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Even more so than the leisure industry, hotels are in the business of crafting experiences. They create, shape and sell memories. As an industry, they’ve adopted innovative methods of pricing and consumption much faster than others. But what can the leisure sector usefully learn from watching these experiments?
Over the last 15 years or so, the way consumers research, compare, book and pay for hotels has changed dramatically, in no small part thanks to the massive explosion in technology used by both parties - consumers and the hotels themselves. Customers are now able to take advantage of near-frictionless booking experiences, read in-depth, honest reviews by previous guests and use rich data to compare any number of parameters almost instantly.
As a guest, you could ask a comparison website to find you a 4-star hotel within 20 minutes’ drive of your intended end destination, indicate that you wanted fast WiFi and secure parking, check the quality of the breakfast and ideally find you a room with a bath so that you can relax when you arrive. This empowers a customer to identify exactly what it is that they want, and gives them the ability to make those informed choices quickly and easily, as well as allowing businesses large and small to compete on a more equal footing for the new routes to market that these models open up.
But how did we get here? Well, it starts with the introduction of dynamic pricing. First pioneered by airlines looking at ways to fill up seats at off-peak times, hotels were quick to follow suit. It makes clear business sense - hotel stays, like plane tickets, are for most people, infrequent, high-value purchases, and with elaborate predictive analytics software, it can be made very easy to identify times of year, month or even week where adjustments to pricing could bring about a significant upswing in revenue, without impacting the core services of the business. Aside from basic peak/off-peak designations, the leisure industry has for the most part steered clear of experimenting more seriously with dynamic pricing, but an American state-of-industry report expects to see its use broadening across the sector within the next twelve months. One of its most immediate applications would be applying a comprehensive dynamic pricing strategy to a leisure operator’s class timetable.
Dynamic pricing isn’t wildly controversial concept. But what if we look at the rise (and fall?) of aggregators within the hotel sector, and how they might impact the leisure industry? This is a very different story, and arguably a natural consequence of the effectiveness of dynamic pricing.
First off - to be clear about what we mean by aggregators, online services such as Skyscanner, Booking.com , Confused.com and comparethemarket.com might be the best-known examples. Within the hotel industry specifically, they started off by approaching hotel chains and offering to sell the rooms they couldn’t sell, mostly during off-peak periods. Commission percentages were low and it was a low-risk opportunity to gain more customers.
However, it was a victim of its own success, as consumers flocked to these sites, lured by the low prices and apparent value on offer. As they gained more traction in the marketplace, the aggregators demanded commission rates of 20% or more, and as profit margins tumbled, hotels started trying to maximise revenue per guest by charging separately for WiFi, parking, breakfast, early check-in or late check-out. The fightback began about a year ago, with hospitality majors taking on online aggregators by offering cheaper rates, complimentary services and loyalty points on direct bookings through their own websites.
It’s fair to say that the introduction of aggregators in the hospitality industry has been a rocky ride for hotel brands. However, from a customer perspective, any platform that makes it easier to compare and consume services at a variety of price points is a huge win for the consumer. Anecdotal evidence suggests early agreements between gym operators and existing aggregators trying to break into the market have proven unsuccessful, and further work has to be done to ensure profitable outcomes for both parties. In the US Google Reserve has started to infiltrate the Leisure market gathering momentum and building out partnerships. There will, however, inevitably be a tipping point beyond which adoption reaches sufficient levels to mean that the balance of power shifts from the leisure operators to the aggregators - who want to prove to the traditional operators that they own the relationship with the consumer.
Gladstone Managing Director, Tom Withers, said:
"We’re at the point where the operators are evaluating where the true value of these organisations lies. There’s no doubt around the benefit to the industry and beyond of consolidating and opening data across providers, facilitating the end user in finding and locating activities. The real question lies in who then owns and controls the relationship with the consumer, and the overall size of the potential market. Aggregators work if they’re adding value and creating revenue opportunities, whether that’s in attracting new users to grow the overall market size, increasing visit frequency or populating traditionally quiet classes or empty pitches. Where the model falls down is where aggregators are only successful in delivering existing members or end users who would attend anyway. In these scenarios, the pie is still the same size, but with someone else now taking a slice.”
The outlook isn’t all bad, though. Aggregators offer operators the opportunity to upsell services, products and experiences to a consumer they may not have an existing relationship with.
However, it remains to be seen whether these consumers are just shuffling between locations and brands based on facilities, pricing, convenience or class programming or whether they are truly new consumers, pushing the 15% average UK market penetration rate higher. That will depend on operators changing their sales models to reflect the changing ways that consumers want to buy and use their services.
There has to be a middle ground between ultra-modern paying-by-consumption models that price on activity and the classic pricing structure that skews heavily in favour of long-term, annual contracts. The average UK gym member visits just 2.2 times per month, and in an economy where innovative platforms like ZipCar are becoming mainstream, outdated pricing models appear to be poor value for money.
The question then remains: how can we shape the future of aggregators in leisure to be mutually beneficial for both operators and end-users?
Unlike the hospitality industry, as leisure operators we are at least in part bound by an altruistic responsibility to the nation at large. A triple-pronged threat of an NHS funding crisis, an aging population and a national obesity epidemic means that it is paramount that consumers are able to search for the leisure activity that excites them, at a price point they can afford, in their local community.
Tracey Crouch MP, Minister for Sport and Civil Society, highlights this in a recent letter to leisure operators:
“The sport and physical activity sector risks
being left behind as people’s expectations on
how data and digital technology supports their lives,
continues to increase.”
Her 2015 report, Sporting Future, highlighted the role of data in shaping the future provision of sport and physical activity for consumers, and made it clear that any organisation in receipt of public funding must make its data publicly available in standardised form in order to make this vision a reality. However, three years on, only 21 organisations have opened up their datasets. She argues that the leisure sector is currently some way behind the digital expectations of consumers, and also points out that there is “significant economic potential” to be realised through opening up data more widely.
Gladstone is actively working with the OpenActive in order to help adopt an industry-wide vision for data transparency through API connectors, data flows and standardisation. The Gladstone system now supports OpenActive. Hosted customers can join OpenActive today, sign-up here. This will be available soon for customers running their Gladstone system on-premise, register interest here if your system is not hosted.
At this time class information is published 'read-only (RO)' meaning that customers booking via 3rd party aggregator sites are redirected back to the originating operator for booking and payment.
Coming in phase 2, operators will be able to choose a 'read-write (RW)' level enabling classes to be booked directly from the 3rd party site. There may be an additional transaction fee in some cases, but the commercials will vary for each third-party service the operator chooses to partner with, and the operator will always remain in control.
Operators can choose whether they want a RO or a RW service.
We’re confident that the opportunities this will open up for our clients will be transformational - as well as for the nation’s health.
“Public Health England support the use of open opportunity data to make it as simple as possible for the public to find healthy activities and get involved. We will use open data to encourage adoption of physical activity as part of the Change4Life campaign.
Open data gives a common standard for the industry and ensures that those providing activities have a higher likelihood of finding their audience through a variety of channels. Better visibility of activities will result in more reach and more people attending their sessions. This is the next step in development for the activity sector and is hugely exciting for all concerned.”
Open access to leisure data clearly has massive economic potential as well as huge gains in public health, but in order to be realised, existing operators must be convinced that it’ll be done in a sustainable fashion. Disrupting existing delivery models can and does bring about real market change - just think of AirBnB or Spotify - but risks alienating established players in the leisure industry who hold the keys to the all-important data.
Are you for or against the rise of the aggregators?