Working with thousands of hotels – including the top chains – has helped me see the effect of distribution and marketing management on profit optimization and their ability to drive more direct business.
NB: This is an article from Fornova, one of our Expert Partners
When we first start working with a hotel chain, onboarding them to our FornovaHBI suite, we regularly have the same conversation as we take the revenue and distribution teams through the data. Our solution shows them where they are losing opportunities to boost revenue and profit by increasing their visibility and competitiveness, and no less important, reducing their direct and indirect distribution costs.
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Many are sceptical. They doubt the issues that we identify exist in their hotels and what would be the benefit of fixing them? But very quickly into the process they see clearly where the issues are happening and how by fixing them, we can deliver a higher return on investment, increased occupancy and optimized distribution across all channels.
First, RevPAR is important – But it only shows part of the picture
RevPAR is not the best measurement for revenue managers as it doesn’t drive cost optimization, especially today when we see that ADR is 10-20% lower than 2019 depending on the region, and is not going to fully recover, probably before 2024.
As hotels today are largely reliant on the leisure market, with few corporate travelers in the mix, ADR and RevPAR will be down compared to their pre-pandemic levels. Revenue and distribution teams must switch their focus from the top line to the bottom line, meaning GOPPAR and Net RevPAR are better KPIs, as they take operational and distribution costs into account. OTA costs are bound to increase with the focus on the leisure segment, so profit optimization is the key for recovery.
About a year ago, I saw a survey that surprised me. More than 1000 Revenue managers were asked how they are measuring their success today. 77.4% said they are measuring success mainly by looking at their RevPAR. However, 46% believe that this is not the right measurement as it doesn’t drive any cost optimization. So why are they still using it? According to the survey – two reasons: 1. Lack of data – or lack of business intelligence, 2. Data trust issues.
Optimize your distribution
With the number of bookings coming from OTAs going up, this puts pressure on your market share, online visibility and ranking. Distribution (whether it is direct – PPC/Marketing or indirect CPA/OTAs/Net) is the only variable cost that can be optimized without damaging your service levels which have the potential to impact guest satisfaction and your reputation.
The starting point for optimizing your distribution is to really know your business and for that you need proper business intelligence. Ideally you need to see advanced micro-segmentation that can help you understand your distribution landscape, including from direct bookings. Many hotels don’t include direct within their distribution cost calculations, but for most hotels their costs of direct are around 8%+ of distribution. Often we see hoteliers adopting a flat distribution approach, focused only on getting the booking, not the right booking from the right channel. By deploying my tips, hoteliers can bring their direct distribution costs to around 4%-5%
Synch your marketing and distribution strategies
To build an effective strategy that minimizes costs and profit loss wherever possible, you need your whole commercial team of sales, marketing, distribution and revenue engaged. In particular, marketing and distribution need to work hand-in-hand.
With your strategy agreed it must be enforced but that becomes challenging without the right technology to show you where bookings are coming from (POS pricing), and this means not just which channels but also which points of sale. Our data reveals that in 23% of cases OTAs show lower prices locally compared to internationally. These price differences cause tension between departments focused on maximising revenue per booking. And if marketing and distribution are not working together, this will introduce price parity issues.
You don’t want to make commercial decisions based on the wrong data. Talk to your rate shopper vendor, to see where your rates are coming from. You need data based on your customers and broken down across channels, showing the sort of micro-segmentation that FornovaHBI can achieve. You want to know where the guest is coming from, which channel is providing the most guests from which country, which room type, their age etc. Only when you have this level of micro-segmentation, can you fully understand your cost per channel, and use each channel in the most optimized way: including having the best inventory for that channel as well as on brand.com.
Tackle any rate integrity and consistency issues
Hotels are often surprised by the levels of issues we detect when they use our solutions. Regularly, we see issues where no room availability is showing on brand.com, but there is availability on OTA and metasearch sites. Inevitably this means the hotel will miss out on the direct booking they could have had, if their prices compared favourably. In our experience, 23% of direct bookings are lost due to errors on brand.com and metasearch channels. This underlines how essential it is that marketing and distribution are aligned, and monitor their activities together to quickly identify and solve issues – so they don’t lose valuable bookings!
Often these issues occur when Length of Stay (LOS) restrictions are deployed or when the distribution team runs promotions on OTAs without alerting marketing, or the use of static rates that leak to the OTAs, inadvertently introducing parity and rate integrity issues. These not only will reduce direct conversions significantly, but also increase acquisition cost (CPA) and PPC: a double whammy for hotels trying to maximize their revenue. According to Google the number one reason that hotels are losing on Google – is parity and rate consistency!
Sharpen your content
Where marketing can have a huge impact on cost reduction is in the assets and content they provide to promote your property. It may sound incredible to those unfamiliar with SEO and the mysteries of ranking and visibility, but the quality of your content genuinely impacts your CPA, in particular where you’re using Pay Per Click (PPC) campaigns on Google.
Better pictures , high-quality and dynamic (including lead-in rates for example) content improve ranking and lowers the cost of distribution on CPA and PPC promotions. We often see how much a property’s organic ranking is affected by how they manage price integrity, content and reviews. If any of these are poor, you will pay more on CPA and PPC.
Pull every lever at your disposal
Hotels rarely use all the tools and opportunities available to them to optimize their channel distribution at minimum cost. For example, OTAs offer free tools and other products to help boost your campaign visibility and, if used wisely and based on your business intelligence data, they can grow demand without increasing your costs. Look for free channels like local directories to reach more guests and don’t forget you can drive CPA on Google for free.
We’ve seen a growth in brand bids on Google and it’s fantastic to see that hotels increasingly understand the power of meta and Google to drive traffic. Unfortunately, in 32% of cases, the brand price is higher than the OTA bid, meaning not only will the hotel lose the direct booking, they’ll lose the cost of commission. This simple fix could really improve revenues and reduce costs.
Promotions are a fantastic tool, but too often we see hotels race to run flat promotions across every rate and channel, or they offer boosted commissions to incentivize OTAs without trying other options first. This damages profitability. Value added promotions and packages that enhance the guest experience and support higher rates are a better first option that can increase revenue. Target popular dates and leverage LOS restrictions to increase bookings on shoulder dates.
Use your revenue data to make better marketing decisions
Use your PMS data insights to exercise dynamic retargeting of customers. This offers 30% better traffic and conversion over static retargeting, whilst the conversion cost is the same. Don’t be afraid to upsell. Remember the user journey doesn’t stop at the point of booking. Use targeted marketing to increase your profit per customer.
Also remember that not all guests are the same. International guests from specific markets usually spend more in the hotel and stay for longer. Analyse your data to identify them and focus your campaigns on the guests that provide higher ROI
Too often, marketing is disconnected from the booking funnel but for optimum revenue results the entire commercial team of revenue, distribution, marketing and sales must work together. They all have data which can feed into strategic decision-making, drive higher profit margins and play a part in optimizing revenue.
We’re seeing that the pandemic has driven much faster adoption, and maturity of the hotel tech stack. If you’re looking to reduce your costs and optimize your distribution, make sure you have the right solution in place and that you can see how the right enterprise-level business intelligence solutions could offer a dramatic ROI.
You can watch my presentation here.
