EHL ·26 March 2018
When Arnaud Bertrand and Junjun Chen finished their studies at Ecole hoteliere de Lausanne in 2008 they went on to set up HouseTrip, an alternative accommodation start-up which would compete head-to-head with Airbnb and other online travel agencies.Initially the couple had just a laptop, an internet connection and an idea. They went literally from zero to annual revenues of 100 million dollars within just five years or so. Junjun takes up the story. "We were still in school, doing our second internships. We were in London and wanted to go to Scotland but we were students so didn't want to spend too much money. So we wanted to rent an apartment in a nice, traditional Scottish house. We did find one through craigslist but the logistics part was very painful because we needed to contact the owner by phone and arrange payment by bank transfer. So it was just really painful."They had - by chance - stumbled upon a gap in the market and wondered why it was that although online travel agencies like Expedia and Booking.com focused on hotel bookings, no one was providing similar services for holiday homes. "We said, 'look, no one has done it. Let's do it ourselves.'"That was easier said than done. The first major challenge they faced was how to raise funding, based on little more than an idea. "(We had) no track record and no work experience because we had just studied at EHL," says Arnaud. As it turned out, some of their EHL classmates were 'crazy enough' to invest in the new venture and helped to get the project off the ground.That initial funding helped but Arnaud and Junjun would need to go on to raise substantial funds from venture capital, some seventy million dollars over several years. Part of the problem they faced was in marketing the start-up. They would raise millions but would end up spending massive amounts too, pumping money into keyword marketing."Most of [the money] went on marketing and hiring," says Arnaud. "We had a fairly large team, north of 200 people by the time we sold the company (to TripAdvisor for an undisclosed figure in 2015)."And their biggest mistake? "I would say probably using Google or paid marketing as our main acquisition channel," says Junjun. "Basically it works and we became addicted to it. And then at one point we couldn't get rid of it.""The best marketing is free marketing," adds Arnaud, whether that's word of mouth or getting media coverage. That means engaging with journalists and trying to concentrate on public relations rather than spend huge amounts of money on digital marketing, which proved to be a losing prospect.But to get the right word of mouth, you need to make sure you have a great product. "No one is going to speak about a so-so experience."Eventually, after several years of scaling up the company, Arnaud and Junjun chose to exit their venture rather than aim for an initial public offering or IPO. (HouseTrip is now one of 20 travel media brands belonging to TripAdvisor). "I don't have any regrets", says Arnaud. "We sold at the right time.""You don't have so much strategy as you have dreams. Of course you dream of the best possible exit from your company but you have to be realistic and opportunistic as well."Now they've set up a new virtual reality dating company, LovInVR, and plan to learn from their mistakes by focusing on building the brand rather than spending millions on performance marketing.Arnaud says that, after selling the company, he wrote a 600-page book, more for himself than for possible publication, on the lessons learnt, "especially all the mistakes we made which were many.""We created an internet start-up that, 10 years down the line, is still alive, that's already success ... It's actually why being an entrepreneur is so fascinating because you get to learn so much from what you're doing."HotelTonight: An integrated approachAnother tech firm which is focusing on brand building to get its message across is HotelTonight, which has just celebrated its seventh anniversary.HotelTonight VP, Amir Segall, came to Ecole hoteliere de Lausanne recently to speak to students about the company which aims to offer clients the best deals for last-minute hotel bookings via its mobile app.Segall told Hospitality Insights that brand building is critical for the company. Brand awareness, he says, is its biggest opportunity - and challenge."We feel we have a really good product and have mastered the customer experience. So it's really about growing that brand awareness, letting more people know about this great product, this great service you can use, and the way we're dealing with that is that we have an array of marketing initiatives, starting from online marketing, focusing on mobile and trying to stand out and differentiate the way that we speak about our brand."In addition to PR activities, HotelTonight has formed strategic partnerships with the likes of Chelsea Football Club in London and Madison Square Garden (home to the Knicks and Rangers) in New York. For fans of these sports