Loyalty Growth Spikes in Upper-Upscale Properties

By: Mark Mazzocco

NATIONAL REPORT—Loyalty member bookings, as a percentage of total rooms, continued to increase across all chain scales in the second half of 2016, with the most recent year marking the strongest gains in loyalty contribution in over three years. This accelerated growth is likely due to the direct booking campaigns implemented by many of the large brands during the first two quarters of the year. These programs effectively incentivized customers to join loyalty programs and book rooms in greater numbers than either of the previous two years, and were particularly effective at driving new loyalty bookings in upper-upscale chain scale hotels.

Upper-upscale chain scale properties moved from having only 50% of its business be tied to loyalty bookings in 2014 to over 55% in 2016, shifting it from third to second among chain scales for loyalty contribution. Upscale chain scale properties continue to draw the heaviest loyalty contribution at 60%, and experienced strong growth in 2016. The midscale and economy chain scales had the smallest increases year over year in loyalty bookings in 2016. As brands approach the one year mark of loyalty rate offerings, it will be interesting to see if loyalty growth continues its recent trend of heavy growth or begins to plateau at a saturation point.

• Loyalty growth was extremely strong for the calendar year 2016 in all chain scales, likely due to loyalty rate offerings.

• Upper-upscale chain scale hotels experienced the strongest growth in 2016.

• Economy and midscale chain scale hotels experienced slower loyalty growth rates.

• 2017 is a year to see if brands approach an upper limit of market saturation for loyalty contribution.

How to minimize choice in the world of big data

By: Kathleen Ayers

In the world of data, bigger is better. Bigger data produces more insights and more robust analyses. A big database is a competitive advantage and data companies are continually looking for ways to expand and enhance their data sets to get an edge on their competition. 

Large databases can provide an infinite number of ways to solve a problem or answer a question. Theoretically, the endless possibilities seem great. However, as Barry Schwartz explains in his TED Talk on the paradox of choice, while some choice is better than no choice, too much choice can produce paralysis rather than liberation.

Let’s say as a hotel revenue manager you notice a year-over-year decline in mid-week transient RevPAR over the past month, and you want to figure out the cause of the decline. You could approach your data from several different angles, but how can you find the best-suited, most accurate solution to your problem without feeling overwhelmed?

Here are three simple steps that will help you maximize your efficiency, minimize your choice paralysis and guide you to the best solution.

1. Formulate a research question

Determine the exact research question you need to answer before diving into your data. If you wander into the forest of data without a set destination, you may get lost (hopefully you left a trail of breadcrumbs). Dive into your data with a clear intention and purpose in mind so that you can avoid distraction and tangents.

In our example, you state your research question as, “Why did transient RevPAR suffer a 10% year-over-year loss in April 2017?”

2. Write a hypothesis

Take an informed guess at the answer to your research question. Quickly brainstorm the potential paths and data points you could use to reach a conclusion and choose a path that seems promising. If your path leads to a dead end, back up and try again.

Given your knowledge of the hotel, you hypothesize “Transient RevPAR decreased in April due to the loss of two large corporate contracts.” When you test this hypothesis, you find that corporate business actually appears relatively stable; therefore, you try again with “Transient RevPAR decreased because of a decline in package offers.”

3. Restrict your sample size

Think about whether you really need to use ALL of the data available to draw a conclusion. In statistics, you learn that you only need a representative sample of a population to draw meaningful conclusions. Sometimes, focusing on a small set of confirmation numbers or a small group of hotels will prove your point.

To test hypothesis 1, you can look specifically at transient corporate RevPAR in April 2016 versus April 2017. To test hypothesis 2, you can look at transient package rates that were offered each year, which leads you to find that several package rates were discontinued since last year. In both cases, your hypothesis is specific enough to allow you to look at a limited set of data to find answers.

Whether you are reading a paper report, or querying your company database, specifying a research question, writing a hypothesis, and restricting your data set will help you navigate the sea of big data efficiently. By limiting your choices, you will find a clear and direct route to your solution.

The Rise of the Digital Traveler

By: Kalibri Labs Marketing team

Several key themes emerged from Part 2 of the landmark study, Demystifying the Digital Marketplace: Spotlight on the Hospitality Industry. We outline these takeaways in the infographic and descriptions below. For the full scoop, click here to request access to the full study.

Key Themes

Shifting Demand: Bookings are shifting from traditional Property Direct channels such as walk-ins or voice calls to digital channels, whether that is Brand.com, OTA, or GDS. Property Direct bookings have dropped from 40% of all bookings in 2014 to 34% in 2016. As bookings that transact directly at the property generally bring the highest profit margin, along with the lowest cost of customer acquisition, these room nights that have shifted to other digital channels now carry higher costs of acquisition.

Hoteliers will need to ask themselves several questions going forward to get an idea of the impact of these shifts on their individual properties. For the guests who used to call directly or drive in, how are these guests now booking? Are they going to Brand.com or booking through a third-party? What actions can be taken to drive consumers who may previously have booked directly at the property to book on Brand.com or other direct channels which have a higher profit margin compared to third-party bookings?

Cost of Booking Increases as Revenue Capture Declines: Revenue Capture - or, the percentage of Guest-Paid Revenue that hotels retain after customer acquisition costs are paid – is declining as hotels spend more on commissions and fees to acquire guests through third parties and on sales & marketing expenses.

Overall Revenue Capture for the industry declined from 84.4% in 2015 to 83.9% in 2016.  In terms of incremental revenue that would drop to the bottom line, this decline represents $729 million that U.S. hotels could have retained had their collective Revenue Capture percentage remained the same as it was during the prior year.  This decline is predicated on increased acquisition costs.

Consumers Actively Influence Supply & Demand: The effect of consumer behavior and the sharing economy on hotels is growing. Consumer to consumer accommodation platforms like Airbnb are increasingly impacting supply, while travel inspiration & planning apps influence guest decisions, and guest reviews sway booking behavior. These all add up to external forces that the industry has never seen before and needs to adjust to.

To dive deeper into the take aways and research, request your code to download Part 2 of Demystifying the Digital Marketplace: Spotlight on the Hospitality Industry here.

ALIS Revisited

By: Mark Lomanno

Leaving an ALIS conference there is always much to reflect on. It takes time to sift through all the information -  what was said and what was implied. There were three major topics which I have contemplated a great deal after the conference.

First, prior to ALIS this year, the last few major US hotel industry conferences had a slightly pessimistic view on where the industry was headed.  Reasons for this included the long term nature of the current recovery and the sluggish ADR growth that was a significant deviation from the robust increase seen in past economic cycles.  However, now the mood has shifted to one of cautious optimism - perhaps because of the absence of any real signs that point to an economic downturn. While hotel collected RevPAR growth is forecast to be on the low end of acceptable, it seems that is ok with most folks.

The second topic was on the US presidential election and what effect the election of Donald Trump was going to have on the hotel industry.  There are lots of conflicting data points here including a rising stock market, travel bans, immigration reforms, loosening of banking regulations and a severely bi-partisan culture to name just a few.   Each point taken on its own merit would have a significant impact on the hospitality industry, some positive and some negative.   Taken as a whole, it’s harder to say and will be interesting to see how it all plays out, but the optimistic nature of the conference seemed to infer that most in our industry see benefits in the short term.

Finally, the need to develop net revenue metrics is strong.  While the industry has enjoyed a sustained recovery, the increased cost of doing business has not resulted in the revenue growth or profit that was expected based on historical cycles.   Increased expenses, especially relating to acquiring the guest, have skyrocketed in the past several years necessitating a closer look at costs.   This is true both at the industry and property levels.  One of the best ways to evaluate costs is to examine Revenue Capture, which is the percentage of room revenue available for operations and profit after subtracting the cost of customer acquisition.    This new metric gives needed insights into both the true cost of customer acquisition and the opportunity to improve profit.

