Hostels: Cooperation vs. Competition

I've seen examples of where regional hostels are competing with each other, almost to the point of having minor feuds. I've seen other examples of where hostels in the same city are actively working together.

I'm an advocate of hostels working together, even with "competitors".

It's definitely better to work together - the customer is happier if you've made every effort to help them. Even if this means sending them to a competitor when you're full. They'll end up staying somewhere anyway, they may as well leave your hostel with a good feeling towards you for helping them, not feeling they've been brushed off.

It's a personality thing for owners/ managers though, some people would rather that a person sleep under a bridge than go to a competitors. And it's very hard to change that attitude. When I worked for HI we had a neighbouring HI hostel (owned by HI, not a franchise) who would never send his overflow to us. Even though the same association would get the money.

I could even argue that the more you charge, the better your ratings will be. You don´t buy a Mercedes Benz and then say the car is crap - because you paid so much more for your car than necessary, hence you admit you´re a fool.

I can still stick to the point because the bigger value you give, the more you can charge. Obviously Mercedes consumers wouldn't buy it only for the "target aid" symbol at the front but paying such money ensures them they get the best value for it. MB engines can run for 1,000,000 km without a major touch from the garage and you can obviously get better facilities and guaranteed satisfaction buying a Merc than let's say an Opel Vectra, even if it costs a fraction of MB.

In Munich, we get the best ratings during Oktoberfest - when we charge 40 Euros for a dorm bed, when sleep is all but impossible and when the cleaning staff can only try to keep cholera away...

Let me run through this coherency again (I put Value in brackets to simplify the equation):

Ratings = Satisfaction x (1/Price x Services).

About Satisfaction, IMHO it is very high among those who came on purpose to attend the Wiese and very low among those who just popped in to Munich for an overnight stay.

Price is relative. Even if you charge 40EUR which is double than other times, I wouldn't be surprised to find it cheap in town among the many 100EUR rates...

I suppose you still make double efforts to focus on ensuring Services and fighting against total amortization, even if your staff haven't slept properly because of being exhausted and have no ciggie breaks for those two weeks to make sure no vomit can dry on the wall...

Let me know if my thoughts are wrong...

@aboriginal raises an interesting issue of channel leakage IE marketing efforts in one channel flowing through to other channels.

If I run a good flyers campaign all over Europe, it still raises their revenues. Most people will book ahead and they want to check our reviews, so they end up booking there anyway, killing two flies with the same hit.

HW is a great tool indeed and we can't blame our guests for choosing them to find us. Otherwise if HW would be so effective, we wouldn't have to spend such budget on marketing but sitting on our office chair and awaiting reservations. It's false. We all spend money on marketing, which they benefit as well. They just increase the attention before the guests see ours. It's all the matter of timing in this process, just like a Happy Meal at age 5.

The ability of the internet to easily track results with pay per click and booking engines has led many people forget that marketing is far from an exact science. In the pre internet days, the effectiveness of TV or print could only be measured by bookings as a whole - regardless of whether they came from an intermediary like an agent or direct.

The point is, there will always be channel leakage. Some of the effort from marketing your hostel might end up in HW's pocket as they saw your flyer/got a got a recommendation but still booked through a booking engine. Some of the effort might end up going to your competitors - your marketing helped them decide to go to city X but they end up booking at a different hostel. The good news is that the reverse also happens - travellers see you on HW but book direct, someone elses efforts convinced them of city X but they book with you.

Unfortunately, you can't properly measure the true impact of any single marketing effort (which is good for marketers as it keeps them in a job:p). Unless you have 99% occupancy year round, you'd be crazy not to be on the booking engines. Even if you didn't get any direct bookings, you'd still get positive leakage ('externalities' as the economists say) as your entry also acts as branding (if done correctly - nice photos, good reviews etc) and gives your hostel 'legitimacy'. Not every page view results in a booking - it is more like 1 in 1000.

Equally crazy however is relying on booking engines for the majority of your bookings. The EUR34 mil that WRI made in '07 is EUR34 mil less in the pockets of hostel owners. Remember - commissions are a cost so while $10,000 extra revenue might mean an extra $1000-3000 profit depending on margins, $10,000 less in commission costs means an extra $10,000 profit.