teams there's an obvious connection as they'll be looking for hotel accommodation when going to away matches, but there's also a brand relationship. "(This) is a very good way for us to associate ourselves with brands that have more awareness than we do and really create strong trust with customers."The partnerships are part and parcel of HotelTonight's branding and marketing mix, which also includes online and customer relationship management (CRM) activities. "We feel that you have to have a really integrated marketing approach so we want customers to see us in different places and this way we believe we're creating trust." The company has recently released HT Perks, which the company regards as a 'modern, innovative take on the traditional loyalty programs provided by legacy desktop OTAs (online travel agencies).'An IPO might be an option in the future but for now HotelTonight is focusing on its core business. "It's about becoming kind of the most prime way to book a hotel last minute and we like to think of ourselves as a mobile OTA. So we want people to be thinking about us, to be repeatedly using us as the mobile option. And so that's also what we focus on.""So right now we're very much focused on mobile, continuing to build the business, growing the business, expanding in the markets where we operate. And that's the thing that we're focused on right now."Learning from experienceHouseTrip co-founders Arnaud Bertrand and his wife Junjun Chen are also focusing on their new business, LovINVR, determined that they won't make the same mistakes this time around. "I'd say we're less naive about it," says Arnaud, adding that they believe virtual reality will be the next big thing in the digital sphere. "Dating in virtual reality completely makes sense for us. So we think the potential is absolutely enormous.""I think we're a tiny bit wiser after the HouseTrip experience, so we're trying not to repeat the mistakes that we made at HouseTrip. But I'm sure we'll make plenty of new ones." That means a more cautious, organic approach to growing the company and building brand awareness, rather any sort of dependence on pumping millions of marketing dollars into online advertising.In a presentation at EHL last year, Arnaud advised would-be entrepreneurs not to push for growth in revenue, but rather to focus on creating 'a great product that people love', even if it takes several years."My mistake at HouseTrip was to choose not to develop a brand but to go for so-called performance marketing, so to spend a lot of money on Google, buying keywords on Google and so on and I continued to do so because it worked. We were, at one stage, spending north of 40 or even 60 million dollars a year with Google."While the company was earning 70 to 80 million dollars, that still made sense. But once competitors with deep pockets began bidding for keywords, and potential customers began going directly to Airbnb and other companies than use Google search, the cost of keyword advertising became a major issue as traffic fell."It's a bit technical but that situation led us a stage where we were paying 60 million to Google still, but instead of getting 90 million, we were getting 50 million back. So we were losing money and that's a bad situation to be in.""So my recommendation would be, instead of (using) performance marketing where you don't grow your brand, try instead to go the harder way, grow your brand. It's harder, it's a lot more work, you need to spend all day calling journalists, involving your community, to develop positive word of mouth and so on ... but it's a great investment because those people will come for free and they will spread the word if your service is good.""So I would recommend you spend zero money on marketing and that's what I'm going to do with LovInVR."Dr Maggie Chen Meng-Mei, associate professor of marketing at EHL, writes:A strong brand focuses on providing a better solution than competitors can offer. Through the delivery of its unique value proposition, a brand grows its fan base and benefits from the word of mouth of passionate advocates. These statements remain true, even with all the emerging digital marketing tactics.The challenges of branding are never about using the newest digital tactics, but cleverly leveraging owned, paid, and earned channels to reach, convert, and retain customers. In the digital world, the traditional media and promotional mix (promotion, advertising, public relations, personal selling) still work.Instead of bidding for keywords, focus on finding customers who may need your solutions, as shown in the partnership between HotelTonight and Chelsea Football Club. Be present - or better still, top of mind - when customers discover they have a problem. An effective solution may convert a first-time user into a repeat customer or even an advocate.As for the new approach taken by LovInVR, which is relentlessly executing its value proposition, it will organically build its own fan base, and eventually become a powerful brand.