The conference certainly provided food for thought and we will see what the future holds.

Demystifying the Digital Marketplace: Implications for the European Marketplace

By: Cindy Estis Green

Featured in Hotel Yearbook 2017.

It's a new world order, writes Kalibri Labs' Cindy Estis Green: one that is dominated by the digital marketplace and in which all parties are struggling to migrate from the analog days of the past. The next 2-3 years will be fascinating to observe, she says - and takes us on a tour d'horizon of the current political and regulatory landscape. 

Demystifying the Digital Marketplace-- Part 1, is the first installment in a three part series recently released by Kalibri Labs. It is written from the hotelier's perspective and introduces three key themes. Firstly there is an urgency to alter current revenue management approaches as we move from an analog to a digital market, including the need to more closely manage customer acquisition costs. Secondly, the realty of the new digital market includes the emergence of meta search and mobile apps that will challenge both hotels and legacy OTA players and lastly there are segments of the market (for example corporate and meetings) that are ripe for disruption and to which hoteliers should pay close attention as these changes unfold. 

While all issues discussed in the new study are meaningful globally, there are variations in the way they play out in different regions. The rising costs and the predicted changes in the commercial relationship between hotels and OTAs described are particularly being examined carefully at the EU level. Most regions of the world have taken an ad-hoc approach to regulation of the digital market. In contrast, the European Union is in the middle of a massive review of all digital platforms which will have serious implications for the hotel industry; this includes travel providers as well as retailers such as Amazon, services such as video, television, telecom across the EU as well as general search engines such as Google. Questions arise around the way these platforms interact with consumers and the nature of the relationship between suppliers and distributors. Issues around transparency of pricing and bias in search listings are examples of the topics being explored by the European Commission, along with concern for the power of aggregated content and fairness in the relationships between hotels and distributors regarding commercial use of this content. The outcome of the EU's Single Digital Market review may have far reaching repercussions for the way hotels acquire and interact with guests for many decades to come. 

Foremost in the hotel arena is the activity in many EU member states around rate parity. Since France passed the Macron Law in August 2015, many EU member states are trying to determine if the removal of contract-driven room rate controls imposed on hotels and third party intermediaries will benefit consumers with lower rate offers. Even with the so-called "narrow parity," hotels can offer lower rates to smaller OTAs, but must remain at parity with Booking.com/Expedia Inc. and as long as there are only one or two major players in each market, the language in the contracts may not change reality on the ground. The hotel industry may be too fragmented and the OTAs too consolidated to expect the hotels to gain any leverage in their dealings with a powerful duopoly.

The fallout from the gradual dissolution of rate parity, followed on by the Book Direct campaigns launched by most of the major chains, has yielded some notable reactions from the largest OTAs, implying that they are concerned enough to believe the campaigns will impinge on their growing market share. Early data from Kalibri Labs in the U.S. market is showing that consumers do shift to brand.com when given a compelling offer to book. While the rapid shift of consumers to the worldwide digital marketplace has remained uncharted waters, the European Commissions's Single Digital Market initiative recognizes that it may be time to put appropriate controls in place. Consumer deception in the online shopping and buying platforms has been a fact of life, and being in the early stages of understanding the depth and breadth of it, they are deciding how much regulation may be required. For example, strike-through pricing used by OTAs looks more like fake discounts when the discount is based on a rate that is actually not available for the dates in question.

Looking more closely at the antitrust case being brought against Google by the European Commission raises a question about the latter's role in the hotel market. When search results are primarily based on a pay-for-placement model, the days of organic search are behind us and the vexing question of consumer deception pops up again. Are consumers informed enough to realize that a Google search listing may not be driven by the results most relevant to the query but rather based on the commercial relationship with a supplier? The same kind of questions are raised in the OTA listings with respect to a consumer's awareness of how this market operates. If they don't realize the strike-through prices are not real, would that fly in the face of the EU Directorate General for Competition's Unfair Commercial Practices Directive? If so, a question arises about what can be done to improve both consumer education around the digital marketplace and the enforcement of guidelines that may already exist to govern digital commerce?

There are many issues that are likely to surface as the European Commission evaluates the feedback from hundreds of hoteliers, technology, airline and other travel executives who responded to surveys designed to inform the Digital Single Market initiative. It's a new world order dominated by the digital marketplace and all parties are struggling to migrate from the analog days of the past. The next 2-3 years will be fascinating to observe. Hoteliers should participate through their national hotel associations and other hotel-oriented groups to be sure their voices are heard. For more on this, look at the HAMA and European Hotel Forum white paper, Digital Marketplace in Europe, explaining the issues in more detail.

A Look at How Consumer Behavior Affects Acquisition Costs

By: Mark Lomanno

Featured on Hotel Management

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With the advent and acceleration of the digital age, consumers continue to adjust their behavior, approaching even hotel booking differently. Whereas in the past most guests tended to book their room reservations directly with the hotel by calling or going to the property directly, now consumers are much more likely to shop for and buy their rooms online or on a mobile device. For a hotelier, the shifting consumer behavior from one booking channel to another can have a dramatic effect on the property’s bottom line, as each booking channel comes with its own associated costs. Understanding the impact of shifting channels is key to managing a hotel’s cost of customer acquisition.

Today, direct booking channels are defined as reservations through brand.com, voice or directly to the property. By comparison, indirect booking channels are reservations that come through online travel agencies, global distribution systems and fully independent traveler wholesale. Group bookings are the only major booking channel where reservations can be booked either directly or indirectly.

In the past five years, hotel booking patterns in the U.S. have shifted significantly toward indirect bookings rather than direct bookings. Since 2011, the ratio of direct bookings to hotels has declined from 4.2 direct bookings for every indirect booking, to now 2.8 direct bookings for every indirect booking as of June 2016. That shift represents a 33-percent decline in the direct booking ratio in just over five years.*

(*Note - this analysis covers all the hotel segments except economy chains, as data for that segment was not fully loaded at the time of this writing.)   

Which channels have lost share of total bookings over the past five years? There has been a noticeable decline in the percentage of hotel room bookings that have either gone through the voice channel or directly to the property. (See Figure 1.) This decline aligns with the increasing comfort of most consumers to use digital methods to book, as consumers now have more flexibility in the booking process. It is important to note however that overall room demand has increased in the U.S. in each of the past five years, so the absolute number of bookings does not show as pronounced a decline.

By contrast, the share of group bookings has only declined slightly over the same time period, and has actually been about flat since 2012.

Figure 1

Conversely, several booking channels have shown explosive growth since 2011. Brand.com, OTA and GDS booking channels all have a substantially greater share of total bookings than they did five short years ago. That growth has been led by Brand.com and the OTA’s, both increasing more than 20 percent over the time period. The GDS share has also increased but not at nearly the rate of the other two digital booking methods. There is no reason to expect this shift in booking patterns to change in the next few years, but it will be interesting to see if there is continued acceleration in the growth of these channels or whether the growth rate subsides or plateaus. As a point of reference, the digital channels of Brand.com, OTA, and GDS represented about 44 percent of all room bookings in 2015.

Figure 2

As channels continue to shift along with consumer behavior, it’s important for hoteliers to monitor these shifts and understand the cost implications associated with each of these channels. The strength of Brand.com bookings is encouraging, as reservations through Brand.com are the most financially beneficial for the hotels; the costs are considerably lower when compared to both GDS and OTA channels which incur a significant commission. As the economic climate changes in the next few years, as it is certain to do, understanding and managing a hotel or portfolio’s channel mix will become an increasingly important discipline.

