Consistency Drives Convergence
In a recent USA Today article on why Airbnb and similar sharing economy businesses are dwindling in popularity, this quote caught my eye: “Travelers say they’re tired of the unknown.”
Why is it so difficult to determine what you’re getting in the short-term accommodations industry? It should be a straightforward equation: a good experience leads to good reviews, good reviews lead to better conversion, and better conversion leads to a higher average daily rate (ADR).
The problem appears at the beginning of this chain of events: there’s no industry standard for a “good” experience at a vacation rental. Properties are wildly different, and expectations are different depending on the type of property rented and the temperament of the guest. One guest might love your rustic cabin and give it a 5-star review; another might call it dirty, complain about the proliferation of bugs on the porch, and leave a 1-star review.
Neither of those reviews is helpful to the guest browsing a listing site trying to figure out whether the property is going to deliver the experience they personally want.
How, then, can short-term accommodations set better expectations for the type of experience guests can expect from a given property?
Our industry needs a rating system.
Ratings Are Not Reviews
Reviews confirm whether a listing matches guests’ expectations. Ratings set those expectations, and setting expectations is essential if guests are to determine whether the experience they were promised matched the experience they had.
If expectations are managed well, it should be possible for an older, unique property—priced well and described accurately—to receive an outstanding review. At the same time, a luxury property may end up with a mediocre review for not delivering against very high expectations.
The rating, then, has to come before the review. Before the first guests stay at a property, a rating-setting body should explain what kind of property to expect so guests know whether the property lived up to their expectations. That is an important point in an industry where certain categories grow extremely quickly and up to half of all listings may not have existed a year earlier.
Calibration is extremely important and can be accomplished by establishing guest expectations up front, transparently and honestly. Stand-alone reviews cannot set expectations as clearly as ratings, and although platforms like TripAdvisor or Airbnb have done well with such reviews, these published reviews might not be especially helpful.
A 2015 study conducted at Boston University showed that almost 95 percent of Airbnb reviews showed 4.5 or 5 stars, confirming the study’s title, “A First Look at Online Reputation on Airbnb, Where Every Stay is Above Average.”
Steve Milo, a prominent US property manager, has a radical approach to setting guest expectations accurately. His company, VTrips, has created its own rating system. Properties range from Bronze to Diamond and score 1 to 4 “suns” (more on that below). The lowest level, Bronze, corresponds to zero suns. When guests book at that level, they must specifically acknowledge that they understand what quality standard to expect—in this case, “dilapidated.”
According to Milo, while his system leads to a higher initial cancellation rate, it also results in happier guests because they understand the situation and choose the price-quality trade-off at the outset.
The Hotel View: Ratings vs. Consistency and Brands
While many European and Asian countries have formal hotel standard-setting bodies, there isn’t a single standard in the United States. Forbes (previously Mobil) and AAA are probably the best-known hospitality standard-setting and inspection bodies; both publish travel guides that rate hotels.
However, with more than 50 percent of US hotels belonging to major chains, and with those chains offering highly uniform products, US hotel ratings are arguably secondary. Most consumers know what to expect when they book a Courtyard or Doubletree vs. a Marriott, Hilton, or Hyatt vs. a Ritz-Carlton, Fairmont, or Raffles Hotel. Few guests will ask whether a certain hotel is a 2-star or a 3-star; they already know the type of service that’s delivered and maintained by a particular brand and see no need for an external rating system.
Ratings are much more important in Europe where there are more independent hotels. To set expectations for each one, guests need a rating system. While most European countries have national or regional standard-setting bodies, the German standard, Deutsche Hotelklassifizierung, has emerged as the standard-bearer of European harmonization efforts. This 300-point inspection program covers physical attributes, services offered, and quality-management systems that guarantee each hotel’s standard can be delivered consistently.
Taking Ratings and Quality to Vacation Rentals
At the moment, vacation rentals don’t have a consistent rating system in any country. There have been a few attempts to set guest expectations in the United States and Europe through channels each one prefers. In the States you’ll find a brand approach, while in Europe you’ll see rating systems.
The recent funding successes of Sonder and other fledgling alternative-accommodations brands shows an approach to quality that mimics the US hotel world: quality is delivered via (budding) brands and uniformity. Sonder and others are essentially mimicking what Ian Schrager and Chip Conley did for boutique hotels decades ago and are creating new boutique brands from scratch. Meanwhile, emerging US VR operators like Vacasa or Turnkey rely on reviews and overall consistency of services to tell guests what to expect.
Europe’s more established vacation rental brands have taken a different route from the emerging US boutique brands: they deal almost exclusively with existing inventory and operate on a larger scale. Novasol, Interhome, Interchalet, Belvilla, and Sykes Cottages all offer unique inventory, and each has taken a page from the (European) hotel playbook and established its own five-level rating system.
The last player worth mentioning is Airbnb. Airbnb introduced Airbnb Plus as a soft-brand approach that tries to combine elements of a review and a rating system. Similar to Forbes’ Travel Guide, it focuses on mid- to high-end properties and on inspection and uniform presentation. One interesting question is whether this soft brand will be allowed to live outside of Airbnb’s distribution platform. Will a time come when an Airbnb Plus property can advertise itself as such on Expedia or Booking.com?
