Future Challenges of the Hospitality Industry
University of Applied Sciences Budapest, Hungary
In these days, the demand for tourism and hotel services has transformed. Concerning about the content and the value of the experience, the expectation of each segment is different. This change in customer behaviour has a high impact on the marketing and management activities of the hotels worldwide.
A new segment, new technology, new expectations of quality appeared on the international hospitality market. Millennials have become the fastest growing customer segment, but generation Z is already here. High quality service is the only way to ensure loyal customers for hotels. Innovative technology is a must have: electronic /mobile check-in and artificial intelligence time has arrived. Reputation Management is the focus of guest reviews and comments. Know your guests, satisfy their needs and create your services around them is the best recipe of a successful hotel operation. Due to new technologies, and changes in guest behaviour, consumers’ satisfaction is everything, but not easy.
Keywords: Hotel, Millenials (Y), Digital generation (Z), Innovative technologies, Artificial Intelligence
In recent years, consumer behaviour in the international hospitality sector has changed dramatically. Concerning about the content and the value of the experience, the expectation of each segment is different. This change in customer behaviour has a high impact on the marketing and management activities of the hotels worldwide.
New segments, new technologies, new expectations of quality appeared on the international hospitality market.
Millennials have become the fastest growing customer segment, but generation Z has already arrived.
Innovative technology is a must have: electronic /mobile check-in time is here. Reputation Management is the focus of guest reviews and comments. And real-time marketing is the best method to have the attention of the new consumers: “content is king”.
This new segment of Millennials is very demanding and expects high quality services from commercial accommodations.
Therefore, customer service is strongly highlighted among the new trends in the hospitality industry. In the past years, the adaptation of the tools of electronic and information technology in the tourism industry forced the customers as well as the suppliers to keep learning.
Due to the rapid changes in technology, the role of new online tools like social media and mobile applications formed a very strong influencing power on the customers’ decision making procedure on travelling. “High tech, high touch” (Naisbitt, 1982) is the service, the e-tourist wants from hotels. Buhalis and Jun (2011) say, E-tourism represents the paradigm-shift experienced in the tourism industry as a result of the adoption of ICTs and the Internet
Know your guests, satisfy their needs and create your services around them is the best recipe of a successful hotel operation. Due to new technologies, and changes in guest behaviour, consumers’ satisfaction is everything, but not easy.
If the hospitality industry wants to react immediately to the arising demand, they should be aware of the behaviour of the new segments and the new emerging trends.
1. The ‘Millenials’: expectations & consumer behaviour
According to the researches, Generation Y (also known as Millenials) was born between the early 1980s and the mid 1990s.
The ’new’ consumer the Millennials has become the fastest growing customer segment within the hospitality industry. Millennials, as the member of the newly formed consumer society, always has the problem with shortage of time.
Therefore, all the solutions that are effective and fast mean the way to success. As a result, the importance of up-to-date information has increased.
According to Rauch (2014) this consumer segment is interested in utilizing technology to do things that many others have become accustomed to doing manually: checking in to hotels, making up their restaurant and bar bills and looking up places to eat, shop and play, to name a few. In addition to wanting technology, Millennials have no problems speaking up. If what they are looking for is not handled to their liking, they will turn to Twitter, Facebook, Yelp or TripAdvisor to voice their complaints (Rauch, 2014).
In the past years, the adaptation of the tools of electronic and information technology in the tourism industry forced the customers as well as the suppliers to keep learning. In the digital era, eg.: an electronic marketplace is not only the place where demand and supply meet, but it is a knowledge base as well.(Erdeiné Késmárky Gally Sz.,2015)
Due to the rapid changes in technology, the role of new online tools like social media and mobile applications formed a very strong influencing power on the customers’ decision making procedure on travelling. (Chart1’Top Social Platforms in 2017)
Chart1’Top Social Platforms in 2017
Generation Y’s first thing is before travelling to study the different type of review sites, like Tripadvisor, or Booking.com. Based on the best reviews, the Millenials make their decision about the hotel, restaurants, sights or bars.
During their journeys, the Millenials prefer to stay at the so called ”lifestyle” hotels. Lifestyle hotel is not a real hotel category, but due to their specific features, it can be define easily.