Mark Lomanno is a partner and senior advisor at Kalibri Labs, a next generation benchmarking platform for hotels operating in the digital marketplace, evaluating and predicting revenue performance at the industry, market and hotel levels. In addition to his role at Kalibri Labs he also advises several start-up and venture capital firms in the hospitality and data space as a member of the board of directors and advisors providing strategic direction and building industry relationships. Lomanno is the former president and CEO of Smith Travel Research.

NEW TECHNIQUES, LEGACY MODELS AND NEW ENTRANTS SPELL DISRUPTION FOR DISTRIBUTION

By: Cindy Estis Green

As featured in the Fall 2016 issue of Hospitality Upgrade.

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Excerpt from the new special report by Kalibri Labs, Demystifying the Digital Marketplace: Spotlight on the Hospitality Industry, and a Q&A with SVP/Managing Editor Geneva Rinehart.

The digital marketplace has undergone significant change since Distribution Channel Analysis: A Guide for Hotels was published in 2012. 

Following a deep dive into the travel distribution landscape, three primary themes have emerged: 

1. HOTELS ARE EXPLORING NEW TECHNIQUES FOR IMPLEMENTING REVENUE STRATEGY. An abundance of new online models has driven an imperative for hotels to shift from traditional, analog operating methods to a focus on digital. Current operating methods are costly and deployment is inefficient. This fact is evidenced by third-party commissions rising at twice the rate of revenue growth. Hotels previously tried to be available on every “shelf” but most have realized at this point that (1) it costs too much to be prominent in every distribution channel, and (2) the dominance of third-party intermediaries in the consumer path can undermine the relationship between hotel and consumer. Hotels will always have the opportunity to build a relationship during the actual stay experience but risk losing out on the connection made through inspiration, information gathering and booking phases of the travel journey. Third-party intermediaries are focused on developing their own customer bonds and have little incentive to facilitate the relationship between a hotel and its shared customer. Therefore, despite the mutual dependence between hotels and third parties, a sense of competition arises for owning the customer relationship. Two critical components of revenue strategy involve managing to a hotel’s optimal channel mix, including close tracking of acquisition costs, and differentiating the guest experience during the stay as well as in pre-stay and post-stay contact.

2. THE LEGACY OTA MODEL IS DECLINING. Apps and metasearch are gaining traction by providing consumers a more convenient and seamless experience across air, car, hotel and other components of travel. The legacy OTA model once assisted consumers by narrowing down lists of hundreds of hotels while still offering a wide range of options. A number of new models point to a next-generation consumer interface. With metasearch and social sites (like TripAdvisor and Facebook), along with some new apps (like Google Trips) now seamlessly integrating many elements of travel, the evolution toward a curated consumer experience is underway. In the meantime, some foundations of the traditional OTA model have been challenged. Through rigorous research on consumer clickstream data, the billboard effect was dismissed as a dead concept. The claim had been that OTAs drove multiple brand.com bookings for each one booked directly on the OTA site, but the research study, sponsored by the Consumer Innovation Forum and released in 2015, proved there is barely any lift in brand.com bookings as a result of visits to traditional OTAs. Further, some conditions that locked up hotel inventory and rates for third parties such as rate parity and last room availability are dissolving, whether from European regulators in multiple countries or changes in large chain agreements. This change is paving the way for greater autonomy by hotels and smaller third-party distributors. These changes will ultimately result in a more open and competitive marketplace. 

3. NEW ENTRANTS SPELL DISRUPTION FOR SELECT CUSTOMER SEGMENTS. There are a few key segments in which disruption is imminent. Corporate travel has long relied upon legacy travel management companies handling the larger managed travel accounts. This is in contrast to a high degree of fragmentation on lightly managed and unmanaged business travel. New developments are likely to force change in the traditional RFP process for corporate accounts. These include: rate scanning with auto-cancel and rebook capability up until day of arrival, reward and incentive programs for travelers to self-police their own spending, aggressive moves by third parties to aggregate the lightly managed accounts, along with consolidation by hotel chains who don’t participate in annual rate bids. Corporate account activity will further be diverted by the aggregation of home and vacation rental markets, which will also create supply spikes during leisure high-demand periods. The groups and meetings market is ripe for disruption as well. The last five years have seen extensive offline third-party intermediation but no one has yet managed to aggregate this demand by offering a compelling online venue for casual or professional meeting planners to shop and book. Historically, the booking of groups and meetings has been inefficient and costly but indications are that the next 3 to 5 years will bring new options for this segment. This highly inefficient process may finally be streamlined with reduced costs and an improved experience for the consumer. 

These three themes, along with many more, will be explored throughout Part 1 of Demystifying the Digital Marketplace: Spotlight on the Hospitality Industry

Geneva Rinehart: If the cost of acquisition is rising out of control, is there any way for hotels to reverse that trend?

Cindy Estis Green: The costs have reached 15-25 percent of guest paid revenue. That is only second to labor costs an it has to be contained. I am not suggesting that it can be reduced by a huge margin just by paying attention to it, but you can't manage without measuring it. When airlines and car rental companies are low single-digit cost of sales, we know we can do better. Bringing the range down to 10-15 percent is a good target. Some hoteliers throw their hands up, saying they can't negotiate lower OTA commissions. Much of the net revenue improvements will not come from changes in the basic commission rates but rather through (1) better channel mix, (2) diversifying the sources of business, and (3) learning how to generate ancillary revenue. 

Geneva Rinehart: What do you mean by an optimal channel mix for a hotel?How does a hotel go about finding it?

Cindy Estis Green: Every hotel has its own unique optimal channel mix. We have to start benchmarking against that optimal mix and not against average top-line revenue of a disparate group of hotels within a three-block radius that are not really comparable. A hotel has to learn all of its demand drivers and the cost of each and then test different scenarios to find the channel and segment mix that delivers the highest profit contribution. A hotel has to consider its physical condition, location, how it compares to competitors and its room/meeting space configuration. It has to be realistic about the limitations on sources of business, what it is capable of attracting and how much it costs to get that business. Then it has to tightly manage with maniacal focus to achieve its optimal mix targets. 

Geneva Rinehart: You mentioned that hotels need to differentiate the guest experience. Are some companies better at this than others? Do you have any examples when it's done well?

Cindy Estis Green: Everyone thinks about how hard it is to acquire customers. Many of the brands are onto something now with a focus on growing their loyalty base. But they won’t make much progress without also putting some attention on the guest experience. If the booking and stay experience is different and unique, then guests will return. Good consumer product examples are Apple® and Amazon. CitizenM is a great example in hospitality. It generates 50 percent through brand.com and when it opens a new hotel, initially the majority comes through the OTA channels. It has no loyalty program but yet the experience has created a very strong, loyal base.

Geneva Rinehart: You suggest that OTAs will be overtaken by metasearch and apps, and yet Priceline has a larger market cap than all the hotel companies combined. Do you really see them in decline? What evidence are you seeing that tells you this is happening?

Cindy Estis Green: The OTAs are evolving and will continue to evolve. They aren’t going away. What we see is the consumer demand is evolving and providers are working toward that. For example, notice the money Expedia is putting into trivago advertising and Priceline is building KAYAK. They are both working on apps to include booking as well as guest service. And Google is launching Trips and Destinations – both apps that are likely to become competitive to the OTAs and the brand.com sites. Consumers want apps and other device-based access to information and booking. It’s consumer driven and those that provide the most compelling and convenient services to travel shoppers will win over the legacy booking options.

Geneva Rinehart: You noted some pretty big changes in the business travel segment. How do you think the corporate travel market will evolve? 

