eHotelier Newsletter

While the travel preferences of the super rich and those who come from "old money" are well understood by the hospitality industry, the "emerging rich," younger affluent people, usually have a different mindset toward travel. This article explores their travel expectations and the approach that marketers should take to capture their business.

Despite fluctuations in the economy, much of the world has spent the past few years in the midst of a luxury consumption boom. Luxury spending in the United States is growing more than four times as rapidly as spending overall, and there is an increasingly large appetite for luxury goods throughout Asia and Europe. In what Fortune magazine terms the "Goldilocks" economy, new wealth is being created at an unprecedented rate, and as a result, the face of the affluent consumer has changed. The challenge now posed to marketers of luxury goods and services is defining the demographics and psychographics of affluent consumers. Who are they? What are their buying habits?

And what is the most effective means to reach them?

According to the book Luxury Fever, by Robert H. Frank, luxury travel (trips with per-diem spending of at least $350) grew by 130 percent between 1990 and 1995 and the occupancy rates for luxury hotels, which stood at 69 percent a decade ago, now stand at 76 percent. Luxury cars accounted for about 12 percent of all vehicles sold in the in United States in 1996, up from 7 percent in 1986. Luxury "status symbols" are popping up everywhere across America from restaurant-style stoves in home kitchens to ultrapremium wines, choice real estate, and even cosmetic surgery. But this growing taste for luxury is not indicative of purely American values. According to Frank, "Japan, with fewer than half as many people as the United States, consumes more than half the U.S. volume of luxury goods."

And while multi-millionaires are clearly prominent among the purchasers of these luxury products and services, recent large sales volumes imply the vast majority of buyers have less than six figure incomes. As puzzling as this may seem, it can be traced to human nature in that once basic needs for food and shelter are met, and as incomes continue to grow, it is instinctive for people to indulge their inner "desires" for the finer things in life.

Therefore, with the recent booming economy, one can no longer draw a picture of the typical affluent consumer as having "old family money." The face of the affluent consumer is changing across age, economic, and racial spectrums. Today, the affluent consumer can be anyone from an heir to a family fortune to an e-commerce millionaire who spends his days in Gap jeans and T-shirts. Moreover, when these individuals purchase a luxury good or service, they want more than just the product, they want "an experience." And in particular when it comes to travel, the affluent consumer wants to collect vivid and meaningful "experiences" to store as memories and exchange as "conversational currency."

In a recent presentation at the annual convention of The Leading Hotels of the World, Ltd., Pamela Fiori, editor in chief, Town & Country Magazine, clearly defined who the luxury customer is, pointing out that she classifies four primary groups: 1) The Super-rich: those who live on an entirely different level, travel on private planes, collect works of the Old Masters; belong to royalty, etc; 2) The Bill Gates types/Industrialists/Rock Stars whose fortunes are less certain; money was earned fairly recently but in staggering amounts nonetheless, and there is nothing they cannot buy; 3) The Comfortably Rich, not royalty, but extremely well-off and well-traveled. They make their money the old-fashioned way, they earn it—but they want to reap the rewards. They are demanding and know the services they want and are extremely brand conscious; and 4) The Emerging Rich/Emerging Affluent who comprise the top-level of Generation X. According to Fiori, this is the most difficult group to define. They made their money fast. The way they live, everything is fast. They are venture capitalists and are diverse ethnically and racially.

Fiori believes there has never been a better time in history to market a luxury product. "As the majority of 'The Emerging Rich' did not grow up surrounded by the finer things, it is important for luxury travel marketers to enlighten them and expose them to the wonderful hotel experiences awaiting them, because once they experience the good life, they are not going to go backpacking again."

