In a period of economic uncertainty, hotel operators cannot seek to control economic conditions, but they can strategically implement marketing to increase sales and hotel profitability regardless of market uncertainty. This article summarizes the trends in three online distribution channels used in the hospitality industry: websites, Global Distribution Systems (GDS), and online travel agents (OTAs). Investing marketing dollars in these online distribution channels is becoming essential if hoteliers want to retain customers, improve hotel positioning, and gain a competitive advantage in markets that are sometimes saturated with hotel supply.
The Internet has made marketing more measurable and accountable with different metrics and analytics that show the contribution of marketing to the bottom line. The most critical measures of marketing are the customer acquisition cost (CAC) and the customer lifetime value (CLV), which at times can be difficult to understand and quantify.
Understanding CAC and CLV
The CAC is the price a hotel pays to acquire a new customer, which can have a significant impact on RevPAR performance and asset value growth. The CLV is a prediction of the value a business will derive from its entire relationship with a customer.
CAC = Marketing Campaign Costs/Total Customers Acquired
CLV = Gross profit from all historic purchases for an individual customer
Focussing on the channels that produce the best customers in terms of loyalty and profit will generate the highest CLV. Distribution channels should then be optimized based on CAC and CLV—not on the gross revenue of the initial guestroom booking, which is a common mistake among hotel operators.
If managed skillfully, the hotel’s website could yield the lowest CAC and the highest CLV as it permits the hotel to have a direct interaction with the customer which could lead to a long-term relationship. Nonetheless, intermediaries such as OTAs and GDS can make a valuable contribution even at a higher CAC and a lower CLV, because they offer marketing exposure to a wider range of market segments, bringing demand during periods of low occupancy. To this end, hoteliers can use marketing advancements to pinpoint sources of demand and identify trends in customer behaviour and preferences, improving gross sales and profit.
Each online distribution channel plays a different role in the hotel’s marketing program: the hotel website reflects and emphasizes the hotel’s image and competitive edge; OTAs can boost occupancy in need periods and help diversify a hotel’s client base by introducing guests that otherwise might not have considered staying at that particular hotel; and the GDS connects hotels with consortia, which are global associations of travel agents that provide hotels primarily with major sources of corporate business.
The Hotel Website
The website typically has a fixed cost—an upfront development fee—which, depending the number of pages, could be several thousand dollars. A minor ongoing monthly or annual fee will also be required to maintain the website. As the number of website-generated reservations increases, the CAC diminishes since the costs to run the website are not directly associated with the amount of revenue generated. Hotel websites typically have the lowest CAC of all the channels. Moreover, the hotel website allows for data mining, which in turn permits operators to get to know their customers’ demographics, attitudes, and behaviours. As such, it is the distribution channel that offers the highest CLV.
The hotel website is the most critical marketing tool because it can deliver a message that is both relevant and appealing to the target customer. It should offer a user-friendly and presentable design that highlights the unique attributes of the property. The website strategy serves two purposes: it increases the number of visitors to the website and converts the maximum possible number of visitors into hotel guests. A fast website that features high-quality photographs, descriptive content, and a user-friendly experience on multiple platforms (whether using a desktop, mobile, or tablet) increases the number of booking conversions and builds brand integrity. The conversion ratio should be analyzed periodically to see where improvements can be made. Conversion ratios can be obtained using a site-search-tracking program such as Google Analytics, Adobe Omniture SiteCatalyst, StatCounter, or ChartBeat.
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