The hospitality industry is enjoying its longest expansion and healthiest growth in decades, yet there are some troubling trends beginning to surface that threaten profitability and overall performance.
One of these trends is that net room revenue—i.e., revenue that remains with the hotel after accounting for distribution costs (OTA commissions, traditional agency commissions, and other distribution expenses)—has been declining steadily over the past several years. For example, U.S. hotels earned roughly $155.2 billion in guest-paid revenue in 2017 but paid an estimated $25.2 billion to acquire guests in the form of OTA commissions and other distribution costs, retaining significantly lower net room revenue of $130 billion (Kalibri Labs). Revenue capture—i.e., net room revenue that remained with the hotels—declined from 84.9% in 2015 to an estimated 83.5% in 2018 (Kalibri Labs).
The overall growth in occupancy and RevPAR that many hoteliers have been enjoying for the past few years cannot possibly compensate for “the loss of wealth” in the form of steadily increasing distribution costs via the OTA. Hoteliers need to increase direct bookings, which come at a much lower cost, and improve overall direct vs OTA distribution ratio.
Integrated Strategy: The Missing Piece of the Puzzle
One of the main reasons for the troubling trend of decreased revenue capture and profitability, in spite of stellar economic performance, is the lack of integration, coordination, and singular focus and purpose among the core revenue generation teams at the property or hotel management company: The Revenue Management (S&M), Marketing Team (MT) and Customer Relationship Management (CRM) teams. Quite often, these teams function in a rather disjointed fashion, leading to missed revenue opportunities, over dependency on the OTAs, alienated loyalty members, and worsened profitability.
Many times, the property RM, S&M and CRM teams operate in isolation from one another, without close coordination. In some worst cases, they are even in competition with one another to sell the same rooms. In other words, the left hand— one team—does not know what the right hand—the rest of the teams—is doing, to the detriment of marketing efficiency and price integrity and ultimately overall revenue generation, profit, and owner’s ROI.
Case Study 1:
A luxury hotel in New York City launched a spring-related multi-channel campaign, including a value-add and a 15% off advance booking discount. The ad formats included a Limited-Time Offer interactive application, website promo, content marketing, SEO, SEM, online media and retargeting, social media, email marketing and PR. The budget for the campaign was well over $100,000, and the projected returns, based on results from the previous year, were for a minimum 12:1 return.
A week into the Spring Campaign, the digital marketing agency of the hotel noticed a 30% off discounted offer for the hotel on the OTAs, valid for the same stay period and without the advance booking restriction. After the agency alerted the hotel, it was determined that the Spring Campaign promotion had not been communicated well internally to all revenue generation teams, which had led to the RM team launching a parallel OTA discount campaign.
The result? Wasted precious advertising dollars and missed much-needed incremental revenues.
Case Study 2:
As part of the CRM marketing automation and loyalty marketing, the CRM team targeted members of the guest recognition program with a “10% come back” marketing campaign to fill in the upcoming slow season at the property. After the CRM team received complaints from a number of members of the recognition program that they were seeing a 25% discount for the property on the OTAs for the same period of stay, it was determined, after some internal back and forth, that both the CRM and RM teams had been working in silos and without alignment of their efforts, which had led each team to pursue different promotions for the same stay period to fill property’s occupancy needs.
The result? Seriously aggravated members of the guest recognition program, guest retention under serious jeopardy, and unrealized revenues from repeat, loyal guests.
Sound familiar?
Ed Watkins, a hospitality industry veteran, described the current situation in a recent LinkedIn post: “I think there are still too many GMs, owners and DOMs who don’t appreciate the need for close coordination between revenue management and marketing functions. The tide is turning but not fast enough. More education is required.”
The Highly Fragmented Hospitality Reality
Traditionally, RM, S&M, and CRM operate as separate teams with their own goals, technology tools, databases, vendors, and more.
One glaring example of this highly fragmented approach is keeping past guest engagement efforts (CRM) in a silo from new customer acquisition and marketing efforts. For example, looking at independent hotels, less than a third of hotel guests on any given night are repeat guests, while two-thirds are first-time guests. This means that the reality General Managers and DOSMs face every day is having to fill about 70% of their rooms on any given night with brand new guests that they know very little about while trying to ensure they have a pleasant and meaningful stay. Furthermore, once the property has acquired this new guest, when the guest walks out the door, if they’re not engaged with marketing automation and guest retention initiatives, there is no guarantee this guest will ever stay at the property again. This results in a vicious cycle that affects the bottom line.
Here are some stark examples of today’s fragmented approach:
