did.
Did you spot something interesting? Something juicy? Something different?
I’m pretty sure you did, but let’s dig in together. And, like I always say, this whole document is intended to open discussions and sharing ideas, not to give and impose a universal truth. So, if you have something to add or don’t agree with, kindly comment below or DM me and I’ll be more than happy to implement anyone’s contribution.
The Blue Ocean of Hotel CB.
In many of my previous articles and posts I often times mentioned that Marketing and Revenue are just the 2 sides of the same coin.
Even though I didn’t lie, that’s a partial truth.
Partial, in the sense that something’s missing. As a matter of fact, the full truth requires a 4-sided coin, to cover all 4 domains that actually make any hotel business skyrocket:
The exact 4 domains I based my own business upon.
Hotel Cavallino Bianco though happened to manage so well these 4 domains, that now they became 3, as they could get totally rid of one of them: Distribution.
They did so by using these domains to create their own blue ocean of non-competition.
Let’s see have a look.
What Makes HCB So Unique?
You just visited the site, right?
How much time did you need to realize that Hotel Cavallino Bianco clearly focuses on families?
If you say more than 3 sec, sorry, you’re lying 😀
Now, if I told you to visit as many hotel websites as it takes until you see one that says “ideal solution for both business and leisure trips” or something similar, how much time do you think you’d need?
If you say more than 3 min, you’re lying again 😛
Clear and super targeted message, as opposed to the most classic “market to everyone = market to no one” approach.
The latter is perfectly logic: when we have no clarity, we naturally tend to widen our options; this way, doubts and discomfort, consequence of our lack of clarity, are compensated by a bigger number of people we think we are speaking to.
However, there is a general rule that is as sure as the rising sun: the higher the quantity, the lower the quality.
If, for example, I am travelling for leisure, looking for a hotel and at some point I end up visiting a hotel site that says that they are good for both leisure and business travellers, the odds that I am going to pick this hotel are extremely slim.
(Unless the price is extremely cheap).
Not because I consciously and logically choose to stay away, but because I don’t relate to it, emotionally. So won’t any other online user on earth.
It’s human nature. No theory, scientifically proven.
And again – I think I said what I am about to say in almost each and every article I recently posted – people buy on emotions.
Let’s get practical now and let’s have a look at the ERRC Grid of Hotel Cavallino Bianco.
The ERRC Grid of HCB.
- By wanting to focus on families (with children), HCB decided to offer family rooms only. No single, no double rooms.
- By focusing on families, HCB needed to ensure to be offering an outstanding service, specifically for this niche. Children are a blessing, but every now and then parents love to get back some of their private and adult time, that children make almost impossible to get. By creating and advertising their babysitting and children entertainment services, Cavallino Bianco literally make those parents dream and live their romantic time together (emotional connection).
- HCB only needs to market to a single, very specific niche. Consequently, this means that even though the majority of personas do not relate to them in any sort of way, the hotel is being perceived as the one and only by families with children, rather than one among many.
- Cavallino Bianco is a 4*S hotel, but being perceived as the one-and-only, they could afford to exponentially boost their rates to be way higher than even many 5*L hotels. They put themselves into a blue-ocean situation where, essentially, there is no competition. Competition is only in the logic of HCB being a hotel, offering a place to sleep, just like any other hotel on earth. But no one, literally, no one merely wants a bed to sleep on, because no one buys on logic, we all buy on emotions, and emotions don’t give a damn thing about a bed to sleep on.
- No competition and a specific niche to be satisfied turned what seemed to be the wildest yet most impossible dream of any hoteliers on planet earth into reality: no OTAs, 100% direct bookings by force.
Let’s see how the Strategy Canvas of Hotel Cavallino Bianco looks like:
Remember? The more the 2 lines divert one from another, the bluer the ocean is going to be.
No Competition AND Latent Demand.
No competition, but not only that. Remember what happened when Southwest Airline intercepted those who were not considered prospective customers? 2nd Level of Non-Customers.
SW created a new latent demand. So did Hotel Cavallino Bianco.
Imagine, for example, a young couple with children, who wanted to spend some spare romantic time on their own, meaning, with no children. What were the options? Whom can they live their kids to?
- Grandma and Grandpa.
Either case, keeping someone else’s kids may be too big of a commitment, leaving parents with the choice of giving up on the idea of their romantic weekend, or going anyway, but with that uncomfortable feeling of having asked someone too much.
Hotel Cavallino Bianco created a 5th choice:
- Parents can bring their kids along, while enjoying some free romantic time for their own, because Hotel Cavallino Bianco will take care of their kids.
I stop. For Now.
It’s been a long post, I know.
However, there are soooo many things that we can learn from Hotel Cavallino Bianco, that I will write another post to dig deeper into the example of those who, for me, have been representing the closest thing to perfection. For more than 12 years now.
Plus, I’m working on a surprise for all of you.
So, stay tuned 🙂