Cindy Estis Green: The business travel market is ripe for disruption. It’s a lucrative base for hotels, and consumers are pretty savvy now with online shopping and buying. Some convention and routine business travel has already started to move to OTAs and metasearch. Travel management companies (TMCs) using the global distribution systems will still check other online sites before booking. If some new entrants make it easy for companies to save money and for travelers to quickly find affordable options, this market is bound to shift from the old traditional model with locked-in annual pricing through RFPs to a more dynamic model. 

Geneva Rinehart: Airbnb is obviously a hot topic in the industry. Where and when do you see it affecting hotels? 

Cindy Estis Green: Hotels are not uniformly affected by Airbnb. Our analysis so far shows that the primary period where Airbnb is potentially cutting into demand is due to lower compression during peak leisure periods like weekends and special events. During routine heavy compression periods in major cities, there is less overall impact – but at the segment level, there are distinct segments and rate categories where there is evidence of softening of peak rates. This will continue to evolve and change as more units are made available at the higher end of the market and as Airbnb gets more aggressive about the corporate market.

Geneva Rinehart: Ok, everyone wants to know if the book direct campaigns are really shifting more business to brand.com. Are the hotels getting higher profit margins?

Cindy Estis Green: Without getting into specifics, it is clear that the campaigns are shifting business. We see a lot of variation by market and by hotel segment. We will have more detailed recaps of the results in the U.S. market in Q4 when there is more data and time. I anticipate that with so many brands actively promoting book direct that the message to consumers will resonate. There may be some meaningful shift where consumers start to believe that booking on the direct channels has better 

Demystifying the Digital Marketplace: The Dynamic Distribution Landscape

 

By: Cindy Estis Green and Matt Carrier

Featured in the Fall 2016 issue of HFTPs "The Bottomline".

An excerpt from "Demystifying the Digital Marketplace: Spotlight on the Hospitality Industry" 

The digital marketplace has undergone a significant amount of change in the intervening years since Distribution Channel Analysis: A Guide for Hotels was published in 2012. What follows below is an excerpt from the follow-up to that book, Demystifying the Digital Marketplace: Spotlight on the Hospitality Industry co-authored by Cindy Estis Green and Mark Lomanno. In 2015 U.S. hotels paid approximately $25 billion in overall customer acquisition costs on guest paid revenue of $145.4 billion. This guest paid revenue grew year over year, from $135.5 billion in 2014 to $145.4 billion in 2015. Guest paid revenue represents the revenue a guest actually paid for a hotel room including any commissions that were retained at the point of booking by a net/merchant intermediary or wholesaler. Despite this, the revenue capture figure for the industry in the U.S. declined by .4 percent over that same period. Revenue capture measures the percentage of guest paid revenue that is retained after all customer acquisition costs are paid. The revenue capture decline, from 83.2 percent in 2014 to 82.8 percent in 2015, represented almost $600 million in revenue that, if it had been retained, would have contributed directly to net operating income and the hotel’s return on investment. Using an 8 percent capitalization rate, this additional cost of $600 million reduced the asset value of the overall hotel industry by at least $7.5 billion in 2015. That equates to $1.7 billion in real estate asset erosion for every 10th of a point lost in revenue capture.

With this impact of distribution costs in mind and following a deep dive into the travel distribution landscape, three primary themes have emerged:

1. Hotels are exploring new techniques for implementing revenue strategy. An abundance of new online models has driven an imperative for hotels to shift from traditional, analog operating methods to a focus on digital.

Current operating methods are costly and deployment is inefficient. This fact is evidenced by the rate of third-party commission growth rising at twice the rate of revenue growth. Hotels previously tried to be available “on every shelf,” but most have realized at this point that it costs too much to be prominent in every distribution channel and the dominance of third party intermediaries in the consumer path can undermine the relationship between hotel and consumer.

Hotels will always have the opportunity to build a relationship during the actual stay experience, but risk losing out on the connection made through inspiration, information gathering and booking phases of the travel journey. Third party intermediaries are focused on developing their own customer bonds and have little incentive to facilitate the relationship between a hotel and their shared customer.

Therefore, in spite of a mutual dependence between hotels and third parties, a sense of competition arises for “owning the customer relationship.” Two critical components of revenue strategy involve managing to a hotel’s optimal channel mix, including close tracking of acquisition costs, and differentiating the guest experience during the stay, as well as in pre- and post- stay contact.

Every single booking, no matter the source, comes with a price tag. A hotel will never get all of its bookings from a single channel and so hotels must work to identify and manage to an optimal channel mix. At the hotel level, managing costs is not simply about negotiating a better deal with a channel vendor such as an OTA. It’s about understanding the profile of demand in a hotel’s market, the costs associated with getting that demand, and then proactively managing to an optimal channel mix, optimal because it yields the highest net revenue and profit contribution.

2. The legacy OTA model is threatened while apps and metasearch are gaining traction by providing consumers a more convenient and seamless experience across air, car, hotel and other components of travel. The legacy OTA model once assisted consumers by narrowing down lists of hundreds of hotels while still offering a wide range of options. A number of new models point to a next generation consumer interface. With metasearch and social sites (like TripAdvisor and Facebook), along with some new apps (like Google Trips) now seamlessly integrating many elements of travel, the evolution toward a curated consumer experience is underway. In the meantime, some foundations of the traditional OTA model have been challenged.

Through rigorous research on consumer clickstream data, the “billboard effect” was dismissed as a dead concept. The claim had been that OTAs drove multiple brand. com bookings for each one booked directly on the OTA site. However, a 2015 research study sponsored by the Consumer Innovation Forum (CIF), an American Hotel & Lodging Association committee focused on the education and research of the hospitality industry’s digital and distribution space, proved there is barely any lift in brand.com bookings as a result of visits to traditional OTAs. Consumers had only a 7 percent likelihood of visiting a brand. com site after an intermediary.

Conditions that locked up hotel inventory and rates for third parties such as rate parity and last room availability are dissolving, whether from European regulators in multiple countries or changes in large chain agreements, thereby paving the way for greater autonomy by hotels and smaller third party distributors. These changes will ultimately result in a more open and competitive marketplace.

3. New entrants spell disruption for select customer segments. Corporate travel has long relied upon legacy travel management companies handling the larger managed travel accounts, in contrast to a high degree of fragmentation on the lightly managed and unmanaged business travel. New developments are likely to force change in the traditional RFP process for corporate accounts — such as rate scanning with auto-cancel and rebook capability up until day of arrival, reward and incentive programs for travelers to self-police their own spending, aggressive moves by third parties to aggregate the lightly managed accounts, along with consolidation by hotel chains who don’t participate in annual rate bids. Corporate account activity will further be diverted by the aggregation of home and vacation rental markets, which will also create supply spikes during leisure high demand periods.

The groups and meetings market is also ripe for disruption. The last five years have seen extensive offline third party intermediation, but no one has yet managed to aggregate this demand by offering a compelling online venue for casual or professional meeting planners to shop and book. Historically, the booking of groups and meetings has been inefficient and costly, but indications are that the next three to five years will bring new options for this segment which may finally streamline a highly inefficient process with reduced costs and an improved experience for the consumer.

With these major industry sea changes in mind it is clear that hotels must be more focused than ever on driving profitability through a focus on Net Revenue. These three themes, along with many more, are explored throughout Parts 1–3 of Demystifying the Digital Marketplace: Spotlight on the Hospitality Industry. HFTP is a sponsor of the report, and a copy is available now to HFTP members (password: HFTP2016).

Book Direct: The Numbers Tell the Story

By: Cindy Estis Green

Featured in the Summer 2016 issue of Hospitality Upgrade.

