The hospitality industry saw unprecedented travel demand in 2022. Pent-up desire to get out of the house and escape the same 10-person circle incited the masses to jump on planes to anywhere outside their 50-mile radius. As a result, the average booking conversion rate (CVR) on SEM jumped from 0.90% in 2021 to 1.40% in 2022, an increase of 56% YoY.
NB: This is an article from Cendyn, one of our Expert Partners
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That’s almost 3x the average during the height of the pandemic in 2020.
Where did this increase in demand come from? The simple answer is the middle funnel.
The marketing funnel refers to the journey a customer takes from ideation to execution of a purchase.
Users shortened their purchasing journey substantially in 2022, circumventing the consideration period and jumping straight from planning to booking a stay. This is evident in the spike in CVR specifically on mid-funnel (non-brand or destination) SEM campaigns.
Since that initial surge, CVRs have normalized in 2023 as travelers resumed their pre-pandemic purchase behavior. While mid-funnel CVR has fallen to pre-2022 levels, the drop in demand is apparent across all phases of the funnel. This current drop is also exacerbated by economic uncertainty, as consumers are even more discerning with how they spend.
The good news is that hybrid work models and consumers’ reevaluation of priorities have kept travel demand up, even if consumers are more price conscious. This is evident by Google searches for “Travel Discounts” increasing 500% YoY.
What we can expect for the remainder of 2023 into 2024
While travel demand remains strong, advertisers are going to have to work harder for every booking. Besides being more financially conscious, consumers are also equipped with more tools than ever to research and weigh their options, such as AI search.
While we expect the travel industry to continue thriving in 2024, it is unlikely that we will ever see the same level of mid-funnel conversions as we did in 2022. Longer paths to conversion mean more clicks to a single booking. Put simply, it costs more money to capture the same number of bookings, reducing CVR. This also means that marketing strategies and budgets need to adjust accordingly.
Keys to Success
This shift presents an opportunity for hospitality marketers to lean into this new environment to optimize returns, with a focus on key considerations including:
- Defining strategy & success in each level of the funnel separately, as well as overall
- Focusing on lower-funnel investment & brand impression share on search
- Prioritizing promotional planning
- Structuring campaigns to maximize AI potential
Defining Strategy & Success
A strong marketing strategy will align audience targets throughout the funnel to ensure each campaign is “feeding the funnel” with the types of users that will eventually convert in the lower funnel. Since users are not expected to convert until then, it’s important to define specific metrics that will determine success. To do that, identify which website actions denote a level of buying intent. For rooms campaigns, this is entering the booking engine, or Checking Availability.
Emphasis on Lower Funnel Investment & Promotional Planning
It’s vital to capture traffic in the lower funnel to reap the benefits of full-funnel marketing. In SEM, this consists of users searching for brand keywords. In travel, online travel agencies (OTAs) bid heavily on hotel brand names, making lower-funnel investment very important. If you are not appearing in the top position on the search results page of searches for your brand name, an OTA is – and that is likely a booking that you will have to pay a referral fee for. The best practice is to keep brand impression share (brand IS) in the 80th percentile.
Due to economic considerations, consumers are being much more selective with their vacation choices this year. To sweeten the pot, promotional offers are proven to increase CVR. To make sales more effective:
- Create urgency by adding a deadline of no more than four weeks out. The higher the percentage off, the shorter the deadline should be.
- Make sure your promotion has ample visibility by utilizing all available channels and assets. In SEM, that means creating RSAs (Responsive Search Ads) for campaigns that run long enough, promotion extensions, and adding assets to Performance Max and Demand Gen campaigns.
Utilize AI Automations to Maximize Returns
To combat lower CVRs and ABVs (Average Booking Value), marketing campaigns must be as efficient as possible. To do so, advertisers must lean into automated tools, such as AI-driven bidding strategies in Search Ads 360 and responsive ad design. These tools create more efficiencies in campaigns and reduce wasted spend by utilizing user-side variables and learned audience signals to pinpoint target audiences. Put simply, they lower CPCs without losing out on high-intent traffic. To work most effectively, marketers need to be mindful of how campaigns are structured.
The travel industry is seeing a longer average path to conversion as users are returning to pre-pandemic booking journey. The surge in booking conversion rates during 2022, particularly in the mid-funnel, turned to a downward trend in 2023 as economic uncertainties loomed and consumer priorities evolved. Advertisers must now navigate a landscape where capturing bookings requires greater effort by optimizing strategies to align with this evolving consumer journey.
