Actionable Insights From APT's Retail Practice

The “Poshtel” Appeal: Driving Engagement to Enhance the Guest Experience

February 6th, 2017 | Posted by APT in Hospitality & Travel

Just three percent of the world’s hostel properties are located in the U.S. and Canada, and they account for only 10 percent of hostel revenue worldwide; as a comparison, hotel revenue in those markets is 28 percent of global revenue. Considering that the hostel industry generates $5.2 billion in annual revenue, it appears that there is room for growth in the U.S. hostel market. Hostels are already rising in popularity as an affordable option for accommodations, and redefining the conventional industry model.

While hostels are still an emerging market in the U.S., and therefore may not be a direct threat to many hotels’ core revenue stream, the newest incarnations of these inexpensive lodgings are a far cry from the crowded shared rooms and sparse amenities of stereotypical hostels. Besides offering basic amenities like free Wi-Fi and around the clock security, many of these chic establishments, like the Hollander and the Freehand in Chicago, are meticulously decorated and boast features ranging from bike shops to bars. These “poshtels” are effectively raising hostel industry standards.

Beyond these perks, many poshtels are marketing themselves as social hubs, appealing to the experiential preferences of millennials by encouraging face-to-face interactions in common areas, as well as increased engagement on social media. For example, the Hollander allows guests to share their Instagram handles when booking, so they can connect with their roommates and fellow guests ahead of their visit. With this growing emphasis on the social element of hostel stays, in addition to the enhanced amenities, poshtels are positioning themselves as a safe, fun, and cost-efficient alternative to hotels.

With poshtels beginning to encroach on some hotels’ territory, hoteliers must innovate to keep pace with guests’ increased desire for authentic and local experiences and social engagement. Improving the guest experience through unique hotel offerings and interactive social and online components are key priorities for leading hotels seeking to remain competitive.

But new programs aren’t free. Nor are they without potential risks. How can hotels determine which will pay off? For example, a hotel may consider offering immersive programming, like tasting classes to sample regional delicacies. While these programs may increase guest engagement and address demand for an authentic, local experience, there are other factors to consider before going full steam ahead. Will offering these classes attract new guests and drive enough bookings for the initiative to break even? Could offering tastings detract from hotel restaurant or bar spend?

Marriott provides several other examples of new initiatives to enhance guest experience. The company recently piloted a concept for its Element hotel brand with a common area located in the middle of four guest rooms, featuring individual bedrooms but a shared kitchen and dining area, creating a social gathering space and private quarters all in one. And Marriott’s Moxy Hotel, billed as a “boutique hotel with the heart of a hostel,”  offers a 24/7 lobby bar and on the digital front, a mobile app with keyless entry and mobile check-in options.

Marriott’s designation of these new ideas for its specific hotel brands reflects the broader travel industry trend of segmenting not just marketing messages and promotions, but also products – like vacation and business offerings – to accommodate a wider range of preferences and reach specific guest demographics. With so many factors to consider, hotels must innovate strategically. In order to maximize the value of investments in new initiatives, they must determine which elements truly drive value and how each initiative’s success varies based on different hotel and customer characteristics.

For instance, introducing concepts like common areas to drive social engagement will likely be more successful with younger travelers who prioritize the experiential aspect of their accommodations, rather than other guest segments that will be disinterested in common areas or Instagram hashtags. It’s also important to consider other factors. Is allocating space to common areas the best use of square footage, or do smaller rooms dissatisfy guests? Is the investment in marketing efforts to promote social media engagement justified based on the amount of bookings it drives?

Identifying these performance drivers allows hotel companies to prioritize rollout of new programs where they will have maximum impact – for example, targeting guests who may be tempted to try out poshtels or other modern hotel concepts with new innovations. As hotels cater to shifting guest preferences, they must test new ideas with a subset of guests to learn where they will be most profitable, and with which guest demographics.

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