It's no secret that there have been a flurry of book direct campaigns launched in recent months. This includes IHG and Accor launching campaigns in Europe in 2015 followed by Hilton, Marriott, Hyatt, and IHG in the U.S. in 2016. This trend has raised many questions about how these campaigns will affect hotel performance from an owner and operator standpoint. Additionally, concerns have been raised by third-party OTAs and meta search vendors about how it may affect their own growth targets.

AGGRESSIVE RESPONSES FROM THE OTAS HAVE INCLUDED: letters to hotels claiming the book direct campaigns are not working, de-ranking and “dimming” of hotel listings and removal of participating hotels from preferred listing status. Both the CEO of Expedia and Booking.com have come out in public statements indicating they are not happy about the book direct campaigns and intimating that the large chain brands’ attempts will not succeed. The OTAs retaliatory actions convey a message that they sense a serious threat to their business.

 

Based on Kalibri Labs analysis, the data shows that direct brand.com bookings are significantly more profitable than OTA bookings, to the tune of a roughly 9 percent before factoring in ancillary spend which can take this to almost 18 percent. These findings are based on analysis of a database of daily stay and cost history from 25,000 hotels in the U.S. from 2011-present. On top of this, the acquisition costs for customers using direct channels decrease over time while those for OTA customers remain steady or may grow as commissions rise. Hotels essentially pay the same commissions every time a guest comes through an OTA; there is no reduction in cost when volume increases or guests come back. In contrast, as loyalty rosters grow, the overall marketing costs are reduced and the entire system becomes more efficient. The added advantage of direct engagement leads to improved relationships with guests.

The other factor regarding the OTA channel is that the presumed “billboard effect” benefit, touted by third parties as a mitigating factor in the high commission cost of their channels, has been shown to be a myth. The Online Travel Shopper’s Journey study published by the AH&LA Consumer Innovation Forum (released in Part I of Demystifying the Digital Marketplace) will explore this in detail, but the key finding from the 2015 study is that there is only a 7 percent probability that a consumer will visit an OTA and then return to brand.com to book.

Third-party business from OTAs, meta search, wholesalers and traditional travel agencies can be an important part of the mix, but a high level of dependence on any channel or segment that carries a high cost can prove risky. Striking the optimal balance between direct and indirect business sources will ultimately result in a hotel enjoying higher profit contribution, delivering better consumer experiences through higher levels of guest engagement, and yielding healthier economics for a hotel as a result of a diverse business base. 

First, to frame the issue it may help to assess book direct from the hotelier’s point of view. While cost of acquisition is certainly an important factor, it is only one variable to consider. In addition to the direct cost savings, most hotels have found that there are other benefits of increasing the volume of business that is booked through direct channels. We have determined five benefits and will examine each of these benefits individually to evaluate its impact on a hotel.

The hotels in this sample, when combining the nearly 9% higher net ADR with the additional ancillary spend of Brand.com bookers, receive 17.9% higher net revenue from Brand.com bookings than those coming from the OTA channel.
  1. Lower cost of initial customer acquisition. When calculating the costs associated with a brand.com booking versus an OTA or meta search booking, it is helpful to compare both the direct costs as well as the net revenue and net ADR. Kalibri Labs refers to it as “COPE revenue” to reflect the revenue after removing direct transaction-related costs. The acronym COPE stands for Contribution to Operating Profit and Expenses and represents the percentage of revenue the hotel keeps for each channel after direct transaction fees are removed, such as commissions, channel costs and loyalty costs. Using upper upscale hotels as a sample in the U.S. market, the average brand.com booking has a COPE (or contribution) of 93.2 percent, which means it retains 93.2 percent of the guest paid revenue, while the average OTA booking yields only 82.7 percent. Of course, this includes a blend of retail, merchant and opaque OTA business so every hotel will vary. Even with the allocation of appropriate sales and marketing expenses and when all promotional rates including member pricing discounts are taken into account, the average net ADR is still almost 9 percent higher through brand.com.
  2. Increased opportunity to use knowledge about a guest to personalize his or her experience. The knowledge about each guest can ensure that the products offered are consistent with what the guest is interested in receiving. Some guests would prefer to pay an upcharge for a deluxe accommodation and are happy to know when it is available. Some would like to take advantage of packages adding in parking or breakfast to the room charge. These kinds of offers are not easily managed currently on a third party site. In a full service or resort setting, hotels may have drinks, dining, spa or recreational offerings that can be sold in conjunction with the room. The benefit of getting that 10 a.m. massage appointment booked ahead of arrival compared to the experience of being told that all preferred time slots are already booked is a clear case of better serving guest needs. Using a select group of upper upscale hotels in the U.S. with a brand.com net ADR of $175 and the average length of stay of almost two nights, this guest type will yield an incremental $35 per stay in ancillary spend compared to those coming through an OTA channel with an average net ADR of $161 and less than two-thirds the ancillary spend. The hotels in this sample, when combining the nearly 9 percent higher net ADR with the additional ancillary spend of brand.com bookers, receive 17.9 percent higher net revenue from brand.com bookings than those coming from the OTA channel.
  3. Opportunity to build on the relationship to get the guest to return to the same hotel or a sister hotel thereby reducing the recurring costs of customer acquisition. Many businesses calculate what is known as lifetime value analysis when evaluating the potential of their customer base. The cost of acquiring a guest the first time they come to a hotel is typically higher than the cost of getting that guest to return, making returning guests less costly over time. OTA business is predominantly not recurring, so hotels are constantly cycling through thousands of new customers. There are no economies of scale; that is, it is not possible to reduce the costs as sales volume increases and there is no difference in cost whether or not it’s a repeat visitor. Whether you are a large chain or a small independent, the hotel always pays a fixed premium as though each customer is a “first timer.” However, when a guest booking directly comes back multiple times, the higher sales and marketing expenses incurred on the first visit can be spread over future visits and total cost of acquisition over the guest’s “lifetime” use of a hotel are considerably lower. Hotels with a large recurring client base will generally be more efficient in customer acquisition spending, resulting in considerably higher net revenues.
  4. Diversifying the demand streams so the hotel is not beholden to one primary source for all of its business, a high risk during a down economy. There is a growing concern around rising cost of sales as U.S. hotels are now paying 15 percent to 25 percent of the guest paid revenue to acquire their customers. In the 2008-09 recession, when demand dropped precipitously to almost 9 percent below previous levels, hotels were willing to pay a premium to those who had control over that demand. This forced commission levels to rise from 20 percent to 25 percent, which was the norm at that time, to upwards of 30 percent to 40 percent. That was a time when OTA business made up 6 percent to 7 percent of total room nights for U.S. hotels. Now that it is closer to 15 percent, the next recession could be painful if hotels continue to grow dependency on a channel over which they have limited control and whose objectives may not be aligned with their own. A range of demand drivers for a hotel creates a healthy balance and mitigates the risk of losses during the inevitable downturns in the future. 
  5. Improved engagement with the guest provides a better experience and ensures that he/she gets what was expected upon booking. Hotels have always scored considerably better than other sectors of travel in terms of consumer satisfaction. Hotels play important roles in their communities and part of that is driven by the experience hotels provide to their guests. The ability to build relationships with guests is better served when a hotel can communicate pre-stay, during the stay and post-stay. With or without a loyalty program, a hotel's ultimate success depends on its ability to deliver a differentiated guest experience and to engage the guest at every point of contact to that end. Few OTA customers are committed to hotel loyalty programs as they usually do not receive points for those visits. The focus for OTAs to build their own relationship with these customers also puts some obstacles between the guest and the hotel. Adding in the scams and other forms of deception, even the FTC is recommending that consumers are more likely to get what they expect by booking directly. 