Dr. Lalia Rach, dean, Preston R. Tisch Center for Hospitality, Tourism and Travel Administration, New York University, concurs. "Today change is the dominant feature of the affluent travel market. With the rise of the new economy, the Wall Street 'whiz kids' and the Internet revolutionaries have created a new generation of young entrepreneurs who have taken their ideas and skills and become millionaires seemingly overnight. The most dramatic change in the affluent traveler's profile is the decrease in the average age and their different mindset toward travel." Dr. Rach continues to profile the new affluent traveler as follows:

"They are exceedingly absorbed by their work providing a true example of a 24 hours a day and 7 days a week lifestyle. They work exceedingly hard and expect their relaxation to be as challenging and demanding. When they do take time to relax and enjoy themselves, they want to do so in an atmosphere that reflects their earning status, provides a reward, and is fun and unusual. Exclusivity is but one aspect that interests them while on vacation. They are looking for products and services that allow them to define themselves and to celebrate their success, but in a manner that is not traditionally defined and in many cases is not understated. So whether the choice of a rental car, theatre tickets, or an afternoon activity, they want an unusual, out-of-the-ordinary experience. The affluent 20 somethings may wish to blend simplicity with extreme luxury such as a picnic with sandwiches, fruit, cheese, and a 100-year-old bottle of wine. Of course the picnic setting would be an exclusive island or the top of a mountain accessible only by helicopter. The scope of their interest is boundless, and they are looking for suggestions—but not what the traditional affluent traveler likes unless it is with a modern explosive twist."

Dr. Rach concludes by noting that "it is unusual to have a new niche develop within a narrowly defined market segment. The dichotomy of the new affluent traveler is captured in a single statement—the more they make, the more they expect from life, including their travel experience."

When it comes to luxury goods and services, you are selling the dream and therefore cannot always approach marketing to the affluent consumer with a basic scientific approach. Hérmes, perhaps the consummate luxury brand, is living proof of this belief. Addressing The Leading Hotels of the World Annual Convention, Christian Blanckaert, president, Hérmes-Sellier, spoke about "Marketing to the Luxury Customer." He believes that "Luxury is often associated with anything that gives attention, care, respect of the individual, and culture. The explanation of luxury itself is a paradox—it is a word of feeling, word of mouth, spirit, dreams, talent—and nothing to do with a marketing book. Today and tomorrow if we want to approach products and services in luxury, we should forget marketing and concentrate on dreams, magic, the irrational, rather than market research. If there is no concentration on magic and hopes, there will be no delivery of luxury." Blanckaert was also quick to point out that "Hérmes is not in the luxury business, Hérmes is in the dream business. Our object is to charm, to surprise, not to market."

With this in mind, how do luxury marketers identify and sell to the affluent consumer? At The Hotels of the World, for example, management has long believed that affluent consumers naturally gravitate toward luxury brand names that consistently deliver quality. Guests at a Leading Hotel undoubtedly drive luxury cars, purchase Louis Vuitton handbags and luggage, wear Christian Dior fragrance, and consume any number of high-end products. Would it not be more prudent for the world's finest purveyors of luxury goods and services to come together and create a luxury brand network to jointly market to the affluent consumer?

Seeing no such marketing initiative in place, the management of The Leading Hotels of the World, Ltd. developed the concept of the "Luxury Alliance" and partnered with Relais & Chateaux as the two founding members. Launched in August 2000, the Luxury Alliance has already welcomed Crystal Cruises, eLuxury.com, and Vivre as partners. The objective of the Luxury Alliance is to conduct joint marketing programs to an exclusive group of high-end clientele who already consume member products or would have a strong predisposition to do so. The goal is to share customers, conduct cross-selling and promotional marketing efforts, and thereby create increased revenue opportunities for all Luxury Alliance partners.

The Leading Hotels of the World, Ltd. also formed a joint venture partnership with consumer trend research expert Peter Yesawich, president & CEO of Yesawich, Pepperdine & Brown of Orlando to create Leading Marketing Services, a full-service marketing, advertising, and public relations firm. The Leading Hotels cf the World, Ltd. has a 73-year history of marketing to the affluent consumer, while YP&B is the recognized leader in full-service hospitality marketing communications as well as monitoring the trends and buying habits of consumers. As partners in this new joint venture, Leading Marketing Services is now in a unique leadership position to write the rules for affluent consumer marketing.

