avatar

Three Steps to Find a New Way to Compete

Written by Freek Vermeulen

Michael Levie, a seasoned hotel executive, and Rattan Chadha, a successful retail entrepreneur, were having dinner. The topic of conversation was the hotel industry. Both men thought that the industry was stale and too homogeneous relative to the diversity of customers it sought to serve. The industry had largely been unaltered since the onset of hotel chains over half a century ago. As Levie put it, “in this industry, people already think they have innovated if they have painted a grey wall green.” They two men were plotting to change that.

In 2008, they opened their first hotel, at Amsterdam Schiphol Airport, followed by one in Amsterdam City in 2009. Further hotels followed in subsequent years, in Glasgow, London, Rotterdam, New York and Paris. They called their budding chain “citizenM”; for mobile citizens. The customer group they envisioned consisted of frequent travelers; people who could just as easily be visiting the aforementioned cities for a quick business trip as for a leisurely weekend away with their partner. As they put it, “a mix of explorer, professional and shopper.”

The men thought that these customers, on arrival, really did not need a porter to pick up their luggage and carry it to their room – after all, they had likely just brought it all the way from the airport on their own. Moreover, when entering the hotel, they would not find themselves in a large lobby with a check-in desk. Instead, citizenM installed check-in machines that dispensed keys when guests inserted their credit card.

Space comes at a premium in hubs such as New York and London, and Levie and Chadha realized return on square footage was going to be key. So they also crossed out restaurants, bars, and conference facilities – amenities most travelers rarely use. (The solo business travelers Levie and Chadha envisioned as their customers, for example, would prefer to get some sushi at a self-service counter to sitting at a table alone being served by a waiter, and weekend leisure travelers would likely be eating out at restaurants anyway.) Instead, what guests encounter when they enter a citizenM hotel is one large downstairs space, loosely subdivided by high-end designer furniture and pieces of contemporary art, with area central area referred to as “canteenM”. Here you can order coffee or a cocktail and pay for the food you have picked up in the self-service area.

citizenM’s aim was to create a space so attractive that, guests would prefer to spend their time there, rather than in their rooms. This allowed Levie and Chadha to make the bedrooms quite small – the size of a shipping container. These rooms are entirely manufactured off-site at an assembly line and transported to the hotel site. There they can be stacked together in various shapes, “just like playing Lego”, Michael Levie observed. Yet they are luxurious, with a power shower, high quality bedding, and in-room tablets that control free movies, internet, and personalized mood-settings. Once entered, the guests’ preferences are stored in a central database so that wherever they check in to a citizenM again, the room is personalized.

As a result of these decisions, citizenM’s construction costs are 40 percent lower than other 4-star hotels, staffing is 40 percent lower too, but occupancy rates (consistently above 95%) are considerably higher. Immediately after opening in 2008, citizenM won the Venuez Award for “Best Hotel Concept.” One year later, it was ranked as a best business hotel by the Sunday Times, CNBC, and Fortune. In both 2010 and 2011, TripAdvisor voted citizenM “The Trendiest Hotel in the World.”

The success of citizenM offers clear suggestions on what steps to take when looking for a new way to compete in a relatively stable and homogeneous industry:

  1. Focus: don’t try to be attractive to everyone.
  2. Eliminate all things superfluous for your chosen customer base.
  3. Replace them with new offerings found by analogy.

Consider citizenM’s use of the first step: citizenM decided immediately that it would focus on one particular type of customer only: individual, frequent travelers. Typically, competing hotels fill as many as 70 percent of their rooms long in advance with mass bookings for conferences, corporate rates, and airline personnel – at large discounts – citizenM accepts no such corporate clients but prices all their rooms automatically in real-time, dependent on supply and demand.

When you are in an industry where the firms are more homogeneous than the customers, it should be possible to define a subgroup whose needs are alike, which may well cut across traditional demographics. Focusing on that particular group often enables a new way to compete because the firms that try to be everything to everyone will inevitably be imperfect in their offering.

As Michael Levie of citizenM put it, “I think that when you decide on a niche market, what you decide on what you want to be doing, do that extremely well and don’t do other things. [Other hotels in] the industry create hotels that mid-week should be good for a business traveler. On the weekends it should be good for a group or a wedding party, or for family travel. Good luck! It ain’t happening. [You can’t] create a boat that has an engine, is a row boat and a sailboat all in one. Decide who you want to be and be very good at it!”

When having defined a subgroup, companies often proceed to think of things that those customers would value and be willing to pay for. citizenM took another step first; it asked “what things can be eliminated for this particular group, without much affecting its willingness to pay?” It quickly came out at quite a lot of things (which, in turn, helped define the subgroup): facilities such as a restaurant, a separate bar, a spa, room service, and so on, were all excluded. This is an important step; yet asking what to reduce or eliminate is not a question that seems to come naturally to many executives.

Of course, developing a new model does not usually end with taking superfluous things out; a new way to compete is more than merely a stripped down version of what came before. New offerings will, however, by definition, not be found in the industry itself. citizenM explicitly used analogical reasoning to develop new elements in its hotels. The check-in machines are similar to those at airports; its luxury but small bedrooms resemble those at a cruise ship; its booking and pricing system follows that of low-cost airlines; and hotel construction resembles Lego. The downstairs space – not coincidentally referred to as the hotel’s “living room” – with a “kitchen” as its center of activity, is made to mimic the feel of a luxurious and contemporary home, where there’s free Wi-Fi, quality furniture, and you can open the fridge to get a glass of milk at any time, and where bedrooms are only used for sleeping, showering, and perhaps watching a (free) movie.

Focusing on a core customer, eliminating unneeded elements, and its active use of analogies enabled citizenM to develop a new model in its industry. Today, citizenM is in the process of acquiring additional hotel sites in both Europe and the US, and has entered into an alliance to roll out the concept in Asia. Their new way to compete is likely coming to a place near you very soon.

 


Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>