According to the BLLA : ‘Lifestyle hotels are the next generation of boutique hotels. Driven by the chains, they borrow the best elements of boutiques – small, intimate and modern – and throw in advantages only a chain can offer, like loyalty perks, consistency and economies of scale. As a result, lifestyle hotels are generally more affordable and accessible than boutiques – and soon to be ubiquitous’. So, we can say that lifestyle hotels are ‘franchised boutique hotels’.
Also Accorhotel chain reacted on the demand of the Millenial travellers, and created a brand new brand, called Jo and Joe. The hotelier says that the new brand “blends the best of private-rental, hostel and hotel formats.” It aims to have 50 properties by 2020, with locations “including Paris and Bordeaux (2018) as well as Warsaw, Budapest, Rio and São Paulo.” In general, Jo and Joe properties are described as “a vibrant living space, a home that is open to the external world and designed to meet the expectations of Millennials and all those who value sharing, spontaneity and experience”.The hotelier says that the new brand “blends the best of private-rental, hostel and hotel formats.”
In 2017, HOTREC (Hotel, Restaurants and Café Industry in Europe) commissioned TCI Research (an independent UNWTO-Awarded market intelligence agency) to conduct a large-scale survey that maps the services and products travelers will expect from hotels and restaurants in the future.
The report reveals clear trends and opportunities that hospitality decision makers can use to optimize customer attraction and retention. 
According to the results of the research: “Millennial guests look for unique hotels that quenches their thirst for discovery, with cool design, digital innovations and rewarding personalized experiences.”
TCI Research CEO Olivier Henry-Biabaud concludes: "Accommodation and food are two facets that will increasingly impact the overall visitor experience at a destination. Having more choices, travelers express a lot of positive expectations from hotels and restaurants, necessitating them to exhibit factors that distinguishes them from their competitors. The survey shows that the hospitality sector is facing lots of opportunities for responding a growing demand of hassle-free and surprising consumer experiences, keeping intact the sense of a truly genuine hospitality”..
Although, Generation Y is one of the most striking segment of the hospitality industry currently, professionals have already begun to know the next generation.
2. Generation ‘Z’: expectations & consumer behaviour
According to the researches, Generation Z ( also known as iGeneration, iGen, or Post- Millenials) was born between mid 1990s to mid-2000s.
Donovan (2017) says, that the most significant characteristic of this group is their usage of the internet from a very early age. Generation Z has grown up online. They are comfortable with technology and do most of their socializing on Social Media websites. While this group is still relatively young, they currently influence $600 billion of family spending, they receive $16.90 per week allowance, which translates to $44 billion a year, and by 2020 they will make up 40% of the world’s consumers.Generation Z as a buying group has outpaced Millennials by $3 million a year, and they are a different kind of shopper.
The Digital Generation lives even faster life, than generation Y, and the members of generation Z constantly share their moments with the public, based on the results of the research, done by the University of Pécs about the consumer habits of generation Z. Personal freedom, practical ideas, high level knowledge of electronic devices, and courage are important for them. They were born in a continously changing macroenvironment, therefore they are neither afraid of the changes, nor about the rule to be kept. They are not really able to express their emotions, so we can not characterize this generation based on words or emotions. From a consumer perspective, loyalty is not their strength. (Pál, 2013).
Generation Z, is the first global generation, which means that - regardless of nationality - they love the same food and music, they grew up in the same culture and even use the same fashion brands all over the world, simply because everybody is always online.
Roché (2016) involved with the online spending habits of generation Z. He wrote the followings in his article: By 2020, Generation Z , will be the largest group of consumers worldwide, making up 40% of the US, Europe and BRIC (Brazil, Russia, India and China) countries, and 10% in the rest of the world. This massive generation is very different from those before it, and while they are still relatively young, it is important for suppliers to understand Generation Z spending habits and get to know their biggest consumers.
Chart 2:’How generation Z prefer to make purchases’
Source: nrf. com/GenZ
Here are 4 key spending habits of Generation Z:
Lack brand loyalty
“The products themselves are more important to Generation Z than the brands that produce them, and these consumers will change brands easily in search of higher quality” (Martin-Wilbourne Partners)
Eat, sleep, breathe digital
Generation Z is constantly connected. They were born seamless and expect a similarly seamless retail experience.
