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e-REPORT

2014HSMAI Chief Marketing Officer

ROUNDTABLE

LEADERSHIP INSIGHTS 2 HSMAI Foundation

LEADERSHIP INSIGHTS

INTRODUCTION

Change is coming to the marketing landscape so quickly that it’s important for C-level marketing executives to meet and share ideas whenever pos-sible. Bob Gilbert, CEO of HSMAI, kicked off this annual session by saying, “The future of marketing in a digital world has dominated the conversation for the last few years and will continue to do so. This makes it critical for us to work together to drive continual change.”

THE EVENT The CMO Roundtable was held in the dining room at the American Express Tower in downtown Manhattan. Glenda McNeal, executive vice president, global client group for American Express, welcomed the executives and told them that a full 39% of card members are now Millennials. As a result, the company is focusing more and more on social networks and platforms.Lalia Rach, dean and director of the University of Wisconsin-Stout School of Hospitality Leadership facilitated the roundtable discussions. She said that while the economy is finally showing resiliency, the numbers are poor compared to a decade ago. She noted that no group has displayed more resiliency than hospitality because of all the changes that have occurred among the industry’s customers.

By Harvey Chipkin

HSMAI Roundtables provide senior executive access to experts and an opportunity to interact with their peers.

The future of marketing in a

digital world has dominated the conversation

for the last few years and will

continue to do so. This makes it

critical for us to work together

to drive continual change.

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There will be no difference

between online and offline.

You will always be connected just like

you always have electricity or air.

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SESSION 1: THE FUTURE OF MARKETING, BRAND AND COMMUNICATIONS IN A DIGITAL WORLDGerd Leonard, CEO, The Futures Agency, gave a presentation about the future of marketing in the hospitality industry; He is the author of The End of Control and The Future of Content. His company has over 200 clients including large search engines and hoteliers.

SESSION HIGHLIGHTS:

Look to the new: Google used to have a paradigm that every employee had to spend 10% of their time on new things, not on operations. Market-ers should be doing the same.

Love and pain: Success calls for a combination of pain and love. An or-ganization will only change if pain is imminent; or if they fall in love with an idea as Jeff Bezos did with the Kindle device. The marketer’s job is to provide a mixture of both love and pain to their organizations.

The New Americans: Outbound tourism from countries like China, India, Russia and Brazil is changing the face of travel. They are the new Ameri-cans. Some 3 billion consumers from so-called emerging countries will enter the middle class by 2030. The population is older (8 hours a day added in life expectancy), more globalized and more connected. Urbaniza-tion is a huge trend and there will be many more major cities. In six years, five billion people will be connected to the Internet. There will be no dif-ference between online and offline. You will always be connected just like you always have electricity or air.

Think exponentially: At Google, they use the term 10X to mean they have to make things that are 10 times better than their competitors. Ernest Hemingway said, “A person goes broke gradually, then suddenly.” That trajectory now applies to many other companies and trends.

Trust trumps tech: Even with all the technology nobody will come to a hotel because of advanced technology. People don’t use Google because of its technology but because of the interface and trust. Google anticipates what you will need next. It will tell you there is a traffic jam on the way to your meeting and ask if you want to call your colleague to tell her you’ll be late. Imagine this being applied to travel, which is what Google is thinking about. They will be able to tell you what hotel you will like – and then negotiate a deal for you.

Don’t forget humanness: Marketers should not focus on the potential of technology without considering humanness. Many companies use social media “that are deeply asocial. ”It’s important to ask where technology is empowering or enslaving when it comes to the consumer experience. Disney guests now wear an rfid (radio frequency ID) chip and it has been successful because consumers trust Disney, but it’s risky if a company doesn’t enjoy that kind of trust.

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The death of interruption: Consumers will not listen to marketing mes-sages they don’t want to hear. The biggest change in marketing is that interruption is dead or dying. The concept of yelling until somebody pays attention will not work.

As Went Music…: What happened to the music business is coming to hotels, where customers will create their own experiences. Hotels are already upgrading guests based on their social media. But technology doesn’t make people happy for long. It’s the human experience transcend-ing technology that is crucial. If you hide behind technology, somebody can easily replace you. At times, technology is a perfect fit; at times it is not. Is it good to have your wine list on an iPad? That is a debate going on in many hotels.

Tomorrow’s logic today: Management expert Peter Drucker has said, “Uncertainty has become so great that it makes planning based on prob-abilities counterproductive.” Predicting based on what is happening today is a high risk strategy. What is yesterday’s logic will not apply tomorrow. The greater danger in times of turbulence is to act on yesterday’s logic. It’s best to invest in tomorrow’s logic.

