city hotel business model

November 16, 2021 •

6 min reading

How city hotels are reinventing their business models to stay competitive

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City hotels are far from dead. They are just having to reinvent their offer to include more innovative and community-inspired ventures, activities and products to address the changing needs of their clientele.

How crises may trigger business models renewal

In spite of numerous threats, with crises also come new opportunities. While many hotels had already started their digital revolution and were thinking of creative and innovative business strategies, the pandemic has turned this will to change into a real must. Finding ways to better monetize and commercialize different offers is mandatory, as clients’ habits have evolved and now include non-room products and services such as eating in a restaurant, drinking at a bar, benefitting from packages, visits and activities. This change of habits does not only regard clients, but the needs of each individual. People have adapted to new ways of working, and concepts such as online shopping, catering services or take-out and delivery by hotels, restaurants, or even grocery stores have become the norm.

Hospitality Industry Trends 2021

Thereby, the pandemic offers a potential for hotels to reorganize their strategy by, for example, reserving areas for hybrid reunions or temporary working spaces, and offering personalized products and services in line with their clients’ new needs. However, even though hotels did as much as they could to adapt to this particular situation, they remain strongly competitive with short-term rentals or serviced-apartments allowing more privacy, private kitchens, bigger spaces, socially distancing ability and a cleaner environment. Furthermore, everyone directly or indirectly involved in the sector agrees that after the pandemic, the level of what is termed ‘business tourism’ will not go back to how it used to be and will take years to recover.

As Accenture rightfully points it in its report, the whole travel industry has been restructured by the pandemic, with a new type of demand induced by the generalization of teleworking. Consequently, businesses worldwide have realized that a non-negligible number of meetings may actually happen virtually, saving them significant costs and time. Even though face-to-face encounters will remain as important, they will know a consequent drop that might be filled by leisure travel. However, it must be kept in mind that the gap in business clients created by Covid-19 will not easily be filled, as the market will be even more competitive. To sum it up using the words of Accenture, “All players in the industry are now competing for a bigger slice of a smaller pie”. As such, it is even more critical for business hotels to remain creative and quickly implement strategies that will attract new clients and meet old clients’ new needs.

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Innotour project: The Future of City Hotels in Switzerland

The EHL Institute of Customer Experience Management is currently involved in the project funded by Innotour “The Future of City Hotels in Switzerland” which brings together professionals and academics from the tourism industry in Western Switzerland (Association Romande des Hôteliers (ARH), Geneva Tourism and the Institute of Tourism at HES-SO Valais-Wallis) to develop potential survival strategies for the tourism and hospitality sector.

To accompany city hotels that lost a majority of their (business) clients, a multisectoral and intersectoral approach is necessary. Uniting key players from various backgrounds allows for an expertise and know-how both in theory and practice to efficiently reach the common aims and objectives for the future of any industry. An approach considering all aspects of a business - sustainable, resilient and financially viable for all stakeholders - will help put in place the best short- and long-term strategies to foster competitiveness by supporting hoteliers to reinvent their business models towards the generation of new avenues of attractiveness and revenues. The project could foster innovation for business hotels in the urban context not only for the entire Swiss touristic sector, but also internationally, as the industry has been similarly affected worldwide.

The first phase of the project was to issue a survey to hoteliers in Swiss cities in order to get a first glimpse on how the industry was affected by Covid-19. The research looked into the ways in which the hotel spaces freed by the loss of clients could be reassigned or transformed, and how hoteliers could reinvent their basic business model to meet their clients’ needs and potentially target new kinds of customers. The second phase of the project focused on generating ideas for the future of the city hotels by organizing several think tanks and an online contest. The third phase is ongoing and exploring in details the ideas generated during phase II. A specific number of ideas will be chosen and focus groups will take place with hoteliers to develop together a way to implement those ideas. The next step will be to synthetize all the inputs, validate the ideas, and present them in a playbook that will accompany hoteliers in their transition.

Intitial survey results from Swiss Hoteliers: diversification is key

The first survey (March-April 2021) highlighted that a majority of hoteliers foresee a change in the nature of the customer base and are ready to collaborate with urban players like tourism operators to better exploit the assets of the cities in which their establishment is located. They understand that personalization and flexibility will be key to meet their clients’ needs and improve their experience, whether it be by creating new offers or implementing new business models, such as providing areas for teleworkers, accommodating medical patients, considering hybrid models or offering new services. Even though these results reflect the situation within Switzerland, the issues and potential solutions mentioned are international and shared by hoteliers worldwide.

Following the survey, an ideas contest was launched (May 2021) to involve the public and students (HES-SO Valais-Wallis and EHL) to share their vision of the future of the business hotel industry, as well as their expectations as potential clients. Their proposals included new business models, new packages, new room usage, putting an emphasis on new trends and needs such as offering immersive activities or creating an eco-friendly environment within and around the hotel. The most popular ideas were thus the reallocation of rooms (and hence targeting new kinds of clients) and the restructuration of current free spaces as co-working spaces.

Additionally, three think tanks made up of professionals from the hotel industry and relative sectors met over various workshops. The ideas discussed were relative to the concept of hybridization, and participants agreed that the traditional business model of city hotels is outmoded and that a diversification of their offer is mandatory. All the outputs converged towards a similar point, which is that the hotel should go back to being a place full of life and multifunctional. Hoteliers could for example offer non-room products and services as USPs by welcoming external businesses (pop-up concepts: hairdresser, bakery, etc.) or create offers oriented towards all types of client (birthdays, events, etc.).

Major trends for business hotels

The common vision addressing the future of the hotel industry by 2030 describes it as a mix between international, regional and local hotel industry, with services oriented towards health, social, wellness and economy. Hotel services of the future will be “uberized”, meaning that the services will be provided on-demand. Giving more flexibility to the clients and enabling them to personalize their experience will thus become critical, while every space or service provided by a hotel shall be marketable. In short, clients will choose what they need and pay for what they use.

Four major recurring trends regarding the future of the business hotel industry were identified:

  1. The hotel becoming a “Coeur de quartier”, a place open to the neighborhood.
  2. The hotel as a hybrid, flexible and quickly adaptable place.
  3. The hotel offering co-working spaces and relative services.
  4. The hotel as a destination where activities and events take place.

The trends above are all relative to the hotel becoming a place of interest and attraction, where people feel the will to gather, whether it be for locals who want to have a meeting point close-by, professionals seeking to work in a pleasant environment, businesses expecting specific services, or tourists and locals wishing to experience something new, fun and authentic.

The target is no longer the business client, and the hotel does no longer represent a simple place to sleep. It wants to become essential and be open to everyone: families, locals, leisure tourists, business tourists, students, workers, etc. By doing so, the hotel aims to respond to every client’s need, hence the necessity to adopt flexible strategies, as well as personalizing the experience of its customers.

A promising transition for hotels

Hotels worldwide may thus go further than just hosting people by becoming a place that welcomes everyone, whether they intend to stay for one hour, one day, overnight or much longer. This flexibility and the diversification of the offers will surely attract new clients and make it possible to meet their needs. Rooms will no longer serve at night only, but will be adapted in ways that will enable a wide range of activities. Bearing in mind that the industry has already shifted, hoteliers must take a leap of faith and embrace this change now if they intend to survive in this new, competitive and yet exciting era that will shape the future of this industry. In the end, the variety and amount of the ideas generated actually reflects the resilience of the industry and its businesses, which itself echoes a promising transition.

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Written by

Research Assistant at EHL

Dr Alessandro Inversini
Written by
Dr Alessandro Inversini

Associate Professor at EHL