Revolutionizing Luxury

The luxury hotel market is on the rise, creating increased competition that will generate a need for luxury hotel companies to refocus their business strategies according to its dynamic market preferences.

Luxury in the Past

Flashback to the United States in the late 19th century, and the term “luxury” might have conjured thoughts such as lavish parties, English-style butlers, and bathtubs. Similar features were provided by select hotels, including New York City’s famous Astor House, one of the first luxury hotels built in the United States. The Astor House catered to a growing class of wealthy individuals during the Gilded Age, when the U.S. economy surged at the fastest rate in history.

John Jacob Astor, the wealthiest individual in the U.S. at the time, built the Astor House in his pursuit to construct a grand hotel in New York’s most fashionable district. The Astor House succeeded in attracting the high society crowd, as it was the first of its kind. Moreover, the hotel housed technological advances of the time—it supplied hot and cold running water to bathing rooms and showers, when even indoor plumbing alone was unheard of. The Astor House’s grand reputation attracted high-profile individuals, namely Abraham Lincoln and the Prince of Wales.

Other luxury hotels followed soon after the Astor House’s erection. The St. Regis and Waldorf Astoria hotels introduced even more technological innovations, including room temperature regulation. Other luxury hotel innovations helped establish a new era for the elite, such as lavish social gatherings and butler service exclusive to the few who could afford it.

Luxury in the Present: Demand Surge

Back to the 21st century, luxury hotels are quickly responding to a surge in consumer demand. According to Smith Travel Research, the U.S. luxury hotel pipeline in 2015 has increased 25.8%, and luxury hotels under contract have increased 32.2%. International luxury hotels are seeing the same numbers.

The demand for luxury hotels stems from demographic and economic shifts in both the United States and abroad. The U.S. economy has arguably fully recovered from the 2008 recession, and emerging markets are creating more millionaires. With new emerging economies and technological advances making tourism more accessible, people are traveling abroad more than ever.

U.S. Baby Boomers and wealthy international travelers make up majority of the luxury travel market. The Baby Boomer generation is the largest and most affluent age group, making it the most powerful consumer group in the U.S. market. They are known for their youthful attitude, independent nature, and tendency to defy traditional values. Similarly, international luxury tourism is on the rise. Foreign travelers’ primary motivation is to understand and experience other cultures. Generally, they are most interested in visiting the United States within the next two years.

Asia features the largest growth in international travel. China and India are the top luxury hotel hotspots. Chinese and Indian travelers are forecasted to make up most of the global tourism market, as their countries’ GDPs recently have seen the most growth. Outbound foreign travelers to English-speaking countries tend to consist of younger international professionals who have learned English; older international travelers, not as fluent in English, tend to travel within their home country.

 Changing the Definition of Luxury

Baby Boomers and wealthy internationals maintain unique values that differentiate their perspectives of luxury than the wealthy elite of the Gilded Age in the United States. Now, physical goods such as a limousine, the latest iPhone, or a private jet to the Bahamas might easily come to mind at the thought of luxury. However, experience products have become increasingly significant to today’s travelers—how you are viewed by society when you ride in a limousine, the efficiency of the latest iPhone, or relaxation at the sunny, tropical beach to which the private jet would travel.

Future Implications for Luxury Hotels

Luxury hotels will need to reposition themselves according to its current standing and its dynamic consumer market. With the surge of luxury hotels, the luxury market will become highly competitive. The rise of Baby Boomers and wealthy internationals will introduce new market preferences. Therefore, hotels will need to develop innovative products and cater to their new guest segments.

To cater to Baby Boomers, luxury hotels will need to introduce and emphasize their products that center on experience and customization. Baby Boomers’ youthful attitude draws its cohorts to authentic and adventurous travel experiences, while their independent nature attracts them to customization in their travel itinerary. In other words, guests are not spending as much time in the hotel room. Thus, luxury hotel companies should rearrange their priorities; rather than focusing on maintaining the highest quality hotel rooms and amenities, they should develop unique, flexible travel packages and tours. They should additionally work towards implementing technological advances, which was an evident contributor to the success of luxury hotels in the Gilded Age.

To successfully market to wealthy international consumers, luxury hotel companies should also craft innovative travel experiences; however, other factors such as the property’s individual location and the foreign consumer’s culture must be considered as well. Global luxury hotels should particularly look into the Chinese market, the largest portion of international luxury travelers. As more Chinese people begin to learn English, Chinese tourists will feel more confident exploring and experiencing the destination. Therefore, luxury hotels should focus their business strategies more on the destination’s attractions, rather than on hotel rooms and amenities. Hotel managers will also need to pay attention to the international traveler’s specific cultural and language requirements. Luxury hotels should provide products specific to its target market. For example, package tours, in-room coffee and tea makers, and buffet-breakfasts cater to the Chinese traveler’s needs. These amenities provide a level of comfort for international tourists who are exploring an unfamiliar country.

Shangri-La Hotels, based in Hong Kong, demonstrates the multitude of opportunities in the Chinese market for luxury travel. Thanks to its business strategy catered to its Chinese target market, the Shangri-La Hotels is the fastest growing luxury brand and widely known as the most popular hotel brand in China. Shangri-La’s expansion has followed its Asia-based consumers’ rising interest in international travel. While most of its hotel inventory is located in China, Shangri-La has expanded outside of Asia with newly developed properties in Europe, the Middle East, and Africa. The company’s hotels also provide its guests with a “home away from home,” experience, with services such as Mandarin-speaking staff who welcome their guests with hot tea. Shangri-La has even introduced technology into its marketing strategy, which has generated a user-friendly experience for hotel guests. The company uses a company account on WeChat, a popular mobile messaging platform in Asia, to allow guests to make reservations, check their reservation status, and learn more about the company. Shangri-La will likely maintain or even increase its high growth rate. Evidently, Shangri-La is quick to adapt its business strategy in a dynamic market, and virtually all its developing hotels will be located in China and India: the two fastest-growing countries in the world.

Taking a Step Back

From the Gilded Age to the 21st century, society’s definition of luxury has gone a long way. Economic forces, demographic shifts, and technological advances have all contributed to changes in market preferences and a growing luxury consumer market. Hotel companies are taking advantage of this surge in demand by building more luxury properties worldwide. However, implications of supply increase include elevated competition, forcing hotels to constantly monitor and alter their services based on societal trends. Luxury hotels that introduce products providing guests with unforgettable travel experiences and cater to the guests’ individual values are likely to succeed in the future.