Data: more valuable than oil: The room is not the reason to buy. What is called for is being able to go to the front desk and get what you want. That is why the value of data will soon be higher than the value of fossil fuels. Big data means more volume, more velocity, more virility and more value.

Knowledge rules: The future is already here; it’s just unevenly distrib-uted. Data is not the most important factor; rather, it’s knowledge, wisdom and intelligence. Nobody makes decisions based on information, they decide based on knowledge.

Dr. Lalia Rach said it’s critical that hotel marketers “act differently, think differently and understand differently.”

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Millennials see brands as a form

of self-expression and this generation knows that their

thoughts and opinions matter. They see brands as an extension of themselves

and of their personalities.

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Look to the back door: With all the benefits of technology, it has also brought more middlemen. Hotels will have to discover new reasons for people to buy their product – not just a place to stay. Airbnb has come in through the back door and hoteliers should look at their own back doors to find the opportunities that are not being looked at. The choice for the future is: disrupt or be disrupted. You don’t have a lot of choice.

TV Transformed: Television is converging with the Internet while Twit-ter will be taking on TV. Rather than advertising, brands like Pepsi will put money into startups that want to make the world a better place – even if they have nothing to do with beverages at all. It will be ingenious to become part of an environment where they are part of what people think about. A full 20% of households are headed by people under 25 who do not have a TV but watch programs on other devices.

Avoiding creepiness: Looking ahead, 80% of Internet traffic will be on mobile devices. Marketers need to embrace and transcend technology but must “watch the creepy line, the last place you want to be.” Roundtable feedback:n In most companies, it is hard enough to get incremental change, let

alone exponential change. This is usually done by a driven genius like Steve Jobs.

n Marketers should pay attention to the fringe because that will become the norm at some point. It is challenging to define the fringe and an-ticipate the next innovative thing.

GROUP DISCUSSION ON MILLENNIAL MARKETING

Katherine Dyer, executive vice president, marketing for American Express. pointed out that the Millennial population is larger than the Baby Boom-ers – and are now spending more than Boomers and setting the trends. These consumers are optimistic about their values and above all they value quality and hold themselves to very high standards. Unlike Boomers, they feel a need to share information and have an unrelenting striving for a work-life balance.

This generation doesn’t want to just buy brands but wants to buy into brands. They want to believe in the brand and even have the power to help the brand. Millennials see brands as a form of self-expression and this generation knows that their thoughts and opinions matter. They see brands as an extension of themselves and of their personalities.

Because of these Millennial traits, American Express is considering ap-proaching its membership rewards differently. Instead of points for every dollar spent, there would be more abstract connections that would pro-mote behavior. The challenge here is that It is hard to categorize consum-ers. Many celebrities for instance, carry the basic green card and not a premium card. The question: how do you reward people who spend a lot on basic cards rather than on a premium card.

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ROUNDTABLE EXAMPLES OF MILLENNIAL OUTREACH

Roundtables members offered feedback on the presentation, discussing their own approaches to changing demographics; steps they’ve taken include: n Focus on wellness. A new f&b program was created online through

an open forum but was not successful until Millennial-aged interns helped design the co-creation process.

n Crowdsourcing. A mobile site enables conversations with Millennial customers.

n Purpose-driven marketing. One company offers hotel rooms to the American Cancer Society to support those receiving treatment. Millen-nials are purpose-driven and help make these programs successful.

n Local experts. Another company set themselves up as experts to the communities in which they are located – for everything from finding a restaurant to a dog park

n Video Sharing. One company launched a Youtube channel where customers can share their favorite destinations and most memorable experiences

n Remembering the core customer: One CMO noted that the challenge is to individualize the Millennial demographic for sub-segments based on life stage without disrupting marketing to the core customer

n Loyalty: Still Powerful. Another CMO said Expedia recently published a study showing the MIllennials were more inclined to look favorably on loyalty programs. They may be more receptive to those programs than other demographic segments.

Julie Cottineau, a longtime executive at Virgin and founder and CEO of BrandTwist, had teams of participants match a hotel “touchpoint” with an inspirational brand to come up with an ”outside-the-industry” innovation.

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SESSION 2: MARKETING INNOVATION WITH A BRAND TWIST

Julie Cottineau, a longtime executive at Virgin and founder and CEO of BrandTwist, discussed the very concept of brand saying that “a brand is a story really well told.” She said it’s important as marketers not to simply have great ideas but to do something about it. She told of conceiving of the idea of a pet rock as a child but that somebody later branded it and sold $6 million of Pet Rocks.