YP&B, in fact, recently conducted a survey entitled "Portrait of Affluent Travelers" which debuted in conjunction with the launch of Leading Marketing Services. The survey polled the opinions of a nationally representative sample of 500 U.S. adults who took at least one trip that required overnight accommodations in 1999, half of whom had annual household incomes between $150,000 and $199,999; the other half of whom enjoyed annual household incomes in excess of $200,000. One key finding of the survey is that fully eight out of every ten wealthy adults state that they always look for the best prices when making purchases. But don't expect them to be scouring the mall in search of the best bargains; they are far more likely to look online, and "prefer to buy brands with a reputation for quality."

Further research into the psychographics of the new affluent consumer creates a distinctive profile that is much different from the "typical" affluent consumer to whom many of us have marketed in years past. It would be wise to keep these facts in mind when you are planning your marketing efforts: the younger affluent consumer seeks life-enriching experiences; wants to be assured of style and quality; is stimulated by new and different situations; wants to be recognized as knowledgeable and worldly; is not afraid of the unfamiliar, offbeat, or exotic; has a global perspective; enjoys regionally authentic products; has a certain predisposition to nostalgic designs; does not purchase luxuries purely for materialistic reasons; has a social conscience and appreciates doing business with organizations that have a true social commitment; frequently socializes and therefore has a strong influence on the buying decisions of peers; considers spirituality and religion as an integral part of life; is quick to seek out information online; desires ways to simplify life; and is always pursuing more of life's most essential luxury—time.

When it comes to marketing travel to this new, younger affluent consumer, Rach notes "an active, coordinated marketing effort is necessary to inform and entice this segment. Advertising and communications should relate to their situation in life. An understated approach will most likely turn them off. Marketing that is bold, aggressive, colorful, emphasizes relationships, fun, and imparted with some irony are concepts that attract this cohort. As well, the manner in which communications are distributed is important. Advertisements must be placed in publications that they read (business, specialized, and technology magazines), at events they attend (music concerts, sporting events), and on targeted Web sites (finance, trading, entertainment).

Affluent consumers—young and old—are purchasing in record numbers and they continue to seek information on the newest luxury goods and services available. Luxury marketers, however, need to recognize that a blanket marketing approach will no longer suffice. Much like the way the Internet has changed our marketing strategies, those targeting the "affluent consumer" must recognize that cookie-cutter campaigns will no longer work and a more targeted approach speaking to the various audiences within this niche must be applied if marketing efforts are to be effective.

Contact: Jason Smith, HSMAI Email: jsmith@HSMAI.org

THE IMPACT OF 9/11 ON HONG KONG’S HOSPITALITY INDUSTRY

GLOBAL HOTEL NETWORK (SM) REPORT

This Global Hotel Network® Report takes a look at "The Impact Of 11 September On Hong Kong's Hospitality Industry" from the perspective of Clara Chong, Executive Director, Hong Kong Tourism Board.

Clara Chong explains:

Hong Kong has been more fortunate than many destinations in the wake of the 11 September terrorist attacks as we have the huge, and largely unaffected, Mainland China market at our doorstep. While other source markets were still in the doldrums, arrivals from the Mainland registered nearly 30% growth in the fourth quarter of 2001 alone, reaching 4.48 million for the full year.

Nevertheless, after hitting a low point (3.3% decline) in October, all markets made a faster-than-expected recovery in November and December. Indeed, in December, Hong Kong welcomed its highest-ever number of visitors in a single month, 1.3 million. For the full year, arrivals grew 5.1% to a record 13.7 million, a far better performance than anyone could have hoped for three months earlier.

In the light of these market dynamics, Hong Kong's hospitality industry has experienced mixed fortunes in the post-11 September period. Top tariff hotels that cater mainly for long-haul and business traffic, and were already operating below the previous year's occupancy levels, were predictably the worst affected and saw occupancy dip further, to as low as 67% in September. They recovered to 74% for the year as a whole, which is still some way below the 82% of 2000, although not that low by world standards for top-tier hotels.

On the other hand, those medium-tariff hotels that cater particularly to Mainland Chinese and other short-haul visitors have continued to perform well, averaging 80% occupancy for the year. Hotels outside the main tourist areas of Central, Wan Chai, Causeway Bay and Tsim Sha Tsui have proved especially popular, achieving over 90% occupancy in November and December.

