The Evolution of the Digital Marketplace and Hotel Lodging

By Cindy Estis Green

The hotel industry traditionally received reservations through calls, walk-ins and travel agencies. But more recently, at annual growth rates of 10-15%, technology aggregators have grown into a considerable force, with two online travel agencies (OTAs) representing a meaningful share of the domestic hotel business, particularly for leisure travelers.

Kalibri Labs is a next-generation benchmarking platform that helps hotels improve profit contribution by evaluating and predicting revenue performance net of acquisition costs.

Kalibri Labs is a next-generation benchmarking platform that helps hotels improve profit contribution by evaluating and predicting revenue performance net of acquisition costs.

Meanwhile, in the past year, major hotel brands expanded loyalty offerings for booking direct through their websites. Search engines and mobile apps are the emerging models for travel, and it appears the digital experience may be the differentiator in consumer choice when it comes to hotel bookings in the future.

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Part II: Demystifying the Digital Marketplace

Just released!

We are excited to present Part II of the special report – Demystifying the Digital Marketplace: Spotlight on the Hospitality Industry, which takes a deep dive into the production data and associated costs of 25,000 hotels over the course of three years (2014-2016) and includes mapped performance patterns of each hotel segment.

While there are many takeaways – and we urge you to explore the details within the full report – we’re particularly excited to share one in particular: Hotels in every segment across the country listened to customers’ demands for more personalized, one-to-one experiences and responded in kind. Over the past several years, a number of companies have launched innovative campaigns to promote enhanced offerings to loyalty members, including exclusive member-only rates and added amenities. And this report shows that effort is paying off. Bookings through direct channels continue to deliver the highest profit margins and brand loyalty has increased in every segment and is now at an all-time high.

Of course, the challenges presented by this shifting landscape – and third party commission costs in particular – are as real as ever, and there are countless more opportunities (which we will explore in Part III) hotels can pursue in order to diversify business mix and own even more of the digital conversation and, by extension, revenue capture. But the results of these recent efforts tell a promising story: There is no challenge this industry cannot overcome when we own the conversation with our customers.

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Thank You to Our Sponsors

We would like to thank our sponsors and industry partners for their role in this important piece of research - the American Hotel & Lodging Association, the Asian American Hotel Owners Association, the Hospitality Asset Managers Association, the HSMAI Foundation, the Hospitality Financial and Technology Professionals, and the IHG Owners Association.

It is our hope that this data will continue to help inform strategies and innovations that deliver the greatest profit and growth.

Our Industry Sponsors

The Financial Impact of Changing Booking Behavior

HFTP DDM image.jpg

By Cindy Estis Green and Matt Carrier

Part 2 of the new special report from Kalibri Labs, Demystifying the Digital Marketplace: Spotlight on the Hospitality Industry, dives deeply into the intricacies of digital distribution and provides insights into what drives business today. The report is based on hotel production data ad associated costs for 25,000 hotels 2014-2016 to examine the patterns of performance by hotel type over time and is sponsored by many industry associations, including HFTP. The following excerpt shares key findings from Part 2 of the report.

The analysis looks at three types of revenue or ADR: guest-paid revenue or ADR includes everything paid to a hotel or third-party to account for merchant (NET) rates; hotel-collected revenue or ADR reflects the revenue the hotel collects and shows on the P&L statement; and COPE revenue or ADR (contribution to operating profit and expense) which is a type of net revenue that reflects the guest-paid revenue after moving all direct acquisition costs such as commissions, transaction fees, loyalty expenses and channel costs. At the U.S. aggregate level the study examines net revenue which additionally removes sales and marketing expense.

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A First Look at Part 2 of Kalibri Labs’ Special Report

A first look at Part 2 of Demystifying the Digital Marketplace: Spotlight on the Hospitality Industry

Interview with Cindy Estis Green

To support the industry in addressing digital distribution evolution, Kalibri Labs has continued to track industry undercurrents to help reveal what hotel brands, owners and operators can do to embrace the changes and position their businesses for competitive success.

“Demystifying the Digital Marketplace,” a report that builds on the landmark 2012 study, is unprecedented in scope and scale. The rich insights and data provide a framework for understanding market realities as well as embracing opportunities to manage costs and optimize profit contribution.

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A look at how consumer behavior affects acquisition costs

by Mark Lomanno, Kalibri Labs

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.