Among Cottineau’s points:

n The most important thing she learned working at Virgin was that if you feel there’s a better way of doing something there are probably many other people out there who feel the same way.

n The biggest difference between entrepreneurs and the rest of us is that they do something about it. Virgin brands always start with the idea that you can do things differently. That might involve an onboard bar; or picking up top class passengers at their homes or hotels for transport to the airport. Even Virgin Airlines’ safety video has gone viral online.

n Hospitality branding may be too insular because it looks within itself for ideas and inspiration.

Cottineau then asked: What if an inspirational brand like BMW or Uber created a hotel product? She had teams of participants match a hotel “touchpoint” with an inspirational brand to come up with an ”outside-the-industry” innovation. Here were some of the results”:

Booking by TaskRabbit (which matches workers with short-term jobs): Booking would be relabeled: How Can We Help? Before departure, guests would receive a text asking for pre-trip needs – like bringing clothes to the dry cleaners. On arrival at the airport, the guest would receive a text say-ing, “Have you forgotten anything?” if so, it would be waiting at the hotel. And after departure, there would be another text offering help with dry cleaning, planning the next trip, etc.

Check-in by BMW: Check-in would become UCX (Ultimate Checkout Experience), where guests would go into a lobby kiosk with a computer where all their personal preferences were pre-loaded and come out with all the information they need: a local map, hours for the club floor, the nearest health club, etc. Room entry options would include a mobile de-vice, a credit card or a card key.

Concierge Services by Waze (which crowd sources drivers for traffic information). Concierge would become Guestcierge, where fellow guests would provide you with information on where to go and what to do.

Hospitality branding may be

too insular because it looks within itself for ideas and inspiration.

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Workspace by Uber (the car service app). All barriers to working in the hotel would be eliminated so that a guest could start work in their room, then continue in the lobby, restaurants, etc. without missing a beat. They could decide if they want to work alone or with others. The concept would be called YouWork.

Breakfast by Under Armour: As opposed to the current crowded com-mercialized hotel breakfast, this breakfast would have motivating messag-es for each station, separated by types of diet category – i.e. low-carb. A wearable device would upload caloric intake based on food choices. Or an Ikea breakfast where guess would receive raw materials for building their own omelets or pancakes. Kids’ areas would be designated so youngsters could cook their own breakfast. Guests can pre-order selections for indi-vidual ingredients.

Bathroom amenities by BirchBox, which curates beauty and other prod-ucts for subscribers.. The idea is to use data to customize the experience, specifically targeting female customers. This could be done at check-in or at the room.

Cottineau’s conclusions for brand launching:

n You have to tap into a larger worldview. People don’t live in a catego-ry-specific world. They like being able to pay while waiting in line at Apple or getting recommendations from Amazon.

n You can’t just look at what other hotel brands are doing, but have to think outside the category.

n Consider hiring managers and executives from both inside and outside your industry.

n Be careful of the focus on data, which can make it challenging to be innovative. Working in smaller groups of about 15 can help stimulate innovative ideas.

Attending CMOs said that one of their biggest challenges in their jobs in the last two years is non-industry disrupters — organizations like airbnb coming into the space and leveraging the environment the industry used to control.

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SESSION 3: MARKETING EFFICIENCY IN LODGING:Cindy Estis Green, CEO of Kalibri Labs, using research she did in coopera-tion with the Hotel Asset Managers Association, said that a new class of brands has emerged in travel – booking brands, which are now the port of entry for most consumer traffic. “Stay brands” are not going away, but these new brands have raised the cost of getting and keeping customers.

Among Green’s points:

“Booking brands” boom: All the booking brands are growing on the backs of hotels. Companies like Google, Facebook and Expedia have such deep pockets that when they tap into travel they have huge impact. They are really growing and as a result commissions are growing at twice the rate of revenues. The cost of acquiring customers is rising very quickly also. Many years ago distribution represented about 5% of room revenue; now it’s about 20% for acquisitions and marketing. The concern is that figure continues to rise.

Marketing efficiency declines: Meanwhile, sales and marketing efficien-cy has declined with marketers spending more to get the same business. This was the result of another analysis where revenue minus commissions was divided by sales and marketing spend to measure sales and market-ing efficiency. This followed a similar pattern: efficiency has declined and companies are spending more to get the same business.

