Three Reasons This New Report is Scaring the ?#@*! Out of Hotel Owners

September 9, 2014 • By
Tambourine: hotel marketing technologyHoteliers have always felt the pinch of paying third-party fees to attract and retain guests. Now – with the just released results of a multi-year hotel revenue study - that pinch has turned into a full-blown punch. The study, conducted by Hospitality Asset Managers Association and its resulting whitepaper, The Rising Costs of Customer Acquisition, sums it up: Costs associated with acquiring new hotel customers through distribution channels and marketing rose 2-3 times faster than hotel revenue growth. Here’s what the terrifying details uncovered:

PROBLEMS

 More Players, Less Profits

In addition to OTAs, meeting planners and brand flags that collect from hotels, there are now hundreds of new players that are specializing in the hotel digital space. This massive dependence on third-party tools (and their associated costs) has resulted in hotels’ having direct control of less than 46% of their marketing spend.

 Costs Continue to Skyrocket

During the four years of the study (2009-2012), the costs associated with brand/flag rights, which include major promotions, advertising, marketing, loyalty programs, and national and global sales offices, grew by 37%. Meanwhile, other third-party commissions went up by 34% in that same period. Franchised hotels had it even worse. They endured a 48% increase in commissions and 36% in brand allocations. In contrast, they saw only a 22% increase in room revenue. Independent hoteliers undoubtedly fared even worse… as they lack the volume negotiating power of the brands/franchisors!

 Hotel Management Isn’t Incentivized to Alleviate The Problem

Instead of working to slow the trajectory of those rising costs, hotel managers have been charging ahead and simply doing what it takes to fill rooms, even if those methods include using channels demanding the highest commissions. While management teams have excelled at managing labor and operation costs, they haven’t yet taken a ruthless and systematic approach to cutting and managing customer-acquisition costs. One reason for this is that most hoteliers only look at their sales and marketing line item, which may not have escalated dramatically. In reality, the exploding cost of guest acquisition is spread through multiple lines on profit-and-loss sheets.

WHERE DO HOTELIERS GO FROM HERE?

Quantify The Value of Each Channel

Examine each channels’ real ROI, dump the ones that aren’t producing and focus your time on those that are. Optimize your channel mix, regain control of your inventory and be judicious who you pay fees to so you won’t be vulnerable to every new hotel booking tool that comes along.

Explore, Test, and Measure Less Expensive Direct Booking Methods

Dedicate more efforts to direct marketing channels that require slimmer amounts of spending, such as your hotel’s direct website, SEO strategies, social media, email marketing and a direct sales forces that will build undiluted, personal relationships between your hotel brand and potential group or corporate guests.

Incentivize Management to Look at ROI, not just Volume

Hold your managers accountable to properly scrutinize all channel partners based on overall margin and ROI, instead of simplistic top-line revenue or total room nights. From now on, by keeping an eagle eye zoomed in on your margins, the tides will turn and your dependency on third-parties as a costly, primary source of revenue will wane.

Customer Acquisition, Direct Booking, Hotel Revenue, OTA