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Demystifying the Digital Marketplace: Spotlight on the Hospitality Industry

Kalibri Labs through the AH&LA Consumer Innovation Forum, along with many industry sponsors, has just released Demystifying the Digital Marketplace: Spotlight on the Hospitality Industry, which is an exclusive study derived from 25,000 hotels offering cutting edge research and insights that have never before existed for the hotel industry. The report serves as a valuable update to the initial study Kalibri Labs authored in 2012. The first part in the three-part series focuses on the macro view of the digital distribution landscape and includes:

  • An introduction to customer acquisition costs for hotels;
  • A recap of a quantitative study of online consumer behavior disproving of the “billboard effect;"
  • A high level view on industry wide revenue capture; and
  • Overviews of third party trends.

The second series will highlight “Hotel Performance” in the digital market and the final series will focus on “Taking Action” to take advantage of digital market opportunities.

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Book Direct - The Numbers Tell the Story

The Numbers Tell the Story

It's no secret that here has been a flurry of book direct campaigns launched in recent months. This includes IHG and Accor launching campaigns in Europe in 20015 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 cam-paigns 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.

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The Digital Marketplace in Europe: Hotels and Third-Party Intermediaries in the New Age of Travel

The Digital Marketplace in Europe: Hotels and Third-Party Intermediaries in the New Age of Travel

The Digital Marketplace in Europe has changed drastically in the past few years. This white paper explains the pushback on last room availability by many hotel companies. How will hotels balance direct initiatives and those deployed through third parties to retain and acquire customers?

Key Topics:

  • The three pillars of the digital market strategy
  • Managing acquisition costs of the marketplace
  • Investment in customer acquisition and retention

Next Generation Revenue Performance Benchmarking for the Digital Economy

Next Generation Revenue Performance Benchmarking for the Digital Economy

THE HOSPITALITY DISTRIBUTION WORLD as we know it is in a near constant state of change. This has never been more true than in the past several years. Expedia acquired Travelocity, Orbitz and then HomeAway. Booking.com, a massive distribution platform, is now offering technology solutions, such as PMS and revenue management, to independent hotels. Metasearch platforms are expanding instant booking offerings to keep customers on their sites. Booking Brands, such as OTAs and metasearch, have become gatekeepers for online travel shopping causing the Stay Brands, traditional hotel companies, to pay much more for access to customers. The cost of sales in the 1990s of about 5 percent to 10 percent of room revenue has shot up to 15 percent to 25 percent and continues to rise. 

How does a hotel manage this challenging new environment? What are the metrics it should track to sustain profitability and thrive? The traditional RevPAR metric doesn't account for this new and substantial cost of sales and therefore often doesn't reflect a hotel’s profit contribution. This new world of sky-rocketing acquisition costs, calls for a next generation set of benchmark metrics to evaluate hotel revenue performance. 

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End of Year Review: Digital Marketplace

End of Year Review: Digital Marketplace

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.

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Revenue Strategy: Investing in Your Hotel’s Optimal Channel Mix

Revenue Strategy: Investing in Your Hotel’s Optimal Channel Mix

The Billboard Effect is Dead, 
Rate Parity is Dead, 
Last Room Availability is Dead; 
Long Live Revenue Strategy

The third-party wars are raging in Europe with rate parity’s demise pending only a few more strokes of the regulatory pen. With pushback on last room availability by many hotel companies, inventory control may soon be back in the hands of the hotels. Also crumbling is the long embraced theory of the billboard effect. Expounded by the OTAs for the last 10 years, the billboard effect claims to provide “free” merchandising, leading to even more bookings direct on a hotel’s own website.

Ultimately, even in this changing environment, hotels in today’s digital landscape have to constantly balance the two options they have to acquire and retain customers: direct initiatives and those deployed through third parties. There are costs associated with every single acquisition technique. While many channels can bring value, none bring unlimited value or have infinite volume. Tradeoffs and decisions have to be made by hotel revenue strategists.

 

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The 3rd Dimension of the Hotel Business — Content

The 3rd Dimension of the Hotel Business — Content

Could the way that hotels deploy and manage content affect the sustainable health of the hotel industry?

“Content is king” is a commonly used aphorism, but what does that really mean? They say the currency of the digital economy is content but how does this affect a hotel? Content for the hotel industry means everything from hotel descriptions, photos and video, along with rates, availability and guestroom and meeting space inventory. Creating, curating and controlling content has been core to the strategy for the large tech companies. For example, Google is amassing the power to control the content for every aspect of the digital economy in many sectors, e.g., travel, retail, music, et al. Amazon has made similar headway in the retail merchandise markets.