Do their research
About 57% of Gen Z research products before making a purchase.
Prefer shopping online
Gen Z spends almost one in ten of their dollars online and spends a much higher proportion of their income online compared to older generations. As they join the workforce and make more and more money, this will likely drive more and more online spending.
Concerning about the shopping behaviour of generation Z, the questions are not just about: when?, what? and where?. It is also very important to know, through what type of technological tools are used during the purchases.
Based on a new study by IBM and National Retail Federation (NRF), Generation Z expect personalized, interactive experiences and the latest digital advances from the retailers. 
The study also shows, how generation Z prefer to make purchases.(Chart 2:’How generation Z prefer to make purchases’)
Generation Z has significant influence on family spending. On the top of the list, we can find the following items 1. Food&Drinks (77%), 2.Furniture (76%), 3. Houshold goods (73%), and on the fourth place Travel (63%). From the study, it also turns out, that Generation Z most frequently used devices are: smart phones (75%), laptop computer (45%), desktop computer (30%), tablets (10%), Xbox (8%), interactive smart TV (3%), and wearable devices, like a watch (1%).
For consumers, price and quality are the basic condition for the selection and evaluation of the service, but at the same time, they tend to identify value with their own experiences, in which cases exploring, social relations, entertainment and aesthetics are of outstanding importance. 
3. Innovative technology
Innovative technology became one of the most important issues in the operation of hotels.
Electronic check-in can be done either by mobile phone or by an Apple watch. But what is electronic check-in exactly? Most hotels are offering it as a part of their “Loyal Guest” programme. Customers registered as Preferred/Privileged guests are sent key cards equipped with the latest identification technology that uses radio frequencies. On the day of a guest’s confirmed arrival, a text message is relayed to his mobile device, carrying basic figures like room number, timing, etc. Upon his actual arrival, client does not need to confirm his stay at the Front Desk. He simply moves to his room and applies the key-card. (Sanghi 2014)
Apart from electronic check-in, Artificial Intelligence will influence the operation of the hospitality industry and promises to innovate services. The hotel industry has already started to use AI on different fields.
3.1.Guests can use their mobile phones as the key to the hotel room
Hilton Worldwide launched digital check-in with room selection technology, now available at more than 3,700 hotels, and worldwide by the end of this year. This technology empowers Hilton HHonors members to check in via their HHonors profile on desktop, mobile or tablet and choose the exact location of their room - right down to the room number. (Hilton Worldwide,2014). Starwood is already offering mobile room key in a number of Aloft, Element and W hotels. Mobile room keys bring the following benefits to both the guests and to the hotel (according to the brands and the door lock companies): Seamless Check-in, Reduced load on Front Desk, Convenience & Choice of Service for the Connected Guest,, and Increased TripAdvisor Scores (Kinsella, 2015)
3.2. Apple Watch is the new hotel room key
The upcoming new Apple Watch (apple.com./2015) is a possible game changer for travelers everywhere: the era of losing a hotel cardkey may soon be gone. “Starwood hotels is developing an app for the Apple Watch that will allow hotel guests to use it to unlock their rooms. In honor of the recently revealed Apple Watch™ Accor is launching an Accorhotels iOS app available starting at the end of April”.
The Accorhotels app for Apple Watch™ will be available in ten languages and works in connection with the smartphone app. In addition to promoting hotels and destinations, the app will allow users to manage current bookings. (Accorhotels app for Apple Watch (2015) If the hoteliers want to satisfy the guests’ demand they have to be aware of the latest technologies. The most online specific products are the services of the tourism industry. Since the emergence of the Internet, travel planning (e.g., travel information search and booking) has always been one of the main reasons that people use the Internet. (Buhalis, 2003). The cost of tours can be high, consequently, good prices always play an important role in the planning and selection of a holiday destination. Nowadays on-line travel agencies (OTA’s) with their good prices and special travel packages come before hotels’ websites in popularity. (Veres and Grotte, 2009) 4
3.3. Artificial Intelligence (AI)
”Artificial intelligence (AI) is an area of computer science that emphasizes the creation of intelligent machines that work and react like humans. Some of the activities computers with artificial intelligence are designed for include:
The hotel industry has started to use AI for several areas:
1. Chatbots: real-time messaging
A report by BI Intelligence in 2016 proved that, for the first time ever, messaging apps are now more attractive than social networks. The combined global monthly active users of Facebook, Instagram, Twitter, and LinkedIn is around 3.5 billion, trailing behind the combined active users of messenger apps including WhatsApp, Messenger, WeChat, and Viber at around 3.7 billion.