Room Rates and Seasonality

By: Mark Lomanno

For as long as I have been following the hotel industry, room rates that guests are charged have almost always gone up or down based on seasonality. The habit of pricing by season often results in wide fluctuations in room rates during the course of the year. This is of course with the intent of maximizing revenue by adjusting room rates charged to the guest based on anticipated or historical demand levels. I have often wondered how much revenue hotels have left on the table by either not raising ADR sufficiently during peak months or lowering them too much during slow months.

Recently I examined some Airbnb pricing data that made me think further about the value of pricing by season. Specifically, I was looking at some pricing by city (large cities with a large Airbnb presence) and by month for Airbnb vs. hotels, segmented by chain scale category. Initially, I was looking to see how Airbnb pricing compared relative to the various chain scale classifications to see where they were most competitive with hotels (a discussion of how we derived what we believe to be the most accurate way to determine pricing is a bit too lengthy to review here). While that data was extremely interesting, what was also fascinating was the difference in pricing by month reported by Airbnb properties vs. that of hotels.

What we saw was Airbnb properties have little to no seasonality in their pricing, while hotels have the variability discussed earlier. What further piqued my curiosity is that, while there was little seasonality in pricing, there was very significant seasonality in occupancy. In fact, the occupancy seasonality mirrored that of the hotels. This almost certainly indicates that the Airbnb operators are not capitalizing on their room rate potential in peak months. However, we see they do not drop their rates during slow periods, but still maintain an occupancy pattern similar to hotels, which results in a much better revenue performance than hotels in slow months.

Some of this is due to a lack of revenue management tools for Airbnb operators, a dearth that will likely disappear in the near future. Still, one man’s conclusion is that hotels need to take a hard look at their seasonal pricing, especially during the low season. Does all that discounting really do any good for your bottom line? I have long suspected that the industry does not need to lower their room rates as much as they do, both in downturns and seasonally.  

END OF YEAR REVIEW: DIGITAL MARKETPLACE

By: Cindy Estis Green

Featured in the December 2015 issue of Hospitality Upgrade

2015 has been a whirlwind year for the digital marketplace. Here are just a few of the changes that affected hotels and the digital ecosystem in which they operate.

Expedia acquired Travelocity and Orbitz by Q3 of 2015 and most recently announced the acquisition of Homeaway to compete in the vacation rental space. Sabre announced the acquisition of Trust, adding to its breadth of independent hotel and small chain CRS offerings, and Amadeus consolidated its hold on Newmarket, expanding its distribution reach into the groups and meetings markets. Priceline/Booking.com pulled together a trio of companies to provide services to independent hotels. These companies included buuteeq to create websites, HotelNinjas to provide cloud-based PMSs and PriceMatch to offer revenue management services. Priceline/Booking.com calls the new offering Booking Suite and appears ready to compete with hotel brands and franchisors by offering an end-to-end distribution platform and related services.

Then Accor fired right back in Europe, Priceline’s stronghold (through Booking.com), by offering up a new booking platform, AccorHotels, for independent hotels that is open to any qualifying independent but does not require participation in one of the Accor brands. If that is not enough, Google has taken aggressive steps to monetize all of the primary real estate on the first page of every hotel search listing, allowing OTAs to bid on branded search terms, thereby creating a bias against direct bookings and raising the cost for those that happen. And Google ramped up Google Hotel Finder to accept bookings on a commission basis (wait, that sounds like an OTA business model!).

TripAdvisor, after months of attempts, finally reached an agreement with a series of hotel companies to offer hotel rooms for sale, with its crowning achievement being the Marriott deal in mid year. And it is offering Instant Booking (wait, that sounds like an OTA business model too!). Instant Booking is all the rage and is yet another example that everyone seems to want to dip their toe in the OTA waters.

Airbnb announced an aggressive move into business travel and claimed it had hundreds of new corporate accounts signed in the first 30 days. Rate parity is now outlawed in France under the new Macron Law with another form of rate parity restriction in Germany and other moves to regulate it in Italy, Sweden and more. Several large hotel companies announced that they dropped last room availability conditions in their contracts and widened the range of closed user groups to be eligible for special rates, further loosening rate parity restrictions. A preview of a new research study proves that the “billboard effect” is officially dead. This study raises serious doubt about the prevailing conventional wisdom, saying that a listing on an OTA site will benefit the bookings on brand.com.

Google’s practices are under deep investigation by the European Commission for antitrust violations throughout the European Union, and the European Commission also launched a multiyear investigation of all digital platforms, not just in travel. The commission opened up for comment until late December 2015 to gather facts about whether there should be increased regulation.

In the United States, the Federal Trade Commission announced a series of warnings to consumers to beware of potential scams that are rampant with online travel agents that purport to be official websites or call centers but are not. This follows a series of stories from several U.S. news outlets including ABC News “Nightline,” CBS News, NBC News and The New York Times describing in detail how some third-party sites deploy deceptive practices to mislead consumers.

Most of the technology consolidations seem to be designed to build more and bigger distribution platforms to support hotels in reaching travel shoppers and buyers. Amadeus and Sabre are moving away from their roots as GDS companies and looking to expand and offer a wider range of services to the hotel community. With the potential to be a next-generation OTA, Airbnb is pushing the legacy OTAs into vacation rentals to hedge their bets on the traditional hotel industry. Booking.com is certainly working both angles by claiming to have the largest portfolio of vacation rental listings while expanding into the business that hotel brand/franchise services have occupied. This is a good move in case Google decides to replace OTAs in the booking of hotel rooms through Hotel Finder. Expedia is working hard to build scale through a series of acquisitions.

Regulation and legislation are front and center activities in the digital landscape, and while it is new to the hotel industry, paying attention to government affairs with respect to technology appears to be gaining traction with hoteliers. The American Hotel & Lodging Association (AH&LA) in the United States has ramped up its efforts to impose needed regulation on the vacation rental sites with regard to safety, security and tax remittances to municipalities and states, and has sharpened its focus on the rampant consumer deception throughout the digital market. The European Commission is cranking up a machine to take charge of all things digital. It’s the Wild West online and it may finally be time to rein in the cowboys.

It appears that technology and hotel merger and acquisition activity will not slow down in the New Year. Everyone is vying for a stronger position and thinks that growing scale will earn them a bigger slice of the pie. Better fasten your seatbelts.

The hotel industry is flying into 2016 at high speed.

THE FUTURE OF HOSPITALITY IS….RETAIL?

From the desk of Rebecca Bucnis, EVP & Chief Commercial Officer at Kalibri Labs

Surely you have heard the expression that every business is becoming a retailer, well, nowhere is that more true than in hotels. From my point-of-view, the true future of hospitality is creating unique guest experiences, but that doesn’t mean that hotels can’t learn a few tricks from savvy online ‘retail’ merchandisers!

Retail today should quickly illicit images of sales, discounts and value for shopping. From weekly circulars to daily specials to coupon clipping, savvy shoppers are always looking for deals. Into today’s digital paradigm, selling models have evolved to such concepts as:

  • Time sensitive sales (only available until 11:59 pm),
  • Limited quantities (only 3 more in stock) and
  • One-click purchase, where, in one fast click, your
  • Instant delivery (up to and including same-day delivery!)
  • Eventually blending concepts of store and online presence with ‘endless aisle’ and social feedback….

What could this look like for hotel marketers if they focused more on retail packaging and less on room-types and discounted pricing models.

