#388 Why Hotels Need Data Scientists: Interview with Chip Conley

In Hospitality, Internet Marketing Podcast, The Digital Marketing Blog by SeanLeave a Comment

In this week’s episode of the Internet Marketing Podcast, Andy is joined by Chip Conley, Strategic Advisor at Airbnb to discuss why hotels need data scientists.

Chip starts off by discussing psychology and how he found that as a CEO in charge of 3500 employees, it plays a pivotal role in business. He explains how businesses are all human and how this can often be easily overlooked. He then goes on to explain Maslow’s Hierarchy of Needs and how it can be translated into 3 simpler needs, survival, success and transformation. Taking this theory, he then explores how the Hierarchy of Needs would look for both employees and for customers:

  • Employees – money at the base, recognition in the middle and meaning at the top
  • Customers – expectations at the base, desires in the middle and unrecognised needs at the peak

Chip goes on to explain how you can create a customer that’s loyal to you by meeting their needs, specifically those that they didn’t know that they had.

Chip then discusses why hospitality companies like Airbnb need data scientists, explaining that they are needed in order to gain information on their customers to be able to help them choose their next trip. Data scientists actually act as your own personal concierge, helping you to find exactly what you need.

Finally Chip explains how after his 24 years as a CEO, he was asked to join Airbnb and how he was able to cope in a business where everyone was half his age!

If you’d like to connect with Chip, you can do so on Twitter here. You can also find his website here.

Full Transcript of the Show

Andy:                                  Today I’m joined by Chip Conley, Strategic Advisor at Airbnb.  Chip how are you doing?

Chip Conley:                      I’m great.  Good to be with you Andy, thank you.

Andy:                                  Well thanks for joining us.  Tell us a bit about yourself and what you’re doing at Airbnb.

Chip Conley:                      Sure, so I for thirty years now have been an hotelier, which is an interesting wrinkle in my career, given that I am helping lead Airbnb with the founders at this point, for the last four years.  I create boutique hotels which are smaller, more designer rated hotels.  I created a company called Joie de Vivre Hotels based in San Francisco, California.  That was thirty years ago.  I then created fifty two boutique hotels and sold the company about six-and-a-half to seven years ago to a guy named John Pritzker, whose father started Hyatt, and I still own hotels.  I sold the management company and the brand and I still own about a dozen hotels, but four years ago the founders of Airbnb asked me to join them to help them turn their little tech start up into a global hospitality giant.

Psychology in Business

Andy:                                   Fantastic.  Now you write about psychology.  Where does that [00:02:00.00] fit in with the hospitality business?

Chip Conley:                      Yes, you know I think the most neglected fact in business is that we’re all human.  I mean we sort of forget that fact as we look at org charts and we look at strategic plans and we look at budgets.  The thing that actually sort of holds it all together is – we’re human beings, whether we’re a guest or  an employee, an investor.  So I was not a psychology major in college, but there have been two major economic downturns in the last fifteen years.  One was the great recession a few years ago, and the one before that here in the San Francisco bay area was the dot com bust and then for the whole US, post-9/11 travel to the US really dropped significantly for a couple of years and they had a recession there as well.  So interestingly, when I was CEO of my company and I had 3500 employees, I found that actually reading a psychology book was more helpful for me as a leader than it was to read a business book and so the two psychologists that I followed that really helped me with my leadership were a guy named Abraham Maslow , who created the hierarchy and needs theory about sixty years ago, and Victor Frankl, who was a psychologist in Austria who ended up in a concentration camp with his family, they were Jewish – and he wrote a book called ‘Man’s Search for Meaning’.  So those two psychology thought leaders have actually influenced me and ended up leading me to writing.  I’ve written four books but my last two books were really psychology meets business books.  One was called ‘Peak – How great companies get their mojo from Maslow’ and the other one was called ‘Emotional Equations’.

Hierarchy of Needs for Customers and Employees

Andy:                                  Wow.  [00:04:02.19] Maslow’s hierarchy of needs.  What’s the hierarchy of needs for customers and employees?

