Four Seasons Is Down But Not Out if They Adopt a Business Model Innovation Lens
One window into the nature of the current recession and the uncertainty that it’s causing is through the fancy curtains at the Four Seasons Hotels and Resorts. The revenue per available room (the hospitality industry’s key financial measure) is down 25% year-to-date and for the first time in its history, the hotel management company has cut headquarters staff by 10%.
In this recession, Four Seasons’ customers are hurting – wealthy individuals, the business service companies that cater to Fortune 1000 companies and the vibrant venture capital/IPO markets – significantly reducing stays at Four Seasons. Hotel property owners who contract with Four Seasons (which interestingly does not own any of its hotels, it only manages them) to hire and train their staff and manage their hotel properties are pressing Four Seasons to cut back on expenses and lower room rates to attract more guests. Four Seasons fears doing so will damage its brand.
Were this a temporary recession, Four Seasons could wait out the storm, as it did the downward spiral in travel following the September 11th NYC terrorist attacks. But there is high uncertainty surrounding this recession.
Will Four Seasons customers permanently reduce their travel expenditures, seeking more value versus prestige? Or, will higher stress levels lead potential guests to bypass jewelry and indulge instead in a 4-day mini-break in luxury at a Four Seasons?
Will high-end business travel return once the government is out of our banking and car industry? Or, will growing transparency and a tougher climate for achieving success lead business travelers back to the 1960’s era when a clean and quiet room was more than good enough?How does Four Seasons hold onto its investors/hotels and brand when the future economy remains so uncertain? (One investor has already taken Four Seasons to court, creating some very negative and not welcomed press for Four Seasons.)
What is certain in the midst of uncertainty?
First, preserve your brand. Four Seasons is right to fight staff cuts that would get in the way of delivering on its extraordinary service promise. In a period of uncertainty, however, preserving options is a wise move. Four Seasons should prepare for a permanently reduced demand for the highest-end hotel stays.
Could Four Seasons properties faring the worst in this recession be transformed to a lower cost hotel brand owned by Four Seasons without significant capital investment? What could be the “Coach Handbag” equivalent to Four Seasons “Prada Handbag” brand? Four Seasons would solve its current problem without damaging its top-end brand.
One might think of the new brand as “disruption” of the luxury hotel experience. If Four Seasons does not disrupt luxury hotel stays, a competitor or new entrant will much as Lexus disrupted the Mercedes/BMW market. What might disruption look like in high end hotels? Smaller rooms with same Four Seasons’ service, perhaps all in-room service without dining rooms? Spas and gyms located in free-standing separately owned near-by spas and health clubs, versus part of the Four Season’s property? Terrific food, but using high quality ingredients without the highest price points (chicken versus veal, squash versus asparagus)?
Second, exploit your advantages. Unlike the Ritz-Carleton or other opulent hotel chains, Four Seasons properties are also known for fitting into the local built environment, creating visual surprises from one hotel and resort to another. Part of the relaxation benefit of a Four Seasons stay is not just the best beds and bedding in the nation (according to Julia Roberts and Oprah), but a soothing visual experience. Four Seasons’ local feel and its long tenure as one of America’s best companies to work for would enable the company to become a more important part of each of the communities it calls home. Four Seasons should step into the slow food movement and use local ingredients. Participate in community economic development activities bringing leaders together. Hospitality industry companies should want the loyalty of local leaders on their side when times are tough. They may not stay in your rooms, but they lead traffic your way.
Third, expand your market. Bring the Four Seasons experience into our homes where we may be forced into stay-at-home vacations. Bath and bedding products are highly synergistic with the Four Seasons’ brand. Don’t do what Ralph Lauren did and dumb-down the product to appeal to Macy’s masses. Keep the product elite, possibly sold through ASID independent designers.
Fourth, get rid of any cost that does not enhance your value promise. Keep any front-facing staff member, but explore everything else that could be outsourced to just-in-time suppliers using a lean operational approach.
Fifth, build other products out of your core competency. Four Seasons is best in class in training employees. Other businesses need this expertise. Rather than fire experienced staff, redeploy them into this new offering. You’ll save the investment your made in them and earn a return on it while you await hopefully a better market.
Yes, these are uncertain times for any brand at the high end. But we’re not on the Titanic. Find steady seas by adopting these best practices for strong brands in uncertain times.
For insight on business model innovation and business model differentiation, read my recently released book, Beyond Price.