Experience Economy and Consumer Experience

by Oct 11, 2022Hotel Development, Travel & Tourism

“You’ve got to start with the consumer experience and work back towards technology – not the other way around” – Steve Jobs

With the growth of the global economy, we are transitioning towards an environment where experiences are becoming the new material good for the consumer. Experiences tend to be combined with services; however, businesses have started to realize the value of authentic, varied, quality experiences as a differentiator. The entertainment industry pioneered this concept with Walt Disney at the forefront of this construct. Today, it has gone beyond theatres and amusement parks, with companies such as Apple, Nike, and Louis Vuitton Moet Hennesey (LVMH) becoming market leaders on the back of delivering unique experiences, along with good-quality products. Looking at Apple in particular, it is clear that consumer experiences are at the core of their strategy. They have focused on creating an ecosystem which is design-led, focused on personalized service and a town-square style ambience at their stores. This has allowed them to offer seamless experiences and retain a large percentage of their consumer base (~90% loyalty rate in the last three years), while charging a significant premium for their products. 

Figure 1: Distinctions between Economic offerings

Source: Harvard Business Review

Customer experiences have become even more significant after the onset of the global pandemic. Millennials (~27% of the global population) are pushing this shift towards the experience economy; the other generational cohorts are following suit rapidly. Consumers are willing to switch brands and pay a premium for the same. Research with respect to the scope and influence of economy on the current business environment highlights some interesting data points (as seen below) – price premium, customer preferences, size of the market and missed opportunities arising due to poor quality experiences (Figure 2).

Figure 2: Key Data Points associated with Experience Economy

Source: PwC, Momentum Worldwide, Beyonk and Siegel+Gale

For the travel and tourism industry, customer experiences have always been important; however, they have witnessed an increase in focus towards authentic personalized experiences over materialistic elements. Experiential, immersive travel has become an important part of tourism. Consumers are looking for opportunities to explore the destination like a local, relax and engage in outdoor activities. This transition has catalysed the growth of boutique and lifestyle hotels across the globe (Figure 3).

Figure 3: Consumer Travel Trends

Source: Global Travel Trends 2022, American Express Travel

Emergence of Boutique & Lifestyle Hotels

Both, boutique hotels and lifestyle hotels, tend to be design-driven hotels with their own character and personality. Storytelling is at the heart of these establishments and reflected in their off-beat, eye-catching and outright ‘funky’ aesthetics. Traditional positioning is secondary for these hotels as their focus is on the curation of experiences. They capitalize on the desire for rich experiences by incorporating elements of sustainability, cuisine, history, local culture, and community as well as wellness. Even though the service standards may have a degree of standardization, these hotels add localization at each step of the consumer journey. Key consumer segments for these hotels are Generation X, Families, and Millennials. The leisure and domestic travel growth across the globe have benefitted these hotels.

This space has some key benefits for both owners as well as operators. For the owners – these assets have a potential for a higher yield; scope to generate non-room revenue through customized food and beverage offerings, events, wellness offerings, excursions and localized experiences; hotels can retain their individuality, character and focus on offering authentic and curated services; flexibility in development; and the opportunity to partner with established brands with a variety of operating models from a management contract to a lease or a marketing alliance. Whereas brands can benefit from the addition of multiple unique and iconic properties while expanding into and penetrating newer markets.

In the past decade, global hotel companies have introduced a slew of boutique and lifestyle brands to cater to this rapidly growing market (Figure 4). Beyond the traditional brands, these companies have introduced soft brands, which allow the independent hotel owners to receive support from these brands while retaining their branding, concept, and character.

Figure 4: International Boutique, Lifestyle and Soft Brands

Source: Hotelivate Research

Boutique & Lifestyle Hotels in India

Even though, this concept is relatively nascent in India; it has gained a lot of attention in the past few years. Leisure tourism contributes over 90% of the total business across India. (India Annual Report 2022, WTTC). After the onset of the pandemic, not only have popular domestic destinations seen an increase in footfall, but tourists have also started exploring lesser-known locations in the country. Furthermore, millennials (~34% of the country’s population), one of the key customer segments for these hotels, have seen an increase in their disposable income. Currently, this space has independent brands, who have been operating for about five to ten years, such as Niraamaya, Tree of Life, Rosakue and Postcard. Additionally, established players are entering the market with a variety of brands such as the Tribute Portfolio by Marriott; SeleQtions by IHCL; Stori’i and Mementos by ITC Hotels; Radisson RED, Radisson Individuals and Radisson Individual Retreats by Radisson Hotel Group; and Hyatt Centric and Unbound Collection by Hyatt, to name a few. About 5,000 rooms (~8% of the branded proposed supply) in the next five years are being developed in the boutique/lifestyle space.

Due to the unique nature of the Indian market, there are certain key facets which need to be considered while developing these assets. The Indian consumer has a set standard of expectations, irrespective of positioning, which tends to affect the brand architecture of the company. Therefore, these boutique and lifestyle hotels need to offer a set of differentiators to stand out of the crowd. Social media and Brand website are key resources which can be used to educate the consumers. Product, services, localization, and experiential offerings would act as the intangible unique selling points (USPs). Beyond this, the brand needs to offer a few tangible differentiators. For example, SLS Hotels by Accor have a giant metallic duck at the poolside. These small attributes and elements can help stand out from the crowd and capture a larger share of the market.

Additionally, these hotels need to incorporate certain elements to maximize the consumer experience. Since, most of the target clientele is leisure oriented, these hotels need to incorporate a variety of recreational facilities and outdoor activities. Along with recreational offerings, the hotel needs to offer a set of local experiences which allow the guest to interact with the community and understand the culture. The product and services need to keep in mind offerings for both kids and aged people. Since many of these hotels will be in leisure locations, the hotels will face certain challenges in terms of procurement. These hotels would tend to offer a relatively smaller menu; at the same time, the brand needs to ensure varied food and beverage offerings to please the palate of the guest. Especially in India where food and beverage are an important component of the guest experience. Additionally, sustainability is becoming an essential element for these hotels.

It is clear that these boutique/lifestyle hotels represent an interesting opportunity in a market like India. The growing leisure and domestic footprint along with the rising significance of experiences for the consumers will ensure strong growth of the market. While the brands need subtle tweaking to appeal better to the Indian consumer and capture a larger market share, boutique/lifestyle hotels are likely to become a significant part of the Indian hospitality industry.

For more information, please contact Mihir Chalishazar at [email protected]


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