The 2017 Hospitality Industry outlook demands increase in direct bookings.
The hotel digital technology and marketing budget: the roadmap that guides your property’s digital strategy throughout the year, puts your hotel website in front of potential guests, and today, is paramount to the existence of your hotel.
With so many moving pieces in a hotel’s digital budget, from the property website, to reservation-driving technology, to smart data marketing, it’s important to create a strong plan of action that is realistic and aligned with your business goals.
Until recently the hospitality industry enjoyed very healthy demand increases, primarily due to lower supply.
According to STR Global, next year supply growth is predicted to equal and in many metropolitan areas to significantly surpass demand growth, which means hoteliers will have fewer opportunities to “mechanically” raise ADRs.
Add to that increasing competition from alternative accommodation providers such as Airbnb, HomeAway, etc. who satisfy an increasing portion of the demand, and the outlook becomes quite bleak, indeed. The hotelier’s only chance to improve the bottom line is to lower distribution costs.
In other words, they need to steer a bigger share of bookings toward the direct channel.
Why a book direct strategy is key to improving the bottom line and lowering distributions costs
According to Morgan Stanley Research, the global hotel industry saw revenues of $570 billion last year and of that amount, brands took home about $11 billion for branding fees. OTAs, on the other hand, collected $16 billion in commissions.
Hoteliers are not optimizing their distribution channel mix, and are continuously over dependent on the OTAs. This year, OTA revenues are projected to surpass hotel brand.com revenue even for the top hotel brands, unlike the other main travel sectors like the airlines, car rental and cruise lines, where OTAs are losing market share to direct bookings (PhoCusWright).
How are we letting this happen in our industry?
There is a fatal flaw in how our industry accounts for distribution costs. A flaw that is continually and drastically cutting into the hotelier’s profits.
The average direct booking acquisition cost for a HeBS Digital client is 4.5%. Compared to OTA commissions of 18-25%, the difference in terms of how an OTA booking cuts into bottom line profits is substantial.
However, hoteliers often turn a blind eye to this difference in distribution costs because the cost of a direct booking is not treated in the same manner as an OTA booking.
OTA distribution costs are accounted for in the property’s financial statement as COGS (Cost of Goods Sold) and not in the same way as a property direct booking which comes out of the sales and marketing budget
What percentage of your hotel reservations are coming through your direct channel, the hotel website? How can increasing your direct bookings add to your hotel’s bottom line?
We recommend that hoteliers calculate their potential revenue increases from shifting OTA bookings to brand.com before creating the 2017 Digital Marketing Budget.
Those questions are posed by HeBS Digital and answered in their Whitepaper: The Smart Hotelier’s Guide to 2017 Digital Marketing Budget Planning