Chip Conley:                      So just background on the hierarchy of needs, which is the theory that made Abraham Maslow famous.  His premise was that we as humans have some basic needs in life.  Let’s call those physiological needs, and once those are personally met, you go up and you have safety needs, to the second level.  The third level is social belonging needs.  The fourth level is esteem needs and then the fifth level is what he called self-actualisation or being all you can be.  If you were to take that hierarchy of needs pyramid and then translate it into something that’s a little simpler with just three levels, here’s basically three paradigms in life: there’s survival at the base, there’s success in the middle and then there’s what I would call transformation at the top.  So that paradigm of what I call the transformation pyramid, of survival at the base, success in the middle and transform at the top, if you applied that to employees, an employee hierarchy of needs pyramid would have money at the base or compensation package, recognition in the middle, and meaning at the top.  So in essence, the thing that actually creates a differentiator in a company is meaning.

But the thing that we tend to measure and what can lead to an employee leaving quite often is that they don’t feel like they’re well compensated or they’re not making enough money to be able to pay their bills.  That’s at the base of the pyramid.  So in essence, the base of the pyramid is where the commodity happens.  You’ve got to get that right.  But the companies that actually create the most employees do it by actually addressing recognition needs and then meaning needs.  And similarly, the pyramid for customer hierarchy of needs, for them would be the base of the pyramid is having their expectations met, the middle of the pyramid is when they have their desires met – when they feel like they’re successful as a result of having their [00:06:00.13] desires met they’re glad they chose that company, and at the peak of the pyramid, what creates transformation is when a customer has their unrecognised needs met.  And what that really means, the classic example of this, Apple never did focus groups.  Steve Jobs didn’t believe in focus groups.  He basically said – listen, customers don’t really know, or they actually know but they can’t articulate very well what it is they want at the peak of their pyramid.  He said that at best they can tell you what their desires are.  And so companies that do a great job at the top of the pyramid here, understanding unrecognised needs, have created some shorthand method of understanding, almost being able to mind-read their core customers in such a way that they’ll deliver something to the customer that the customer really appreciated but didn’t even know would be possible.

Andy:                                  That’s amazing.  Can you give me some examples of that, Chip?

Chip Conley:                      Sure.  I’ll give you an example of one of my hotels. I created a hotel in downtown San Francisco called the Hotel Vitale.  We were creating this hotel fifteen, sixteen years ago.  At the time our shorthand way of understanding customers was, every single one of the fifty two boutique hotels we created came down to a basic premise, which is there’s a magazine or maybe two magazines that would define the personality of the hotel we were creating.  So my first hotel thirty years ago was a hotel called The Phoenix, and it was based upon Rolling Stone magazine, but years later the Vitale was a luxury hotel on the waterfront.  We came up with two magazines, a magazine called [00:07:53.17], Dwell which is a modern design magazine, and a magazine called Real Simple, which is a [00:07:58.18] lifestyle magazine about simplicity.  And the five adjectives we defined that we determined defined those two magazines and really became our touchstone for creating the hotel were modern, urbane, fresh, natural and nurturing.  Everything we did in creating that hotel came back to those five words.  The thing that we did in that hotel that addressed, and we did a variety of things that addressed unrecognised needs – I’ll only give you one example.  We chose to take four hundred square feet up on the top penthouse level of the hotel and turn it into a yoga studio.  Now fifteen, sixteen years ago, my investors looked at me and said – are you an idiot?  That’s your best real estate in the building.  You’re up on the top floor.  You’ve got great views of the bay. You’ve got the outdoor terrace on this particular room.  It’d be a great suite.  Why make it into a yoga studio that’s offering free yoga classes for the two hundred guestrooms in the hotel?  And my premise was this: if you believe that modern, urbane, fresh, natural and nurturing defines the personality of the hotel we’re creating, it also is a shorthand way of understanding the psychology and personality of our core customers, because I do believe that a great boutique hotel can be defined as – you are where you sleep.  Like we say you are what you eat, well in the hotel business I think that when you choose a hotel, it is you know [00:09:33.23] of a hotel like a boutique hotel, it’s usually because the place – you want to get what I call an identity refreshment.  You want the place to feel like it’s rubbing off on you, so that when you check out four days later in the case of the Hotel Vitale, you feel a little bit more modern, urbane, fresh, natural and nurturing.  So while fifteen or sixteen years ago, creating a financial district hotel for business people that was going to have a yoga studio on the top floor [00:10:00.08] with free yoga classes sounded absurd to my investors because they could not find any hotel in the world that was in a financial district that was doing that, nor had any guest ever filled out a guest satisfaction survey for one of our other business class hotels and said – Why is it that you don’t have a yoga studio in the hotel?, nor did any focus groups ever uncover that this is something that people wanted.  When we opened I asked my investors – give me six months with this yoga studio.  If it doesn’t work out we’ll turn it into a suite.  So a month into it, there had been a front page article in the Wall Street Journal and in the Los Angeles Times about this line out the door on the top floor of this hotel in San Francisco called the Hotel Vitale, where there was a collection of people every morning who wanted to take the free yoga class before going off to their business meetings.  So I guess what I would say is think about Steve Jobs.  Go way back to the IPod. The people who should have created the IPod should have been Sony.  Sony had the Walkman and the theme of the Walkman was basically I could go out and you know, play a CD while I’m walking or running.  You know, it’s like having mobile music.  Well unfortunately they got very fixated on their approach to what mobile music meant and it had to be, and it turned out it was Steve Jobs and his team at Apple, and frankly there were other people who created Mp3 players before even Apple that said – listen, there’s another way to do this.  No focus group uncovered the fact that Mp3 players were something that the consumers of the world were you know, asking [00:12:01.00] tech companies to do.  So I think that what we see over time is that innovation happens when you understand your customer so well that you’re able to offer products and services to them that they would love but hadn’t imagined.  Last thought on this is Henry Ford had a great quote long ago and he said ‘If I asked my customers what they wanted, they would have said a faster horse’.  So the truth is that was before you know, creating the Model T Ford, the first car.  So at the end of the day you’ve got to know your customer well.

