Tracking the origins of the select-service hotel
 
Tracking the origins of the select-service hotel
14 FEBRUARY 2020 7:45 AM

In the late 1980s, the introduction of Courtyard by Marriott initiated a shift in how hotels competed for different segments of consumers, with smaller hotels in locations dominated by business travelers focusing more on in-room amenities—such as space to work.

BLOOMINGTON, Indiana—The growth in the hotel industry since the 1980s is a case study in innovation and reinvention.

Early in the 1980s, Marriott operated a chain of large, higher-end, full-service hotels that typically had between 300 and 500 rooms. Conducting an extensive market research survey, Marriott discovered that some out-of-room amenities were not valued by business travelers as much as previously thought.

Shortly thereafter, the company launched Courtyard by Marriott, a hotel brand that emphasized features of the room itself. This shift in consumer focus for the business travel segment led to a remarkable shift in the hotel landscape—in particular, the way that hotels competed for business travelers began to change.

The effort of hoteliers to eschew amenities consumers did not value was not limited to Marriott. Another example was the strategy of Sam Barshop at La Quinta. Instead of striving to entertain guests, La Quinta provided its guests with clean, comfortable rooms at low prices. Visitors enjoyed comparatively large rooms with large beds and ample space to work.

This shift in focus had a lasting impact on the market structure of the hotel industry for decades to come.

Historically, the expansion of the hotel industry in the era preceding the Courtyard inception came entirely in the form of larger hotels, not more hotels. In fact, the number of hotels in the U.S. actually decreased during the 1960s and 1970s. Quality competition was scale-intensive. The new hotels that were built during this time hotels leveraged out-of-room amenities, such as pools and restaurants, across an increasingly larger number of rooms.

Starting with the Courtyard by Marriott, the general trend toward larger hotels subsided. Since the 1980s, the average size of hotels in the U.S. has leveled off (see Figure 1). Interestingly, this aggregate pattern masks two quite different trends.

In areas that are primarily destinations for personal travel (e.g., Florida, Colorado) the average size of hotels has continued to increase. In contrast, in areas that are primarily destinations for business travel (e.g., Georgia, Texas), the average size of hotels has decreased. The customer insights of Marriott and La Quinta led hotels to compete on quality in a different, less scale-intensive way, focusing less on the amenities outside the room, such as a concierge, and more on the features of the room, including ample space to work.

The insights from this customer focus research ultimately led to the development of the all-suite hotel—a format that essentially did not exist in the early 1980s, but which is now a staple in many hotel chains’ portfolios. This innovation in the hotel industry, with a hyper-focus on in-room amenities rather than out-of-room amenities, is particularly common in business travel destinations.

The experience in the hotel industry illustrates the value in innovation and continually investigating how the preferences across different segments of customers are evolving. For hotels, some of these features involve dimensions that are sufficiently different enough in their cost and competitive implications that it has led the structure of local markets to evolve differently in different areas of the country.

Looking forward, these trends beg the question of whether the recent trend of massive “micro-hotels,” which have extremely small rooms but large, engaging public spaces, also reflects the distinct forms of competition across different segments of customers. As continuing competitive pressures face the hotel industry, there will always be constant pressures to explore the appropriate mix of in-room and out-of-room amenities. As the Courtyard experience demonstrates, homing in on shifts in varying customer segments preferences will continue to be crucial.

This article owes much of its content to the research article, “Industry Structure, Segmentation and Competition in the U.S. Hotel Industry” by R. Andrew Butters and Thomas N. Hubbard, which can be found as NBER working paper No. 26579.

R. Andrew Butters is an Assistant Professor in the Business Economics & Public Policy department at the Kelley School of Business at Indiana University. Prior to joining Kelley, he was an Associate Economist in the Economic Research department at the Federal Reserve Bank of Chicago. His research has appeared in journals, such as American Economic Journal: Microeconomics, International Journal of Forecasting, and the International Journal of Central Banking. He received his B.A. from the University of North Carolina at Chapel Hill, and his Ph.D. from the Kellogg School of Management at Northwestern University.

Thomas Hubbard has been a professor at Kellogg since 2005, and served as Senior Associate Dean, Strategic Initiatives from 2012-2015. Before coming to Kellogg, he was a professor at the University of Chicago GSB and the University of California, Los Angeles. During 2004-5, he was a visiting professor at Columbia GSB. Professor Hubbard's research interests mainly concern how information problems affect the organization of firms and markets, and therefore the structure of industries. His work has appeared in top-ranked journals such as the American Economic Review, the Quarterly Journal of Economics, and the Rand Journal of Economics. He is a faculty research fellow at the National Bureau of Economic Research.

This article is based on academic research, submitted in partnership with STR’s SHARE Center, which provides support and data resources to professors and students in hotel and hospitality fields of study at colleges and universities worldwide. The assertions expressed in this article do not necessarily reflect the opinions of Hotel News Now or its parent company, STR, and its affiliated companies. Please feel free to comment or contact an editor with any questions or concerns.

1 Comment

  • Daniel Mount February 14, 2020 10:38 AM Reply

    What about Hampton Inn, first developed by Holiday Inns, Inc. in 1984?

Comments that include blatant advertisements or links to products or company websites will be removed to avoid instances of spam. Also, comments that include profanity, lewdness, personal attacks, solicitations or advertising, or other similarly inappropriate or offensive comments or material will be removed from the site. You are fully responsible for the content you post. The opinions expressed in comments do not necessarily reflect the opinions of Hotel News Now or its parent company, STR and its affiliated companies. Please report any violations to our editorial staff.