  1. Value Pricing
    In an information-rich society, online buyers search until they are rewarded with finding a ‘real-bargain’. In research, we see smart hotel marketers creating packages that are priced almost to “BAR” – or the best available rate. Think about breakfast included, free parking and extra days at a percentage less. More creatively this could include dinner packages, spa treatments or local events.
  2. Time Sensitivity
    To create a perceived sense of need and urgency, offering time-restricted values offers as an additional buying incentive. When done occasionally, and with care, special valued guest pricing and seasonal treats can be viewed as exclusive and unique.
  3. Ease of Purchase
    Amazon has created a best practice in one-click buying. Some mobile applications today, where your profile is already in place, can offer ‘easy to purchase’ options. Airlines often will upsell upgrades and seating options as you check-in. Surely we can offer additional benefits in one-click buying
  4. Blending of online and stores with ‘omni-channel’ retailingAs you enter a store today, you can easily link to a retailer’s web presence. This can be anything such as:
    • Connecting to free WiFi
    • Linking to product details (scan, bar codes, photos, websites)
    • Entering sweepstakes or contests that attempt to access the shopper’s identity
    • Encouraging shoppers to share digital information (Pinterest ratings at Nordstrom)

    This leads to connecting of social and social UGC with peer-to -peer reviews.  Anything that suggests that your products are highly regarded adds values to today’s shopper. It is a reassurance that someone more trustworthy than a product marketer values your product.  Given the richness and vast opportunity to provide information and feedback (videos, photos, ratings) on a longer experience, such as an overnight stay, the goal is to seamlessly offer ways for your guests to provide feedback.

  5. Personalizing offerings to the individual guest
    From simplistic matching algorithms of ‘people who bought this, also purchased that’ to tailored home pages and specific promotional offers, modern shoppers want hand-picked choices. For hotels, about the future guest, is meaningful. From specific transportation requirements, to food preferences to the favor room or drink, any time you create a unique feeling of ‘recognitions’ customers are most often delighted. This brings me back to the true future of hotels – the unique guest experience.

 

In the meanwhile, savvy digital buyers expect value for money and wish to be rewarded for their research efforts. Hoteliers could benefit from new merchandising techniques while creating urgency and a need to ‘book-now’.

Not so far into the future, Amazon, as it enters the hotel space may be able to include your weekend getaway, your city business trip and your dinner reservations and your room key all in one-click check-out…..

After all, haven’t you actually hastily bought something you didn’t really need, simply because there were only 3 left in stock?

BIG DATA HAS ARRIVED…IN HOSPITALITY

From the desk of Brian Goodman, CTO Kalibri Labs

We made it! Big data has finally entered the Gartner trough of disillusionment, meaning that inflated expectations of Big Data have been tempered. For emerging technology buffs this marks the last moment before redirecting attention to the next horizon. For everyone else, this is the moment where the exploration of what the trend of Big Data means is behind us and we move from being fashion forward to marketing icons.
Even if “Big Data” is not your business, it has captured an entire technological and business shift, filled with possibilities. If it were not for the broad architectural impacts making stream processing, structured and unstructured data, distributed storage and processing accessible it would be hard to argue anyone needed Big Data. This availability of data access, storage and organization is critical. Consider the giants that built the now decade old technology stack, the volumes of data they work with, and not one has Big Data. What captured the imagination of technologists everywhere was the idea that there may be a different way of dealing with their data pain – an acknowledgement of how insufficient the existing world of data management and business intelligence had become. In an increasingly competitive climate, insight is at the source of competitive advantage and five things primarily gate that:

  1. Identifying the right data sources
  2. Acquiring the right mix of data science and engineering talent
  3. Translating the science to simple ideas
  4. Contextualizing to filter facts and move from insight to strategy to plan to practice
  5. Individuals with influence championing the opportunity inherent in this data to drive execution

We made it! There is just enough maturity across technology, patterns and practice to no longer be distracted by shiny objects and inflated expectations. We can now move beyond the static repetitive consumption of data to experiences that illuminate the business context, develop data intuition and effectively deliver the “punch line” of opportunity. Kalibri Labs is the sweet spot for research seeded, data-driven insight in hospitality. Relatively early in the journey, it’s clear that things are about to change and Big Data is about to mean something to the hospitality industry.

THE THREE MOST INTERESTING THINGS ABOUT AIRBNB’S SUCCESS

By Mark Lomanno

Over the past several years Airbnb has burst onto the lodging scene in a big way. It has done this by offering a completely different type and style of accommodations for lodging guests. Anyone who follows the hotel industry knows the background, but in my mind there are three things that are most interesting with regards to Airbnb’s rapid success.

First, no one really seems to know, with any certainty, how much inventory Airbnb actually offers on any day, week or month in a given market. This makes it very difficult for the hotel industry to measure the impact from a supply perspective and from a demand perspective. How many potential hotel guests are actually staying at Airbnb properties?

Second, whenever I attend a conference or speak with colleagues in the industry about Airbnb, their take on the eventual impact and growth of this concept is frequently to discuss all the things that are wrong with it. The list includes guest safety, homeowner insurance and protection, landlord rules, adhering to all the governmental regulation and taxes. These items are extremely important, in fact, AH&LA has been instrumental in bringing these issues to the forefront with the hopes of getting them addressed. However, Airbnb’s growth and popularity will likely drive eventual resolutions for these issues. So a single-minded focus from hoteliers about what is wrong with Airbnb is not productive. Even with the regulation that will come from the hard work of AH&LA, hoteliers need to focus on how they’re going to deal with the continued presence of Airbnb and other short-term online rental companies.

Finally, and most interesting to me is that Airbnb is truly the first unique structural change the industry has seen since the 1950’s. Certainly there have been innovative lodging products and services created over the years but nothing that lived outside the traditional owner/brand/franchisee world the way Airbnb does. I believe the fragmented nature of how today’s hotel industry operates is not efficient nor as profitable as it could be in today’s digital and social world. Perhaps addressing hotel profitability as it relates to intermediaries is a good place for the hotel industry to start.
Airbnb is here to stay. Rather than fight it, the question is, how do hotels and Airbnb learn to coexist together in this new landscape?

REVENUE STRATEGY SUMMIT 2015 ROUND-UP

By Kiersten Pearce

Last week’s Revenue Strategy Summit in Washington, DC proved to be a provocative event that stirred up plenty of newsworthy buzz. The summit provided a critical and unique forum for many industry leaders to exchange insights and develop practical approaches for moving their businesses ahead.
We had five captivating speakers starting with Marc Teerlink of Watson (IBM) who explained how innovation in cognitive processing is changing our world and how it will cross over into the hotel industry. Kalibri’s own Rebecca Bucnis shared preliminary data from the upcoming Distribution Channel Analysis, due out in early 2016, which shows that customer acquisition costs are at an all-time high, the costs of doing business are going up and stressed how important it is for hotels to manage these costs. P.K. Kannan, a professor at the University of Maryland, presented findings from a new study he is conducting which found consumer behavior has changed with regards to online hotel bookings and the Billboard effect no longer exists. The day ended with a fascinating closing keynote address from Ethan Hawkes and Sree Ramaswamy from McKinsey & Company uncovering the four disrupting forces reshaping the hospitality industry and how marketing and technology must evolve to meet new demands.

In addition to the five speakers, there were a number of group panels that covered topics such as how content will be the primary driver in the digital economy, what metrics can be tapped to improve hotel profitability, and ways property-level hotel teams can integrate revenue strategy into their daily lives. And it would not be RSS without the always exciting New Player, New Models panel with pitches from BookingSuite, Stayful and HotelsByDay followed by lively discussions.

In the end, RSS uncovered and examined all the latest trends in hotel revenue strategy, touching on the areas of distribution, sales, price optimization, acquisition costs and marketing.

It was a thought-provoking event where hotel owners, managers, and brand executives came together to discuss how this new field of Revenue Strategy can help the industry not only survive, but thrive amidst change and disruption.

We look forward to the fourth annual RSS in 2016 and we hope to see you there.
Until then, below is a roundup of the articles written about RSS, enjoy!