How to Build a Loyal Customer?

Andy:                                  It’s a fascinating area, this whole area where the hierarchy of needs and the psyche of people meet marketing and how you provide services.  I was just wondering, if we explore the area of how you create a loyal customer – I know we’ve already touched on this with sort of like appealing to the tip of that hierarchy triangle, but what other things can you do to build a loyal customer?

Chip Conley:                      Well I think if you think back to the customer pyramid that we talked about a moment ago, meeting expectations at the base of the pyramid for a customer creates satisfaction.  Meeting desires, which is the middle of the pyramid, creates commitment, which means loyalty. But creating or meeting unrecognised needs creates evangelists.  So I think the thing to know is that customers today are more promiscuous than they were twenty years ago, and I’m not talking about their sexual ways of being, I’m talking about the fact that customers today have more choices and the internet has created a world where customers don’t need to be quite as loyal.  Therefore if you are just staying [00:13:59.16] at the bottom of the pyramid and you’re just actually trying to meet satisfaction, to be honest with you, you are not likely to create a loyal customer.  So understanding desires is what creates loyalty.  But it creates loyalty until such time as something else comes along and knocks their socks off, and so I think that to know that innovation tends to happen at the peak of the pyramid by addressing an unrecognised need a customer has, and then over time that unrecognised need becomes an expectation.  So if it’s expectations, desires, unrecognised need, over time gravity takes hold.  The idea of having Wi-Fi in the air, or fifteen years ago having a TV screen directly in front of you in a plane.  These were things that when they were first, you know or a fax machine.  I mean I can actually send something to someone without actually having to send it via mail.  These are things that were rather innovative but of course we know with the fax machine.  The poor fax machine.  It isn’t like it used to be.  And things like Wi-Fi in the air become an expectation, so just know that the best companies tend to actually have a cycle where they actually are constantly creating and addressing the new unrecognised need, knowing that it creates loyalty over time but that someone else could come along and actually steal their customer if they actually addressed a more important unrecognised need.

Why Does the Hospitality Industry Need Data Scientists?

Andy:                                  Now Chip, I know that you’ve mentioned once or twice I think in blog posts about data scientists and hospitality.  Why does hospitality need data scientists?

