Demand generation has always been important to hotels, why else have sales departments?

NB: This is an anaylsis by Max Rayner, a partner at Hudson Crossing.

But lately it has gone from a function of varying importance to become the absolute center of the world of hospitality and it’s turning the tables everywhere

What’s the burning issue changing the face of hospitality?

Despite rising occupancies and ADRs, rising demand generation costs are crushing profit growth. Hoteliers face uphill fights and new and better approaches are needed to respond.

With costs of acquisition growing twice as fast as RevPAR (as Cindy Estis Green of Kalibri Labs has documented in a Tnooz webinar), the picture looks good on the top line but not so good at the bottom line.

Additionally, smart owners have woken up to the disguised costs that appear as lower ADRs from wholesale/merchants.

Fundamentally there is no difference between paying a commission to an OTA and giving another OTA a net rate that amounts to the same effect.

At the same time, guest behavior changes plus competition from OTAs, TripAdvisor, Airbnb and Google’s evolution have altered the relative importance of core systems.

Hotels must grow in technical sophistication to survive and thrive.

In the past, hoteliers may have been cowed by brands and representation companies, or by “big-iron” systems like PMSs, CRSs and the black magic of RMSs but smart hoteliers are now asking the more interesting end-to-end question:

What’s the cost and revenue for that head in that particular bed? And which approaches can most cost effectively deliver that demand?

The worrisome picture is true overall for acquisition costs but increasingly so for PPC and mobile advertising costs.

The old hotelier mindset of thinking of OTAs as enemies and Google as a friend is being replaced by a healthy recognition that we’re all “frenemies”.

Unsurprisingly, as hotel PPC bid costs rise, the PPC ROIs that at first looked very enticing may need a serious second look.

Essentially, demand generation via Google PPC is not too different from retail commissions or net rate discounts, and managing these high and fast increasing costs effectively often makes the entire difference between rising or declining profits.

Click to read the full article at:  Tnooz