The Billboard Effect is dead, says a study of hotels listed on OTAs
Study: OTAs continue to steal market share
Think like a retailer: 4 tips for hoteliers
Beyond Big Data: Why Watson is the future
Two digital disruptors hurting hotels
Technology Pulse: A roundup of digital news

EVALUATING HOTEL REVENUE PERFORMANCE IN A DIGITAL AGE

By Mark Lomanno

For as long as hotels have compared themselves to competing properties, the industry has strived to improve the accuracy and timeliness of these measurements. Perhaps there are only a few still around who remember the early days of tracking, when one of the most favored tactics was calling around to competing hotels and asking them what their occupancy and room rate were for the previous night. Or sending out one of your front desk clerks to count the number of cars in competitors’ parking lots at a specified time each night. And, if you were unfortunate enough to be in the center of a major metropolitan area, that clerk may be assigned to count the number of lights that were on in competitors’ windows at night. While these methods were all crude and undeniably inaccurate, they certainly provided a rudimentary way to measure your place in the hotel universe and clearly demonstrated the importance the hotel industry places on competitive benchmark information.

Since then, two developments have facilitated a giant leap forward in industry tracking. The first, and perhaps most important, was technological advancements and resultant ability to accurately track, store and analyze data in a timely manner. This was coupled with enlightened hotel industry management who collectively began to fully understand the benefits of sharing performance information in a way that was lawful while still protecting each property and brand confidentially. With these new developments, hotels could track the revenue side of the equation in a timely, accurate and protected manner.

During the early years of hotel development, the number of ways that a consumer could reserve a hotel room was limited and obtaining detailed information about a hotel was a cumbersome process. At this time, a majority of guests contacted the hotel directly, initially exclusively by phone or just “walking in” with some using travel agents who booked through the airlines’ Global Distribution Systems (GDSs). More importantly, the costs associated with having a guest reserve a room through these third parties were relatively minor. In that world, tracking revenue as a top-line metric was sufficient for competitive measurement.

As we look at today’s lodging environment, one that exists in an increasingly social, digital, mobile and transparent world, the buying behavior and patterns of guests have changed dramatically. The hotel is no longer the primary point of contact in shopping and buying processes. There are multitudes of gatekeepers through which a guest must pass through to gain access to hotel information and buying options. And, in virtually every case, the gatekeeper charges the hotel a substantial toll for each guest that passes through their portal. When you combine these tolls with the ever growing sales and marketing expenses required to acquire a guest, the result is an exploding customer acquisition cost that, over the past decade, is upwards of 15%-25% of room revenue.

In this kind of world, top-line metrics (generally revenue) alone are no longer sufficient to accurately measure hotel revenue performance. It is imperative that they are supplemented with equally accurate and timely metrics to evaluate the cost of acquiring that revenue. To exclude these metrics would be the equivalent of a professional football team measuring how many points they scored in a game while completely ignoring the points they gave up to the opposition. Sure, you can score the most points in the league, but without a good defense, you are never going to win the Super Bowl. The winners are not those who work their way to RevPAR superiority, but rather those who do it efficiently by minimizing the associated acquisition costs.

 

 

AT 10-15% OF A HOTEL’S BUSINESS, DO OTAS REALLY MATTER?

Having recently come from HITEC the last week of June in Baltimore, and attended the concurrent HSMAI Revenue Optimization Conference and the by-invitation-only HSMAI Chief Revenue Officer Roundtable, my head was spinning with discussions about distribution strategy. Admittedly, there are many new channels emerging and lots more to talk about than the OTAs which almost seems like old news at this point. But, in the course of the dialogue, most participants agreed there is a burgeoning need to understand optimal channel mix and to delve into each channel to understand its contribution to a hotel’s profit and, specifically, the costs associated with using it. So, when asked why we insist on spending so much time on the OTAs, my response is that, as long as there are conditions of rate parity and last room availability (or its cousin, base allocations), the other channels and segments are tethered to the decisions made for OTAs. Groups, meetings, conventions, corporate accounts–you name it–they are affected by the deals made with OTAs whether its a one-time promotional offer, or a rate level that is in widespread use over time.

Used to be that rates were pegged at a “rack rate” and cascaded down from that depending on the market segment and demand for each. Now, the rates are set with the OTA conditions in mind and its tough to go up from that (given how prominent these rates are in the transparent online world) and cascading down is the wrong direction in many cases. Use of each channel should be by design, not by default. Hotel management, representing its owners, should give a lot of thought to the rates and inventory for each channel, starting with the OTA. There will be many new channels, all of which will be highly visible to the consumer. So when someone asks me, “do OTAs really matter?,” I have to reply, they sure do. Make decisions by design and consider each channel with great thought and care.

WHERE IS YOUR BUSINESS COMING FROM?

There is a lot of discussion of late about online attribution models. This usually refers to the credit given to the different media or websites that are visited along the consumer’s buying path in the run-up to the booking. Many hotels are still assuming “last click attribution” which means they credit the last place a consumer stopped before clicking the “buy” button with providing the impetus for the business. Many clickstream studies have been conducted that examine the number of touchpoints made by consumers before they decide to buy. Some claim there are 7-10 stops along the sales path; others as many as 20. Documented in the Distribution Channel Analysis study, there were 7-8 websites visited by members of the comScore data panel that was used to investigate Expedia’s role in hotel bookings, but the data to evaluate other media such as email, banner ads or offline venues such as magazines, radio or TV were not available.

Why should we care who or what to credit with the booking? If a hotel marketer knows which touchpoints trigger the booking, he or she will presumably have more intelligence on hand to decide where to put limited marketing funds. Everyone wants to put their money where it will buy the most influence with consumers. If there are 10 touchpoints and the marketer puts all the funds into only one, such as the “last click” or an online travel agency claiming to dominate consumer hotel booking behavior, then they are assuming that all other touchpoints do not wield enough influence to justify an investment.

This is a contentious issue. Most hospitality marketers have limited funds so the decision as to which media vendor gets the budget from each hotel and/or hotel company is a big one. Media vendors would like hotel marketers to choose them as their dominant marketing partner so they go to great lengths to show that their venue is the decisive stop along the sales path for hotel buyers. Google has done some delving into it and it seems that it is coming into focus for many industries, but most marketers have not yet figured it out.

What is the answer to this question? Many of the large hotel chains are developing statistical models to figure out which shopping patterns lead to the most bookings. What does one individual hotel do? Lacking sophisticated analytics tools, the most practical method may be well thought out trial and error. Some savvy hotel marketers buy media from a vendor such as a search engine or an online travel agency or a consumer review site for a month or two testing just one new vendor at a time and carefully checking traffic and conversion volumes. Does it bring the type of clientele you want? Is it at the rate and spending levels you want? If so, try adding more budget to the plan and see if it yields more business. Test and repeat.

The first point of entry and last click before buying are worth testing, but should not be presumed to be worthy of investing all of a hotel’s budget so beware if those media vendors want to push you to put all of your eggs in their basket. As more channels are opening such as new travel-specific search engines, mobile vendors and social sites, there will be more opportunity, along with more confusion as to which channel(s) trigger the booking. Testing investment levels with corresponding results is the only way available now without a statistical model. This topic will be revisited many times in the future as techniques are developed to help hotels allocate their limited resources.

WELCOME TO DEMYSTIFYING DISTRIBUTION!

This is the inaugural post for the new blog about hotel distribution issues. We will discuss the new book Distribution Channel Analysis: A Guide for Hotels as well as new issues that come up related to distribution particularly those related to revenue management and marketing. We welcome your comments, questions and hope to encourage dialogue on this important topic.