Last chance?: This may be one of the last chances to do something about these trends – but no company is big enough to do it by themselves. There is plenty that can be done industrywide without crossing the anti-trust line. Hotels can’t turn themselves into online travel agencies but they can turn the tables.

Intermediaries Doing It Better: For now, intermediaries are doing a better job than hoteliers so the hospitality industry has to make it easier for consumers to find the best values by coming to us. The industry is being held hostage by companies with a low cost of operations and lots of advertising. Hotel sources for funding sales and marketing come out of relative fixed funds. In addition to resources, there has to be a compelling reason to do business with you. Hotels need to corral the connectivity of consumers to the brand – to continue to bring 21st century structure to these challenges.

Bottom line: something has to give. It’s not the end of the world, just the end of the world as we know it because everybody wants a piece of the action. Intermediation is entering far beyond shopping and buying. All these third parties want a piece of the action, but don’t want to actually operate anything. This means brands have to recalibrate what they do. A group of chief digital offices has formed in the industry to look at how they can influence commerce and legislation to gain more control over the situation.

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Some approaches hotels can look to are:1) Content – what can hotels do to insure they have the best content

and insure that consumers will turn to them.

2 ) What is measured is managed. There should be a shift in focus to net revenue and sales/marketing efficiency. Data should be collected industrywide to see what net revenue is by category and segment.

3) Legislative action. This would include consumer deception and other issues — and being proactive about them.

4) Education and research to raise awareness and to anticipate emerg-ing technologies such as wearable computers, e-payments, and new areas of loyalty/affinity programs.

Roundtable feedback:The industry is relatively data poor with regard to ROI in marketing. Data models that demonstrate the cause and effect of marketing dollars spent are insufficient at this time. Better data models are necessary.

Most brand marketing costs are an affixed percentage of room revenue; this may no longer be the right model.

One mistake made by the industry is treating merchant business as net revenue rather than booking it with commission costs. Obtaining this vis-ibility would be very helpful.

If consumers were aware, they would not be willing to spend 20% extra simply for the opportunity to comparison shop. The industry needs to make the content more broadly available so it is not worth that price. More competition and legislation that allows companies more transparency for these costs will help. Currently there is no pricing visibility to the consum-er that demonstrates the benefit of direct booking.

n The industry is more focused on adding value to direct booking.

n The industry needs a common source of data that both brands and owners trust.

n If the industry could turn back the clock, it is unlikely that hotel companies would give up their inventory information to third parties.

n Until now, nobody has put forward an industry-level leadership position about how hotels can best behave to optimize revenue. The fragmentation of this industry has brought in entrepreneurs with ideas that come between hotels and their customers.

Presenter Gerd Leonard, CEO, The Futures Agency said that, “Nobody makes decisions based on infor-mation, they decide based on knowledge.”

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ROUNDTABLE TAKEAWAYS

Rach said it’s critical that hotel marketers “act differently, think differently and understand differently.” She said that 20 years ago, this was the hotel business; now it’s the business of hotels. One positive sign is that own-ers are starting to see the challenges more clearly and are getting more involved because it affects the value of their real estate. Feedback from the roundtable included:

n Looking to ‘brand twisting’ instead of just within the industry might be helpful to combat third parties.

n Change is crucial and content will be the lever for that change. Other nuances will be additional competition or varying competition. A frag-mented industry makes this a challenge.

n Goals are not completely aligned unless a hotel company is privately owned, although owners are beginning to recognize the problems. A link to Cap rates would bring more immediate attention to the issue.

n It must be recognized that OTAs do spend billions promoting travel and tourism, which can be beneficial.

n Solutions lie in being more purposeful when engaging with custom-ers, and determining the right way to give customers what they want. Hotels must make it easier for consumers to deal with them. The OTA is getting 15% of revenue and the brand just 5% — giving the OTA more power.

n Consumers are brand agnostic. The consumer needs to see and buy the hotel product in as many channels as possible. The brand is a relevant promise to the consumer, so they have to be valuable to customers. At this point, some OTAs deliver a better brand promise.

n The job of the marketing executive has become much more complicated. Innovation is about learning and changing.

Glenda McNeal, executive vice president, global client group for American Express, welcomed the executives and told them that a full 39% of card members are now Millennials. As a result, the com-pany is focusing more and more on social networks and platforms.

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Lalia Rach asked the attendees what was driving them as chief marketing officers. Among the answers:

Rach said that these goals were different from the last few years because marketers are now really talking about data, as well as the top and bottom line. “It’s a totally different industry than before the economic downturn,” she said. However, she added, “The conser-vative nature of this industry has such a hold and that is mostly reflected in slow adoption of technology.”

