Loyalty quality technology

Zuzanna Wiak, ‘Eurobuild Central & Eastern Europe’: It’s been ten years since you became the head of Best Western. What goals did you set yourself then and what have you managed to achieve over the last decade?

David Kong, the president and CEO of Best Western International: When I first became CEO of Best Western, our goals were to dramatically enhance the image of Best Western and thereby make our brand more relevant and contemporary, as well as to generate improved revenue for our hotels by taking some of the market share from our rivals. Over the last ten years, we have pursued a comprehensive multi-pronged brand strategy, involving initiatives such as strengthening our quality assurance programme, launching a design programme, pursuing creative and effective sales and marketing strategies, becoming a leader in the internet, mobile and social media area, and enhancing our loyalty programme. As a result, for the last two years we have achieved a revenue per available room (RevPAR) index of 110, which is 10 points above what our share should be in a competitive marketplace. Based on a number of independent surveys and studies, Best Western now ranks among the highest in customer loyalty and the ability to create an emotional connection with travellers.

How has the hotel market changed over this period?

The hotel market has evolved quite significantly in the distribution area. Ten years ago, hotels were just beginning to work with online travel agencies (OTAs) like Expedia or Booking.com. Now these OTAs have immense control and influence over many hotels. Other intermediaries, such as TripAdvisor, Facebook and Google, are entering the game. Intermediaries have evolved from just a commission based model to securing dramatically discounted net rates from us. TripAdvisor and others in the meta-search area are also growing in popularity. Several new distribution models have emerged because of these intermediaries. But the ever-rising distribution cost is a problem our industry has not been able to resolve. The product side of the hotel business has also changed. Ten years ago very few brands offered free high speed internet access and free breakfast. Today most of the brands in our segment, the broad midscale, offer both. The sleep experience, shower experience and work experience offered in our segment rival those offered through the upper upscale segment. It’s no wonder that the broad midscale segment is so successful given our price-to-value offering.

You are deeply involved in the development of new technology and its implementation in the hotel business. How has its use changed the picture of the modern hotel business?

Most of the new technology that has been implemented is related to the distribution landscape through more interactive websites and mobile apps as well as connectivity with travel intermediaries. There are hotel brands that have implemented self-check-in kiosks and replaced key cards with smartphones for entry to guestrooms. These features have not been widely embraced by travellers. High speed internet access, on the other hand, is now the number one requested hotel amenity, and travellers want internet access for multiple devices to be reliable, fast and free.

What challenges will Best Western have to face over the next ten years?

The distribution landscape will continue to challenge every single hotel brand. If you think about it, even the biggest brands offer only a few hotels in a particular location, but the OTAs can offer hundreds of hotels. From a consumer relevancy standpoint, who wouldn’t want more choices rather than just a few? The OTAs will continue to threaten the brands and eat into their margins. The other aspect to consider is how the internet, mobile and social media will change the industry. We are evolving into a shared economy where people share their cars, recreational products and even residences or accommodations. Sharing platforms like Airbnb will evolve into additional challenges for the industry. Another opportunity before us has to do with Millennial travellers. Millennials are forecasted to overtake the Baby Boomers in total travel spend, and they are a segment that every brand is after. Brands will have to be innovative in how they attract the patronage and loyalty of this customer segment.

How many facilities are planned to eventually comprise the chain?

This might surprise you, but we have set as our mission to increase the quality, not the quantity, of hotels. Our success is not defined by how many hotels we have, but by the overall image of our brand based on quality hotels providing quality experiences. We don’t have an artificial target in terms of the number of hotels we want to add.

What is the strategy for adding new facilities to the chain?

The superior support and revenue that we provide for our hotels is key. Let me explain. The OTA’s share of business is over 25 pct in Europe and growing rapidly, but is less than 13 pct in the US and stabilising. It is not surprising that trend is closely correlated to the percentage of hotels that are branded. In Europe, only about 15 pct are branded compared to about 85 pct in the US. An independent hotel that is not branded is usually very reliant on the OTAs. On the other hand, branded hotels benefit from the brand’s reservation system and its loyalty programme. For example, a successful loyalty programme can drive as much as 50 pct of hotel revenue and save the hotel a lot of money in distribution costs to the OTAs. So a big selling point to hotels that could potentially join us is the power of the loyalty programme, sales and marketing expertise and distribution technology that we offer. Best Western can drive superior revenue and save our hotels on distribution costs. The other part of that is the services and support that we provide. We provide superior education and training, revenue management and operational support. All of these things added together make us a very attractive brand.

How will the Best Western chain develop in the CEE region? How many new hotels are to be opened in the region and when will this happen?

Again, our focus is on attracting the right, high-quality properties, not just on adding more hotels. We have 22 hotels in Poland and an additional ten in the pipeline. We expect at least three more to join the Best Western family this year. In Russia we expect to have ten by the end of 2015. In Ukraine, we have one new construction in the pipeline for 2016 and an existing hotel in Kyiv, which is in the process of converting this year.

How do you assess the financial and economic situation in Eastern Europe? Could the development of the hotel market be slowed down by the situation in Ukraine and Russia? What could the impact be of such a crisis on the growth of the Best Western chain?

