This is an age old question; though timely once again as the digital age has provided additional means to enhance the hotels share of wallet from each guest; combined with total guest revenue management growth can be significant. [Read more…]
With 2012 Budgets in full swing Hotel Revenue Management and Distribution professionals are refocusing on driving business direct to their website. However, they are starting at a disadvantage due to the way channel costs are recognized.
Goal: Drive more business direct through the property website.
It would make sense then that the web direct channel would consistently grow year over year. In the e-Trak Report that TravelCLICK produces on major brands it shows that the trend toward consumers’ use of the internet for booking continues. Good news for hoteliers with the goal of driving business direct to the web.
The balance of direct versus 3rd party channel continues to be a challenge for our business; this is partially due to the way each channel is accounted for. While reviewing production numbers of several properties along with the costs of each channel it hit me. The comparison to of the costs of driving direct Web revenue and Online Travel Agent revenue as an example is not apples to apples and disadvantages hoteliers who are working to drive business direct..
Have a look….
When accounting is done for Web Direct, GDS and Voice channels there are hard costs associated to each; when calculating the OTA channel there is no cost that hits the books. That’s right there are no expenses booked for OTA.
It’s brilliant actually the OTA removes the expense from the hotel’s books taking away the internal debate of where to spend funds. They simply put it on a cost per transaction model, delivering revenue at a perceived $0 cost.
If the model was to change and the OTA margin was considered an expense the decision of where to spend resources would be clear.
From a return on investment stand point the Web Direct channel delivers 27 to 1 while the OTA at 25% delivers 3 to 1.
This is not a debate around the value of the OTA; it is about tactics to support the goal of driving Web Direct business and profitability.
Tactic #1: Create a Web Direct Marketing Fund:
- Take a percentage of the total OTA margin paid and add it to the fund.
- Book it as an expense against OTA and a credit to Web Direct Marketing.
- In the above example there OTA1 had an expense of $5,000; take 25% or $1,250 of the expense and add it to the fund.
Radical?…not if the goal is truly to drive business direct to the hotel’s own site.
The cycle is on the move again; it is a perfect time to get serious about breaking the same old trends.
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With September now in full swing so is budget season; the annual opportunity to take a deep dive into your business to understand what worked across the year, determine what is new in the market and build a plan to grow your hotel’s profit.
The online marketing plan is a very interesting part of the budget process. Every year this area evolves with new channels and tactics some of which can deliver high margin revenue and of course some that the won’t.
When preparing your marketing plan, on or offline be sure you cover off each item in your plan aligns with one of the following areas:
A. Building Loyalty/Repeat Business
B. New Customer Acquisition
C. Brand Exposure
When looking at how to drive your business through online marketing here are the must do’s for 2012…
Website Updates: hopefully your site is built on a strong Content Management System (CMS) so content updates won’t cost; build in some funds to make adjustments to your site to account for changes to the market and your business. (A, B, C)
Search Engine Optimization (SEO): search is in constant flux build in funding to refresh your organic search. (B, C)
Strategic Linking: building quality external back links to your site will contribute to your organic results on Google. (B, C)
Pay per Click (PPC): with the competition for high conversion organic keywords be sure to have funding available to purchase keywords to acquire page placement. (B, C)
Re-targeting: if you aren’t familiar with this tactic we’ll tell you more in coming posts; it is a powerful method of converting visitors to your site to buyers. (B)
Mobile: if you don’t have a mobile site optimized for booking budget for one as well as paid marketing campaign to drive traffic. (A, B, C)
Digital Marketing Partners: sites like TripAdvisor can drive highly qualified referral traffic; look for ways both paid and unpaid to gain further presence. (B, C)
Syndicated Press Releases: yes budget for press releases and the distribution of them through a syndication service. (B, C)
Email Marketing: don’t just budget for email campaign; include the creative, database filtering and distribution. (A)
Analytics: good news is this can be free with Google Analytics; prepare to spend on learning or assistance if you are not familiar with Analytics it can deliver huge gains to your business. (A, B, C)
Social Media: for those hotels that use social media well to engage customers they reap the rewards from their raving fans. (A, B, C)
Online Travel Agency: seems contradictory to the focus on direct business right; OTA continue to be a great way of building your hotel’s awareness in the market. Start thinking about the margin being paid as a marketing expense (more to come on that). (B, C)
Digital Content: having a library of digital content is key to the execution of your online marketing strategy; from photography to video these assets will pay off. (A, B, C)
Each of these elements have shown to deliver results as part of an overall online marketing strategy; that said expect change. When setting your budget be prepared to be flexible and adjust funding based on either:
- Results: continuously measure your results from your tactics and shift funding based on what works best for the property.
- Emerging Tactics: there will be new ways to reach customers and convert business be prepared to take advantage.
The budget process is the only the beginning; developing strategies for your business is worthless if they are not executed well.
Subscribe to Rethink Hotels updates and we’ll send you a Sample 2012 Online Marketing Budget Template.
As we approach the 10th anniversary of 9/11 it is a good time to stop and consider all the changes that have occurred over the last decade. In the hotel business we went through a complete economic cycle from the deepest of lows after the impact of 9/11 back up to new highs before falling back again. Looking back there have been significant improvements in hotel revenue generation particularly in the areas of hotel marketing and revenue management. The entire online capabilities that hoteliers have at their disposal to reach a global audience developed in the last decade.
Which is why I shake my head when I look at the what the Flash Sales sites are doing to our business. In 2001 it was the OTA that were allowed into the market as they quickly took a dominant position with our inventory; the net result at that time was lower profitability. We worked hard to regain control and continue to today; so why are we letting the Flash Sales Sites gain momentum?
Flash sales otherwise know as Daily Deals or Group Buying sites already have a strong position in the market; a March 2011 Harris poll finding that 22% of consumers use these sites looking for deals. In fact Groupon has grown from $30.47M in revenue in 2009 to $644.7M in Q1 2011 as it prepares for IPO.
My issue with Flash Sales comes down to two things:
- Profitability: the expectation of these marketers is that your product be heavily discounted to as much as 50% off market value; then they take a revenue share on average of 30%. Think about that on a room that is selling in market at $200 per night you are now selling for $100 of which you receive $70. Cut through the sales pitch of we only sell packages and look at the profitability.
- Dilution of Demand: 22% of consumers are using flash sales sites and growing; what this says is that consumers more so than ever before are now trained to look for discount deals. When a deal hits for a 4 Star Hotel in Vancouver for a 2 Star price of course it is going to sell like gang busters. The challenge is that the natural demand in the market is being altered; consumers are buying in advance knowing they will be traveling removing them from the demand that is open to compete for.
I concede that these sites offer a tremendous opportunity to expose your product to a mass market that will buy; so then the question comes down to is it good for your business to run a campaign with one of these sites. Put together the offer you would sell along with the costs of each of the items and to understand if the campaign makes sense.
Subscribe to Rethink Hotels here and we’ll email you a copy of a simple calculator to determine the profitability of a Flash Sales offer.
Better yet focus on other revenue strategies to drive high margin revenue that will ensure profitability. We’ll discuss these in more detail in future posts.
Follow this link to here about Daily Deals from a different perspective http://www.cbc.ca/thecurrent/episode/2011/06/06/coupon-deal-websites/