Have you ever wondered why chains are more popular amongst hotels than hostels or thought about whether your hostel should ever join a chain? Any guest can perceive the difference between staying at a chain versus independent accommodation. To some, chains feel familiar and dependable. To others, chains seem generic and boring. Aside from surface-level differences, there are important business distinctions that are not so obvious. Let’s explore the reasons why chains help hotels more than hostels, but how hostels can benefit from being in a chain.
Reasons hotels love chains
The type of traveller that stays in hotels makes decisions differently than travellers who stay in hostels. One might assume it’s as simple as hostel travellers wanting to save money, but the truth is far more complicated. Hotel guests are more sensitive to what economists refer to as “transaction costs.” A transaction cost is the cost of making a decision about where to stay. Let’s explore the different types of transaction costs.
Uncertainty
Typically hotel guests want to know more about their hotel than hostel guests want to know about their hostel. Hotel guests might be traveling on a business trip or taking a special vacation, and they want to make sure the hotel will satisfy their needs. These hotel guests will frequently choose a chain they are familiar with so that they know what to expect. Hostel guests, on the other hand, are less motivated by needing to pick the perfect hostel. One of the top cognitive structures and concepts associated with backpacking is “ability to put up with things, people, and habits.” Having a chain brand reduces uncertainty, which is more important to the average hotel guest than it is to the average hostel guest.
Asset specificity
The average hostel guest has fewer criteria than a hotel guest when choosing accommodation. Hotel guests generally have higher asset specificity. They might want a swimming pool, need a hotel shuttle, or like having a spa. Chains provide a uniform experience, meaning that a hotel guest who has specific needs is more likely to choose a hotel chain that will provide that specific desired experience. Hostel guests usually have lower asset specificity. Sure, different hostel guests may assign different values to cleanliness or convenience of location, but they are typically far less discerning than hotel guests, who often require a certain type of room and certain required amenities. This contrasting need for asset specificity is another reason why hotel chains are more common than hostel chains.
Frequency
The third reason why hotel guests like chains more than hostel guests is because hostel guests generally travel less frequently than hotel guests. Backpacking typically occurs during a semester abroad or a gap year, and the trip lasts between four and eight months. Hotel guests might be vacationers, who take a trip every year, or business travelers who stay in hotels every month. Staying loyal to one brand enables frequent travellers to spend less time choosing accommodation and also enables them to take advantage of loyalty rewards programs. Frequency is the third factor of transaction cost economics that makes chains more common amongst hotels than hostels.
The benefits of being a chain hostel
Even though hostel guests place care less about chains than hotel guests, there are still valuable benefits to a hostel being part of a chain.
Size
The larger a hostel is, the more likely it is to be a chain. Independent hostels are responsible for the entire investment required to set up and run the property, making larger sizes unaffordable for independent hostel companies. Chains also offer hostels brand recognition, reservation systems, and joint marketing programs, which become more essential for hostels that have more beds to fill. Chain hostels are also more stringently regulated, helping protect the large investment of a big hostel. For these reasons, the larger a hostel is, the more helpful it is to be part of a chain.
Location
Chain hostels are more advantageous in large cities because of the economies of scale that are both possible and necessary. A hostel company can open locations in a big city, enabling them to easily monitor and control each location. Having multiple locations enables the firm to reap economies of scale, resulting in increased profitability, which is essential in expensive real estate markets.
Shared expertise
When hostels are in a chain, they are able to learn from each other. Chain hostels share best practices and policies so that they may all benefit from each other’s successes and learn from each other’s mistakes. The more special amenities a hostel offers, the more valuable it is for the hostel to be in a chain that can share that knowledge. It takes specific expertise for a hostel to learn how to effectively manage a swimming pool or a restaurant, therefore larger hostels that offer these special amenities have more incentive to share this knowledge across the chain.
Portfolio risk
Besides sharing knowledge, hostel chains are also able to share risk. A well-diversified hostel company can overcome incidents, such as economic recessions, natural disasters, or political unrest that would ruin an independent hostel.
Brand equity
As opposed to the unique personality of independent hostels, chain hostels can enlist branding professionals to create unified images that are consistent across their many locations. For example, as seen in this Director of Marketing position at HI USA, there is a specific responsibility for ensuring “that HI-USA brand identity is appropriately executed in all promotional materials and communications.” and ensures “strategy and messaging alignment across communication channels and across organizational initiatives.” They leverage this brand equity to create customer loyalty so that travellers will look for a member hostel wherever they travel.
The future of chains versus independent hostels
As the hostel industry continues to grow, we will continue to see more hostels opening multiple locations in order to reap the benefits of being in a chain. The line between hotels and hostels continues to blur, attracting guests who previously would have never considered staying in a hotel. These new hostellers will find hostel chains particularly appealing.