The biggest impact of the situation in Ukraine and Russia is that any existing project, or perhaps some which are in the pipeline, will simply stop their development until they have a clearer picture of what the outcome will be. Access to capital is critical and is made infinitely more difficult when there is political unrest like we have seen in the region. Having said that, this crisis is very much localised to projects within Ukraine, and our hope is that, if it is resolved quickly, will remain so. The crisis has reduced business and leisure travel for hotels in Sevastopol and Moscow. In terms of the development of the brand, the long term affects will be minimal. Our Kyiv pipeline includes hotels that actually approached us after the crisis began. We have not seen any negative effects on projects outside Ukraine to date, and in fact our first hotel in Tbilisi, Georgia, opened in early May and we have already started to receive business as a result.

What conditions have to be fulfilled by hotel owners who want to be included in the Best Western chain?

We want every hotel that joins Best Western to be a billboard for the brand in its appearance and the experience it provides. We require the applicant to exhibit superior quality so our overall brand image can be enhanced. Different geographical regions have different quality standards for cleanliness, product and experience, so it’s hard to comment generally. For example, hotels in Europe would need to meet or exceed standards for that particular region. On an ongoing basis, all Best Western hotels must pass our rigorous quality assurance assessments, which are carried out by qualified assessors at least once a year. We also monitor social media postings and have guest satisfaction instruments to gauge guest feedback.

What new markets will the network be entering in the near future?

Best Western has a presence in 110 countries and territories. We have more distribution than any other brand and that will continue to be the case. In terms of new markets, we use a scoring matrix to determine what markets we should focus on based on criteria such as population, technology adoption, education, density of hotel penetration, brand adoption and more. We look at absolute numbers as well as year-on-year growth. Asia is the top ranked market followed closely by South America and some parts of Europe, such as Poland, Russia and other CEE countries. The Middle East and Africa are growing fast as well. We also look at countries with stable economies and growth that are attracting international investors. Poland is a shining example of that. We also have strong prospects in Minsk, Moscow, St Petersburg and Saratov, which will continue to strengthen our footprint in the CEE region. Globally the chain continues to expand into new markets around the globe with new openings, including Victoria (Australia), Sulawesi (Indonesia) and across Sri Lanka – all within the past few months. We also expect to open our first hotel in Baku, Azerbaijan before the end of the 2014. When it comes to Africa, we are continuing to expand our presence from the existing base of 17 hotels, which should rise to over 20 by the end of 2014 – including our first properties in Stone Town, Zanzibar in Tanzania and in Kampala, Uganda.

How do you see the Best Western chain in ten years’ time? What will change?

The Best Western brand will continue to grow and prosper. Our comprehensive brand strategy of enhancing our brand image, strengthening our loyalty programme, and also having very successful sales and marketing initiatives are being constantly refined and will continue to enable Best Western to take a greater market share. We will continue to focus on improving our award-winning education and training programmes. We recognise that attracting and retaining qualified talent will be a challenge for the industry in the future. The hotel industry isn’t well known for its innovation. What is important is that in the next ten years the guest will not be so different from today. Value will always be important and amenities that empower the guests or make them feel more comfortable and at home will always be valued. To that end, guests’ expectations of fast and reliable high-speed internet access, a delicious free breakfast, and a shower, work and sleep experience will continue to rise. Aside from that, the hotel business isn’t going to reinvent itself in any major way. The distribution landscape, on the other hand, is changing very quickly, and it is difficult to predict how things will pan out. Players like Google, Facebook, TripAdvisor and others want a bigger share of the pie. They have a lot of resources, talent and a huge user base, so there is every indication the models will continue to evolve with those juggernaut players getting more involved. ν

David Kong, president and CEO, Best Western

David Kong is a hospitality industry leader with more than four decades of experience. Since he was named president and CEO in 2004, he has led the company to its highest RevPAR Index of 110 in 2012 and 2013, as well as to an unprecedented performance in guest loyalty and hotel satisfaction. Best Western has about 4,200 hotels in over 110 countries with annual hotel revenue exceeding USD 6 bln. David is known in the industry as a strategic thinker and innovator. His comprehensive brand strategy includes initiatives such as stratifying the brand into three tiers, raising standards and establishing marketing partnerships with high profile organisations, such as Harley-Davidson and Facebook. His career at Best Western includes serving as executive vice-president of international operations, senior vice-president of marketing and development, as well as senior vice-president of strategic services and operations. He has also held leadership positions with KPMG Consulting, Hyatt Hotels, Omni International and Hilton Hotels. A long-time, active member of the American Hotel & Lodging Association (AH&LA), he served as its chairman in 2010, its centennial year. David continues to be active on the CEO Council and Government Affairs Council. In 2010, he was appointed to the United States Department of Commerce Travel and Tourism Advisory Board and served for three years. He received the Life Time Achievement Award from the Hospitality Sales & Marketing Association International (HSMAI) in 2014 and the 2013 Stephen W. Brener Silver Plate Award at the NYU International Hospitality Industry Investment Conference for his contributions to the resurgence of Best Western and services to the industry. He was also inducted into the University of Hawaii’s Hall of Honor in 2013. David has won other prestigious awards, including: the Education Institute’s highest award – the Arthur Landstreet Award; the AH&LA Lawson Odde Award for hospitality leadership; the J. Patrick Leahy Lifetime Achievement Award presented by the Illinois Hotel and Lodging Association; the Award of Excellence presented by the Asian American Hotel Owners Association; and the Lifetime Hotelier Leadership Award presented by Niagara University’s College of Hospitality and Tourism Management. He completed the Executive Development Program at Northwestern University’s Kellogg Graduate School of Management and has a bachelor’s degree in business administration from the Travel Industry Management School at the University of Hawaii.