Content enables the merchandising of products and services that ultimately results in sales. The better the content is, and the easier access one has to it, the more valuable it is. Whoever controls the content controls access to the consumer and in so doing, the ka-ching of the virtual cash registers.

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Google's European Antitrust Issue

Google's European Antitrust Issue

The European Union's recent announce­ment of its intent to file antitrust charges against Google has large implications for the hotel industry. The main complaint is that Google favors its own travel search products over those of its competitors and hotel-inventory providers. 

Google's acquisition of ITA Software's flight-search services and implementation of the bidding model behind its Hotel Price Ads (H PAs) have caused frequent com­plaints from OTAs, metasearch sites and travel brands. In fact, the first results page is almost entirely "pay for position." 

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Last-Minute Caution Expedia

Last-Minute Caution Expedia

Expedia's launch of its Sell Tonight platform, which allows hoteliers to more easily manage last minute inventory, is an indication that more traditional distribution players are going after the hot last-minute booking space that HotelTonight and others pioneered. 

Hoteliers should be aware of the cost, risks and benefits inherent in channels providing this service and enter into any agreement with open eyes and reasonable expectations about net revenue, customer profit and consumer perception in the market. 

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New mobile entrants and issues in hotel distribution

New Mobile Entrants and Issues in Hotel Distribution

The mobile eCommerce space in the hotel industry is growing and changing rapidly. With the massive influx of new distribution apps and mobile sites, it is vitally important that hoteliers stay educated and able to make informed decisions about their hotel participating (or not) in these new channels. Hoteliers must be able to take a pragmatic view of both their hotel(s) and these channels, with their specific customer profiles and compensation structures, to determine if they will be able to benefit from their participation.

Last Minute Booking Apps

One of the hottest topics in mobile hotel distribution at the moment is the rise and prevalence of last minute booking apps. Examples of this type of distribution channel include HotelTonight, Groupon Getaway Tonight and JustBook, among others.

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The Consumer Innovation Forum

The Consumer Innovation Forum

Earlier this year, the Consumer Innovation Forum (CIF) was established by the American Hotel & Lodging Association to improve the consumer shopping, buying and stay experience. With the active participation of the hotel industry, CIF will also examine creating more cost-effective processes for the benefit of consumers, hotels and the communities in which hotels operate

Having identified these twin priorities of intermediation and distribution, CIF was established as a research venue on this topic for brands, owners and management companies, and includes active participation by 20 brands, 10 ownership groups and four management companies. In addition, there are representatives from other industry organizations including, The Hospitality Sales and Marketing Association International (HSMAI) and the Hospitality Asset Managers Association (HAMA), whose membership has a particular interest in this topic.

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Here Be Dragons: Dangers and Opportunities in the Digital Marketplace

Here Be Dragons: Dangers and Opportunities in the Digital Marketplace

The digital marketplace is ever changing with constant disruption. Newspapers, digital photography, retailers and financial services have undergone massive changes as a result of consumer behavior. The hotel industry is no exception. Hotel selection happens much deeper in the sales process because consumers are gathering travel information on aggregator sites like online travel agencies, Google and TripAdvisor well before narrowing down to a shortlist. By the time the consumer decides to make a hotel purchase, he or she may have touched seven to 10 sitesand been directed or diverted by the search or information site based on which hotel(s) have a more prominent listing or a higher ranking for the destination.

Managing Acquisition Costs – the Marketplace
The bifurcation of brands in hospitality into booking brands and stay brands has been a driving force behind the escalation of customer acquisition costs. Hotel operators along with corporate and regional teams, have to navigate the digital marketplace with a new imperative to modify revenue performance evaluation. Supplementing the traditional methods of tracking operating margins and market share, managing gross margins (revenue – cost of sales) may prove to be a key to success in a dynamic and turbulent online arena

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Distribution: The Rise of the Metamediaries

An era in hotel distribution when some of the giants in technology an media are entering the travel industry, creating a new category of intermediary, many with meta-search capabilities.

Commissions, transaction fees and media costs will dominate marketing budgets going forward and the challenge will be to manage these relationships in a way that does not allow the value gained by the metamediaries to be at the expense of the value of the hotels on which they depend.

Key Topic:

  • New Players in the Travel Market