Chip Conley:                      Well the hospitality industry is well suited [00:16:01.00] to become sort of a lifestyle curator, and what I mean by that is, if you think of companies like Spotify and Amazon and Netflix, they’ve gotten really good at understanding you as a customer.  The more you use them, the more they understand your tastes and preferences and the more they can deliver on them.  Well that can be true of a hospitality company as well, especially one like Airbnb where if you’re going to Paris and you’ve chosen one home or apartment over another and you’ve reviewed it, we have a lot of information on you which means that we can actually help understand your needs and your preferences and therefore the next time you’re actually going to Copenhagen, we might have enough information to be able to help you with your process of choosing where you’re going to stay or what you’re going to do, because we now actually offer trips and experiences – things to do while you’re in town.  So data scientists are in the business of helping to understand, how do you create data architecture in such a way that the more you use us as a customer, the better we can actually serve you, and so to me, at the end of the day, what we all would love to have is a concierge just following us around and helping us live our lives in such a way that we only are served up choices that sort of fit our tastes and interests and I think that’s over time what the hospitality industry will do.

Andy:                                  Now I have to ask this – I’m going to go slightly off-piste here and go slightly less technical and more biographical, but I mean, you were a CEO for twenty four years weren’t you and then these three youngsters asked you to join Airbnb.  I was just curious, how did you cope in a business where they are half your age?

Chip Conley:                      Well you know it’s interesting.  [00:17:59.15] I’ve been there four years now and this is a question that really sort of defines my next book I’m working on, called Modern Elder.  I think if I’d gone into Airbnb with the premise that I was the smart old guy – I was fifty two when I joined, the founders were twenty one and twenty three years younger than me, and I was actually twice the average age of the employees at Airbnb when I joined.  I think if I’d gone in thinking I’m just the smart one and the wise one and the person who’s going to go ahead and tell you about how the bricks and mortar hospitality or hotel industry works, they would not have listened to me.  And I think I learned pretty quickly that I was both a mentor and an intern, because truth be told, I joined a tech company at age fifty two and had never been in a tech company before, so the language they were using and a lot of the thinking they had was very new to me and so if I thought of myself as the expert and then I was sitting in meetings and not understanding what they were talking about, it would be really difficult because I would have probably tried to double down on my expertise, which in some cases was exactly what the meeting did not need.  What it needed was for me to listen, be a cultural anthropologist and say – my god, there’s something for me to learn here.  So the reason it’s worked so well is because I’ve been able to offer to the company and to the three founders, including the CEO, Co-founder Brian Chesky who’s twenty one years my junior, I have been able to offer them a lot of wisdom around leadership, strategy, emotional intelligence.  What they have been able to offer me is digital intelligence, a finger on the pulse of culture and where millennials are, probably where society is going and also what it means to be in a meritocracy.  [00:19:59.25] You know a tech company in many ways is a meritocracy and so it’s not your old school corporate, you know, org chart and corporate ladder.  And so I think I’ve learned a lot in the process and I think it’s been a symbiotic relationship, within almost an inter-generational transfer of wisdom in both directions.

Andy:                                  Sounds wonderful.  So yes I suppose it’s all to do with remaining humble and being willing to learn isn’t it?  From the youngsters, as it were.

Chip Conley:                      For sure, yes.  It’s absolutely being willing to learn, knowing that you have something to offer, but they actually have something to offer in return.  I hear from so many people my age, you know people sort of bashing millennials and it’s like – why are you bashing millennials?  There’s something to be learned from them.  And yes, so staying humble and then at the end of the day, just  being catalytically curious is something that actually is helpful for not just yourself, but for an organisation.

Andy:                                  Yes I suppose it’s all to do with never stopping learning as well, isn’t it?

Chip Conley:                      Yes, yes.

Andy:                                  Well Chip, thank you so much for joining us.  Before we go, tell our listeners how they can find out more about you and Airbnb.

Chip Conley:                      Sure.  Airbnb is pretty simple.  It’s Airbnb.com and that’s B-N-B, three letters. B, the letter N and then B.  And for me, I’m Chip Conley, chipconley.com.  Conley is spelled C-O-N-L-E-Y and that’s probably the two best ways to find out more about me and Airbnb.


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