One interesting effect of this is a growing recognition by the hospitality industry of the value of Mainland visitors and their rapidly increasing spending power. In fact, per capita spending by Mainland travellers is now second only to those from The Americas, although comparatively they spend more on shopping and less on accommodation. Many larger hotel groups that have not previously considered Mainland China an important target market are now readjusting their strategies.

Barring any further serious incidents, we have confidence that the recovery will continue into 2002 and, indeed, that the industry can bounce back even stronger than before. We are already starting to see a nascent revival in long-haul traffic, assisted by the highly competitive air and hotel packages currently on offer. These present a challenge of their own to the tourism industry, though, as it means that yields are generally lower.

While the Mainland market will certainly maintain continued strong growth this year, helped by the abolition of tour group quotas and a sharp increase in the number of Mainland operators licensed to offer Hong Kong packages, we will be working equally closely with our industry partners in the long-haul markets to ensure that Hong Kong can swiftly regain its popularity worldwide as a safe, exciting destination. This is a critical task as the events of last year have shown the importance of retaining a broad visitor base. We cannot place too much reliance on the Mainland because it is essential that Hong Kong, as an international city, achieves a balanced portfolio of visitors

The Global Hotel Network® Report is a regular feature of the weekly globalhotelnetwork.com e-Newsletter read by Top Tier decision makers in the global hospitality & travel industry. Contact: Robert G. Harp Email: ghr@globalhotelnetwork.com

The Government had been given indications that the number of international tourists coming into Australia will double in the next 10 years, the Secretary of the Department of Industry, Tourism and Resources, Mark Paterson, said yesterday.

Speaking at a White Pages Business Series lunch organised by the Canberra Business Council and the Australian Institute of Company Directors, he said the forecast assumed no major initiatives would be taken to further boost tourism. "Some argue this in an under-prediction," he said.

"That has implications for a whole range of activities - infrastructure, how do you get double the numbers through Sydney Airport? What do they do afterwards? And so on."

Mr Paterson was speaking on his initial reactions to almost six weeks in his new job. He had previously been the high-profile chief executive of the Australian Chamber of Commerce and Industry.

One of the department's major tasks was assessing the role the Government should play in easing the burden on small business. "AusTrade has been given the task of doubling the number of exporting companies . . . to 50,000," he said. "It is not a target that will be met easily.

"Once you look beyond the top 100 companies in Australia, you are looking at predominately small to medium-sized businesses, so we have to focus on how we can provide support and encouragement to this sector, both in its current operations and off-shore."

This was all part of a reform of the business climate which had been conducted by the current Government. "Take the example of the Asian financial crisis: if it had happened five years earlier the Australian economy would probably have collapsed," he said.

"Instead we sailed through with relative ease. We did so because the public policy framework and the economic framework allowed business to respond quickly; there was no high public sector debt or excessive bank borrowings, we had a reasonably robust, flexible economy which was able to go out and look for new markets.

"So we have a good foundation for achieving our targets, but it will not be easy."

One of the great shocks for Mr Paterson in his new job is the abuse he suffers from people outside the public sector.

"Some of the vitriol I have suffered over the past six weeks has staggered me," he told yesterday's lunchtime meeting.

"These are people who are putting their hands out for serious amounts of money and they are the most belligerent, obnoxious correspondents I have ever seen. You understand I can't name these people, and some of them end up having their projects approved . . . but it is extraordinary that people can say these things and then expect to be paid."

In its most recent FocusOn report, FocusOn Hotel Project & Development Services, Jones Lang LaSalle Hotels provides a how-to guide to avoid development pitfalls from pre-construction through post-construction for hospitality projects. The report is co-authored with Jones Lang LaSalle's Project and Development Services (PDS) team -- a group of 400 professionals that undertakes over 5000 projects annually. Examples of projects include The Four Seasons Hotel in New York, The Diplomat Resort and Spa in Florida and The Residences at the Ritz Carlton Grand Cayman.

Cost overruns and construction delays can easily turn a profitable project into a development nightmare, often losing millions of dollars in the process, stated co-author Gregory Rumpel, Senior Vice President, of Jones Lang LaSalle Hotels. Construction delays are one aspect of the equation. The other side is the lack of understanding and knowledge of the process for obtaining the necessary permits, licenses and certificates to open a hotel. This can lead to costly delays.