Simon Lehmann, former GM of Interhome, a major Swiss/German operator, shows the difficulty of rating unique homes, recounting an all-hands retreat with his European management team where they tested Interhome’s own ratings. His team assessed a formally 5-star-rated Tuscan villa with scores ranging from 1 to 5 stars. While one manager appreciated the 500-year-old open fireplace, another smelled 500 years of poorly vented smoke.
A Flight to Quality: The Devil Is in the Details
The fact that it’s difficult for branding and rating systems to coexist may explain why it took so long for ratings to make an appearance in vacation rentals—at least on this side of the Atlantic. Ratings inspire confidence in guests, drive conversion, and raise the ADR for premium properties. However, creating a rating system that allows existing brands to confidently represent listings under their own brand is a tall order.
At the same time, there is undeniable evidence that quality has become a major theme across the industry. Hotels (Accor, Hyatt), Airbnb (Luxury Retreats, Airbnb Plus), and private equity funds and VC investors (Sonder, Stay Alfred, Lyric, Evolve, Vacasa) have put almost a billion dollars into this category in pursuit of branded, quality experiences. Rating systems are clearly a necessary next step in creating credibility for vacation rentals.
So what would an industry-wide rating system look like, and how would it differ from what hotels have built over recent decades?
A Blueprint for Quality Ratings
Let’s start with the objectives.
First, quality ratings should give customers a clear, concrete idea of what to expect. That increased confidence should drive conversion and ADR. A good rating system would, therefore, show a clear correlation between ADR and quality.
Second, quality ratings should allow brands to confidently select listings that they can distribute under their own brand or soft brand. Branded companies should be able to select from 10 million units to a few hundred or thousand that fit with their brand. Branded companies, then, would become a new high-value distribution channel for property managers.
Third, ratings should allow branded collections and property managers to better sort listings in curated collections—family friendly, business ready, pet friendly—to match guests’ preferences and expectations.
Hotel rating systems are a great place to start. A spot check of the German rating system shows that almost 80 percent of the 280 criteria used for hotels would apply to our industry. But there are important differences. As Simon Lehmann points out, equating hotels with private accommodations is tricky. A hotel’s basic asset lies in its uniformity while uniqueness is often the key draw for those seeking alternative accommodations.
It follows that standard presentation would be a key requirement for an alternative accommodations rating system (e.g., having a photo for every room and a description that includes specifics about location attributes—hotels are often clustered in a few areas around town and the draw of alternative accommodations is living in a neighborhood, but those can be less well-known than tourist hot spots).
Because hotel standards have a different focus, it might serve us well not to use stars. Steve Milo’s “suns” or Sykes Cottages’ “tick marks” help to establish clear differentiation from other systems.
Hotels have relied on inspections to ensure their standards are upheld, but I don’t believe inspections are the answer to a quality rating system for vacation rentals because the economics are different. For starters, inspecting 200 rooms in a single hotel is a task that could be completed in an afternoon, but visiting 200 private accommodations across a city is a significantly different challenge that involves a far different cost structure.
There must be some means of ensuring that alternative accommodations are providing the standard promised by the rating structure. Airbnb’s founder Brian Chesky recently told Fortune that he “wants Airbnb to guarantee to its growing number of users that their rentals meet hotel standards like clean beds and Wi-Fi so that customers avoid any surprises.” Unfortunately, whether the Wi-Fi works on any given stay cannot be ascertained by a one-time inspection.
For example, in the last five Airbnbs I stayed in there was no Wi-Fi available. I concede that was an unusually bad string of luck, but there’s a reason it’s relevant to our need for quality processes: every property had a different reason for the Wi-Fi being down. In one, the router had reset after a storm. In another, the host had failed to provide the password and was unreachable by phone. In a third, the owner had forgotten to pay the bill.
Could any of those incidents have been prevented with a one-time inspection that merely confirms the Wi-Fi is working? Of course not. The storm would still have taken out the router, the host would still be unreachable, and the owner would still have forgotten to pay the bill. Only an ongoing assessment would have caught all those problems and ensured that I would have had access to Wi-Fi upon my arrival.
To ensure that every guest arrives to the same experience, vacation rental managers need to implement an ongoing assessment through quality processes. Self-inspections, standardized owner onboarding questionnaires, and remote photo verification would likely be key attributes of an effective rating system for our industry.
A significant development in vacation rentals in the last year has been a pronounced flight to quality. Quality can be guaranteed by brands or by ratings that set expectations in conjunction with reviews that confirm whether expectations were met. Our industry has been slow to introduce and communicate ratings; arguably, the United States has been a laggard while efforts in Europe have been fragmented and confined to the larger providers.
Quality ratings for private accommodations can drive several principal industry developments, including (1) convergence with traditional lodging by increasing buying confidence and conversion as well as ADRs and (2) an acceleration of the entrance of traditional hotel brands that can serve as additional high-value distribution channels.
Hotels have led the way in ratings, and hotel standards can be a great starting point for quality metrics for our industry. But there are important differences. Quality management platforms, supplemented by remote inspection networks of cost-effective, on-demand inspectors and used by brands to manage standards seamlessly across fragmented property managers and their service providers, herald a bold vision for our industry.
If we can successfully inspire confidence as an industry, there’s no reason that private accommodations shouldn’t grow from 20 percent to 40 percent of the global lodging industry—and that’s a $100 billion prize well worth shooting for.