What’s Driving Marketing Executives?

Lalia Rach asked marketing executives what the biggest changes have been in their jobs in the last couple of years. Their answers included:

The Biggest Changes For Marketers

Integrating marketing efforts into all the company’s operations.

Making the product as local as possible.

Becoming the advocate for the traveler.

Continuing the evolution of the mobile pres-ence.

Giving the customer more value even at the economy lodging level – including great style.

Dealing with frustratingly stagnant rates despite high demand,

Bringing brands to life through data and technology – and balancing an emotional connection with all that.

Creating a platform that showcases the brand.

Using social media in a nuanced and sophisticated way – so that it helps build relationships with customers.

Finding and maintaining talent; there is a strong correlation in having the right people in revenue driving positions and the perfor-mance of hotels.

Delivering the message appropriately for the Asian market.

Working with other suppliers to share data to gain a more comprehensive overview.

Focus on data

Integration of technology

Moving from controlling the environment to enabling it

Customer engagement

Digital media

Non-industry disrupters –organizations like airbnb coming into the space and leverag-ing the environment the industry used to control.

Getting beyond data into analytics

Specialization

Closer relationships with the CIO

Forecasting a year or two ahead, rather than five

Realizing that things that didn’t seem real are here – like the explosive popularity of Netflix.

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THE DOZEN TOP TRENDS AND CHALLENGES FOR HOSPITALITY MARKETERS

No single issue dominates the agenda for chief marketing officers in hospitality but the sheer number and diversity of challenges combine for a daunting landscape.

1) Integrating marketing efforts into all the company’s operations.

2) Making the product as local as possible.

3) Becoming the advocate for the traveler.

4) Continuing the evolution of the mobile presence.

5) Giving the customer more value even at the economy lodging level – including great style

6) Dealing with frustratingly stagnant rates despite high demand,

7) Bringing brands to life through data and technology – and balancing an emotional connection with all that.

8) Creating a platform that showcases the brand.

9) Using social media in a nuanced and sophisticated way – so that it helps build relationships with customers.

10) Finding and maintaining talent; there is a strong correlation in having the right people in revenue driving positions and the performance of hotels.

11) Delivering the message appropriately for the Asian market.

12) Working with other suppliers to share data to gain a more compre-hensive overview.

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Chief Marketing Executive Roundtable participants included representatives from American Express, Google, KSL Resorts, IHG, Interstate Hotel Corporation, Denihan Hospitality Group, Destination Hotels and Resorts, Aston Hotels & Resorts, Best Western International, Red Roof Inn, Omni Hotels, Hershey Entertainment & Resorts, Commune Hotels & Resorts, Extended Stay America, Fairmont Raffles Hotels International, Red Lion Hotels, and Hilton Hotels & Resorts.

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CHAIRVail BrownVice PresidentSTR

CHAIR ELECT – January 2015John Fareed, CHME ISHCPrincipalJohn Fareed Hospitality Consulting

TREASURERChristine HightSenior Director, Market ResearchHilton Worldwide

SECRETARYTheresa LewisVice President, Market ResearchWyndham Hotel Group

Douglas AbbottDirector Sales Effectiveness, Worldwide SalesIntercontinental Hotels Group

Victoria BortonGeneral Manager/SVPTravel Media GroupUSA Today

Patrick Bosworth Co-Founder, CEODuetto Research

Michael DominguezSenior Vice President, Corporate Hotel SalesMGM RESORTS INTERNATIONAL

Rick GarlickPractice LeadGlobal Hospitality and Travel GroupJD Power

Cindy Estis GreenCo-founder & CEOKalibri Labs

Nick JohnsonPresidentGotham

Gary Leopold, CHME President & CEO ISM Tammy LucasManaging Director, Advertising & Digital Commerce Best Western International

Cathy HartmanCustomer Insights Advisory, Marketing & DigitalMarriott International, Inc.

Brian PayeaHead of Industry RelationsTrip Advisor

Betty Wilson Vice President, North America Divisional Sales Starwood Hotels & Resorts

STAFF LIAISON

Fran BrasseuxExecutive Director, HSMAI FoundationExecutive Vice President, HSMAI

Jason SmithVice President of Marketing CommunicationHSMAI

2014 FOUNDATION BOARD OF TRUSTEES

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2014HSMAI Chief Marketing Officer ROUNDTABLE