The report examines how to future-proof a design so that the property remains competitive, how to get financial and other support from local governments, how to manage a comprehensive quality control program and how to supervise the procurement process. Also highlighted is the importance of ensuring the owner's best interests during a project.

We have been hired for projects where parties other than the owner had been making the decisions and spending money without regard for budgetary considerations, included Christian Charre, Vice President of Jones Lang LaSalle Hotels, who also authored the report. An objective third party with a proactive accounting structure allows the owner to anticipate financial exposure rather than react to situations as they arise.

In 2000, Jones Lang LaSalle was retained by a government approved fiduciary to assist in the completion of the development and pre-opening activities for The Diplomat Resort and Spa mega-resort in South Florida. Originally scheduled to open in mid-2000, the much-delayed project experienced construction cost overruns and was under scrutiny from the U.S. Department of Labor. Jones Lang LaSalle's PDS team and Jones Lang LaSalle Hotels implemented an action plan, budget and schedule for project completion as well as management operator selection. The hotel successfully opened in January 2002.

Jones Lang LaSalle Hotels, based on its experience with hotel development projects, details the following pitfalls within the FocusOn piece:

TOP 10 PITFALLS OF HOTEL DEVELOPMENT
Pitfall 10 Building A Dream Rather Than A Financial Winner?
Pitfall 9 Having The Wrong Entity Driving The Process--Should It Be The Owner, The Developer Or The Operator?
Pitfall 8 Form At The Expense Of Function!
Pitfall 7 Why Foot The Bill Yourself? -- Get Local And Regional Civic Participation!
Pitfall 6 Limited Contractor Accountability--Now That It's Built, Who Is Responsible?
Pitfall 5 Functional Obsolescence--Missing The Trends!
Pitfall 4 Back-Door Procurement--A Friend Of Mine Imports Beautiful Marble!
Pitfall 3 Costs Spiraling Out Of Control--You Need Another Check?
Pitfall 2 Overlooking The Small Details--What Do You Mean We Need A Liquor License?
Pitfall 1 Missing The Deadline--The Guests Are Knocking But Nobody's Home!

As part of its experience, Jones Lang LaSalle Hotels offers recommendations and solutions addressing each of the pitfalls listed above.

Jones Lang LaSalle's Project and Development Services brings a bottom-line business focus to a client's project and property challenges on all project types and industries. With more than 400 professionals based throughout the United States, PDS services include development management, advisory, build-to-suit, interior project management, renovation and rehabilitation, move management, furniture project management, multi-site program management and strategic occupancy planning.

Combined with the hospitality expertise of Jones Lang LaSalle Hotels, Jones Lang LaSalle offers extensive hotel project and development services.

Jones Lang LaSalle Hotels, the world’s leading hotel investment services group, provides clients with value-added investment opportunities and advice. In 2001, its success story includes the sale of 7,972 hotel rooms to the value of US$1.3 billion in 39 cities and advisory expertise on 100,550 rooms to the value of US$26.3 billion across 255 cities. Jones Lang LaSalle Hotels’ services include transactions, mergers and acquisitions, financial advice and capital raising, valuation and appraisal, asset management, strategic planning, operator assessment and selection and industry research. Jones Lang LaSalle (NYSE: JLL) is the world’s leading real estate services and investment management firm, operating across more than 100 key markets on five continents.

MARRIOTT-CENDANT VENTURE

Bloomberg News - Marriott International has formed a joint venture with the Cendant Corporation to license Days Inn and Ramada hotel franchises in a transaction that may end Marriott's right to the Ramada trademark in the United States.

Cendant, which is based in New York, will manage and control the venture, a Marriott spokesman, Tom Marder, said. Marriott, which is based in Bethesda, Md., and is one of the largest hotel companies in the nation, is contributing rights to franchise the Ramada name, which it values at $205 million.

(Reuters) - U.S. hotel room revenues dropped 7.3 percent for the week ended Feb. 23, marking the first month-long period the benchmark figure was down in the modest single-digit range since Sept. 11, according to data released on Wednesday.