2. In-person customer service
According to an Oracle report, Hotel 2025, 68% of hotel operators predict that the use of robots for check-in and checkout will be common by 2025. For example, in 2016, Connie, a robot concierge developed by IBM, made its first entrance at the Hilton McLean. Connie draws on domain knowledge from Watson and WayBlazer to help guests in figuring out where to eat dinner and tells them where things are located in the building, among other simple tasks. Speaking to USA today, Jim Holthouser, Executive Vice President for Global Brands at Hilton, stated 'this isn’t about reducing staff. That’s not where our minds are whatsoever. But if you can take 100 different routine questions off the front desk, at the end of the day, it helps them answer phones faster, it helps them check people in faster, it frees them up to actually deliver hospitality.' 
3. Smart hotels
In 2017, the British chain Village Hotels announced their plan to install the Amazon Echo Dot smart speaker and the virtual assistant Alexa in their rooms. The aim is to make the experience of staying in one of their 28 locations more convenient, giving guests the ability to control features in the room, such as the lighting, with just their voice.
4. Online travel agencies (OTA’S) versus direct booking
How to increase revenue and at the same time decrease the costs of OTAs is the question here. Distribution channels play a very important role in the hospitality sector. However, the commissions the hotels pay to the Online Travel Agencies can range from 15-30% and that causes problems by reaching the targeted REVPAR. So, the solution is to increase direct hotel bookings. The reach of OTAs has risen by 45% since 2008 in spite of the fact that travelers booking directly on the website is cheaper for hoteliers. The answer is simple; it has nothing to do with the travelers or the OTAs, but it is to do with the hotel website. (Patak, 2014). OTAs like TripAdvisor, Expedia and Booking.com will clearly be listed on the first 4 results, when you look up accommodation. Patak (2014) says, that having an easy-to-navigate, effective and attractive website wherein everything from rates to rooms to services and packages are clearly highlighted. An excellent website with all important details and strong booking engine are the key to reclaiming victory over OTAs. But, according to Matur (2014) as OTA commission checks continue to rise, small and mid-sized hoteliers are increasingly considering TripConnect as a viable platform to generate direct bookings.
5. Reputation Management
Now, hotel reputation is a picture painted with what travellers are saying online — in the form of online reviews on Yelp and TripAdvisor, comments and photos on Facebook and Instagram, search rankings and rich snippets on Google.(Bassig 2017)
According to Yu and Singh (2002) one of the major challenges for electronic commerce is how to found a relationship of trust between different parties.
Regardless of the sections of the national economy, high level of trust between partners is the key issue from the point of view of efficient and effective economic transactions. Eg.:It was also demonstrated by Baranyai (2017), who examined the importance of trust among the agricultural producers through statistical methods. (Baranyai 2017)
Creating trust is non-trivial, because the traditional physical or social means of trust cannot apply directly in virtual settings. In many cases, the parties involved may not ever have communicated before. Reputation systems seek to address the development of trust by recording the reputations of different parties. For reputation management, Tripadvisor is one of the most important platforms in the hospitality industry.
But online comments and reviews can come e.g. from Facebook, Yahoo, Yelp and Expedia (OTA) as well. Rauch (2014) suggests that hotels use only one tool instead of different ones for managing a property’s reputation process. Based on his opinion, one of the means is Revinate as a complete, one-stop solution for reputation management instead of the cumbersome process of logging onto each platform and spending an exorbitant amount of time on a crucial yet time consuming aspect of the hotel industry.
Engaging with guests and responding to their needs publicly through these forums can go a long way in driving future bookings to the property.
5.1.But what is revinate all about?
