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.