The drop for weekly hotel room revenues came as room prices were down 3.4 percent and the average occupancy rate was off 4.1 percent, according to data tracking firm Smith Travel Research.

The 7.3 percent decline was the industry's third best weekly showing since Sept. 11, and came on the heels of a 7.4 percent decline in the previous week, a 9.1 percent decline the week before that, and a 6.9 percent decline for the week ended Feb. 2.

The latest figures mean hotel room revenues will almost surely be down in the single digits for the full month of February, a sharp contrast to the double-digit declines since Sept. 11. At the height of the travel crisis, U.S. hotel room revenues were down 23.4 percent in September.

Among individual hotel segments, only luxury hotels -- the group hardest hit in the industry slowdown as business travelers traded down to cheaper accommodations -- continued to post double-digit losses in the latest reporting week.

Room revenues for luxury hotels were down 11.3 percent for the week, while, at the other end of the spectrum, the economy chain revenues were down 4.5 percent.

The nation's largest hotel operators are Marriott International Inc. (NYSE:MAR - news), Starwood Hotels & Resorts Worldwide Inc. (NYSE:HOT - news) and Hilton Hotels Corp. (NYSE:HLT - news).

PENINSULA GROUP F.Y. NET PROFT LOWER DUE TO WEAK ECONOMY

AFX News - Hongkong & Shanghai Hotels Ltd – Peninsula Group’s principal, said the decline in 2001 net profit was due to the weakness in the global economy, especially in the aftermath of the Sept 11 terror attacks in the US.

It said the positive trend in the hospitality industry dissipated in the second half of 2001.

In 2001, Hongkong and Shanghai Hotels recorded a net profit of 33 mln hkd,
down from 85 mln in the previous year. For the period, the company booked a
deficit of 98 mln hkd arising from the revaluation of its hotel assets, it said.

In 2001, the average occupancy rate at the Peninsula Hong Kong increased by 2.0 pct year-on-year to 56 pct, while the average room rate dropped to 2,749 hkd from 2,984, it said.

During the year, the average occupancy rate at the Kowloon Hotel was 90 pct
against 91 pct previously, with a 2 pct year-on-year fall in average room rate
to 527 hkd, it said.

In Thailand, the occupancy rate at the Peninsula Bangkok dropped to 73 pct
from 82 pct, but the room rate rose by 43 pct to 113 usd, it said.

In the US, Peninsula New York recorded an average occupancy rate of 77 pct,
from the previous 78 pct, while the room rate dropped to 492 usd from 533 usd, it noted.

The occupancy rate at the Peninsula Beverly Hills stood at 78 pct from 85
pct in the previous year, while its room rate increased to 408 usd from 399 usd, it said.

On the positive side, business from its luxurious and commercial rentals
showed a modest improvement during the period, it said.

In 2001, the occupancy rate for the unfurnished apartments and serviced
apartments in Repulse Bay was at 93 pct and 65 pct respectively, compared with 88 pct and 64 pct a year earlier, it said.

In addition, the commercial rentals in Repulse Bay and Peninsula Hong Kong
was fully let during the year, it said.

Ananova - The downturn in US tourists visiting London is expected to blight Thistle Hotels' full-year results next Monday.

Analysts' fears were stoked by a gloomy trading statement in January, which reflected a dowturn in US vistors to London following the September 11 attacks.

The company reported a 26% reduction in turnover in London in the 15 weeks following the US terror attacks.

Thistle cut 10% of its staff immediately after September 11 and has restricted non-essential capital expenditure

It's thought the company may consider a sell-off of some of its 22 London properties for £430 million.

But as London's largest hotelier, Thistle is also well-placed to benefit from any upswing in tourism.

David Liston, of Gerrard stockbrokers, said: "I hope their statement will be a bit more optimistic, although it's clear the numbers for 2001 will be well down.

"Thistle is all about recovery in London tourism. We expect the first half to be fairly flat, with maybe some modest signs of improvement or reasonable recovery coming through in the second half."

Newsletter - March 4, 2002

MARRIOTT-CENDANT VENTURE