Revinate, a San Franciso-based technology company that is reinventing the hotel guest experience ,has launched inGuest in Europe. inGuest brings together reservation (PMS) data and stay histories, with preferences, social media activity and guest feedback to surface comprehensive rich guests profile on a single platform. For the first time hoteliers can truly understand their guests and engage with them more effectively before, during and after their stays, increasing guest satisfaction and revenue. (Revinate.com, 2015)
As we can see above, apart from good quality service and interactive communication with potential guests, flexibility is a key issue for hoteliers these days. A good marketing plan for a given period of time is a must for each hotel. However, the fast changes in the macro environment requires flexibility from hotels. Real time marketing is the answer for this challenge.
6. Real Time Marketing
According to Trackmaven (2015) “Real Time Marketing is marketing that is based on up- to- date events. Instead of creating a marketing plan in advance and executing it according to a fixed schedule, real time marketing is creating a strategy focused on current, relevant trends and immediate feedback from customers. The goal of real time marketing is to connect consumers with the product or service that they need now, in the moment.”
Through social media (e.g. Twitter, Facebook, etc.) sites, companies can gain information about their segments. With this knowledge, in a few minutes, hotels can easily define their up-to-date marketing messages. But, the content must be valuable for the potential guests. If, hoteliers strategically structure their advertisements to reflect a current event (e.g. Formula1 after party, fashion show, etc.), their service may become more appealing to guests. “On the other hand, just because a certain method of communication or strategy works on Facebook, doesn’t mean it will work on Twitter or Google+. There needs to be specific training for each one, and skills developed based on the data received from each channel.”(Ratcliff,2014) (Chart2’: Real –Time Challenges)
The application of this type of marketing must take place on a regular basis and include guest-generated content. Whether it is Facebook or another social media tool, guests should be able to contact the hotel with an expectation that they will receive a response in a timely manner. Video campaigns (e.g. Flip to) on social media, when done properly, are proving to be successful for hoteliers looking to generate guest engagement. Flip.to allows hotels to connect with guests from the moment they make a reservation and to create a unique experience upon arrival. (Rauch, 2014).
Gary Vaynerchuk, a well-known Internet entrepreneur and author, famously said, “Content is king, but marketing is queen, and runs the household.” Creating great content for your website and/or blog is helpful, but good content alone will not drive the results a hotel desires.
A quality content marketing strategy sets a purpose behind the content. Despite the importance of content for SEO, it will only drive results and increase brand awareness when deploying content with a custom marketing strategy. (DeVoren and Herweg (2015).
Chart2’: Real –Time Challenges
In recent years, consumer behaviour in the international hospitality sector has changed dramatically. The ’new’ consumer the Millennials has become the fastest growing customer segment within the hospitality industry. This new segment is very demanding and expects high quality services from commercial accommodation.
Therefore, customer service is strongly highlighted among the new trends in the hospitality industry. During their journeys, the Millenials prefer to stay at the so called ”lifestyle” hotels. Lifestyle hotel is not a real hotel category, but due to their specific features, it can be define easily.
That is why the largest hotel brands have begun to merge with the various boutique hotel chains, one of the best examples of IHG (InterContinental Hotels Group PLC) acquisition of Kimpton.
Also Accorhotel chain reacted on the demand of the Millenial travellers, and created a brand new
brand, called Jo and Joe.
Although, Generation Y is one of the most striking segment of the hospitality industry currently, professionals have already begun to know the next generation.
The Digital Generation lives even faster life, than generation Y, and the members of generation Z constantly share their moments with the public. Generation Z, is the first global generation, which means that - regardless of nationality - they love the same food and music, they grew up in the same culture and even use the same fashion brands all over the world, simply because everybody is always online.
Innovative technology has become one of the most important issues in the operation of hotels. Electronic check-in can be done either by mobile phone or by an Apple watch. And Artificial Intelligence will influence the operation of the hospitality industry in the coming years.
Distribution channels play a very serious role in the hospitality sector. How to increase revenue and at the same time decrease the costs of OTAs is the question here. A good marketing plan for a given period of time is a must for each hotel. However, the fast changes in the macro environment requires flexibility from the hotels.
Real time marketing is the answer for this challenge. The application of this type of marketing, must take place on a regular basis and include guest-generated content.
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