Customer Acquisition Channels for Hotels

 

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There was once a time when hotel marketing focused on brochures, newspaper listings, magazine ads, banners, and lots of printed paper. Things have changed, and print media is less effective at driving new bookings as it once was. Today, it can be hard for hoteliers to learn how to acquire new guests aside from turning on a flickering ‘vacancy’ light in the window. This problem is exacerbated as guests move away from more traditional hospitality customer acquisition channels, in favor of more accessible digital channels. In this whitepaper, we will explore the primary acquisition channels used today by the most successful hoteliers and hotel marketers around the world.

Digital vs. Traditional

Traditionally, hoteliers have used non-digital customer acquisition channels, like print advertisements, to build brand awareness and find new guests. This form of marketing is becoming less effective with each year. In the first half of 2012, the Newspaper Association of America reported that newspapers lost $798 million in print advertising, while gaining only $32 million in digital advertising. That means for every $25 they lost in print ad revenue, they gained only $1 in digital ad revenue. This shows that advertising with newspapers—digital or in print—fails to produce.

TV is not in as bad of shape—it gained 4.5% in ad revenue in 2012 compared to 2011—but even it is dwarfed by the rise in online ad spending, which grew 21.7% from 2011, outpacing TV spending by over 17%.

Radio, magazines and other mediums are now dwarfed by digital online marketing in terms of ad spend. eMarketer predicts that by 2016, $62 billion will be spent on digital advertising ($39.5b in 2012) compared to only $32 billion in all of print advertising ($35b today—that’s a loss of 8.5% over four years).

One can only conclude that productive customer acquisition channels are almost exclusively digital, and the disparity between traditional and digital channels where guests are concerned will only increase. Therefore, though there are other customer acquisition marketing channels that are possible to consider, such as walk-in customers, billboards, magazines, newsletters and so on, we will focus primarily on digital marketing channels and hospitality exclusive channels that offer digital marketing.

Third Party Resellers

OTA – Online Travel Agency

OTAs are consumer-facing web interfaces for travel bookings many are familiar with due to their far-reaching advertisement campaigns. OTAs include Orbitz, Expedia, Priceline, Travelocity and others. OTAs were created to give travelers the ability to book their own travel plans without need of traditional travel agencies. OTAs communicate with many Global Distribution Systems (GDSs) in order to process reservations, but they also use their own proprietary software.

OTAs typically drive a great percentage of online reservations to hotels, but claim a percentage of each transaction. They can help sell a hotel’s vacant inventory, but at a cost to the hotel. Hotel owners usually prefer that guests book travel directly through their own booking engines instead of OTAs, and then list their room inventory with OTAs and GDSs when they expect it to otherwise go unsold.

Data shows that guests are increasingly booking travel directly from hotel websites, due to the attractive user experience of trip planning using search engines like Google, and due to the billboard effect—a phenomenon whereby guests discover hotels through OTAs, then in the course of doing independent research using search engines, book travel directly from the hotel website.

It will be important for hotels to partner with OTAs for the foreseeable future due to their popularity. Many guests prefer to purchase package deals, including airfare, car rentals and accommodations, which is a benefit of using an OTA, since it communicates directly with GDSs. However, it is becoming increasingly important to have an alternative direct booking option for guests who prefer to book directly with the hotel.

Pros:

  • Hotels can sell more inventory that would otherwise go unsold.
  • It is easy to list inventory with an OTA with minimal up-front costs.

Cons:

  • OTAs take a commission on each room sold.
  • Some OTAs will not accept inventory unless the hotel meets its price requirements.

GDS

There are four major GDSs in the world today: Worldspan, Amadeus, Galileo, and Sabre, and many other minor ones. GDSs are used to make reservations for multiple airlines, hotels, car rentals, and other vendors. The airline industry first created GDSs to save time on manually inputting and processing flight reservation data. GDSs are today used by various entities, including airlines, travel agencies, OTAs, car rentals, hotels and more to manage and process reservations.

GDSs run on legacy systems, meaning that they are powered by outdated code and methods. This is a large problem for the travel industry for many reasons. Old code can only run on old hardware, which is becoming hard to repair and replace. Those who knew how to repair and adapt legacy systems retired or forgot how to use them, and the information was lost with them. This was the cause of Comair’s legacy system crash in 2004, causing 3,900 flights to be delayed or canceled and stranding as many as 200,000 passengers. Comair fired their CEO over this legacy system failure.

For these reasons, it is important to own or use a CRS powered by updated technology. The best solution is to use a SaaS CRS that is updated over time as technology advances, to prevent future incompatibilities and system failures.

Today, GDSs are still used in one way or another by airlines, hotels, and OTAs all over the world. For the time being, it is still important to integrate an independent hotel CRS with GDSs in order to benefit from the additional transactions they provide.

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Pros:

  • Listing inventory with a GDS can ensure your rooms are seen by resellers around the world.

Cons:

  • As with OTAs, sometimes hotels have to lower their prices to be accepted by the GDS.
  • GDSs are built on legacy systems and may not be compatible with modern CRSs and IBEs.
  • GDSs take a commission from each sale.
  • Not all CRSs and booking engines can integrate with GDSs.

Directories

Directories like TripAdvisor, Yelp, and Google’s Hotel Finder serve as databases of hotels guests can explore to find what they are looking for. Instead of going directly to the hotel’s website, they browse the directory and filter results by dates, amenities and other trip requirements.

Instead of communicating with the GDS and managing the guest’s transaction, directories simply display the desired results and provide price comparisons and links to OTAs and hotels. Many directories are free and make money on ads. Some directories make their money by charging hotels for privileged placement on the directory. The hotel that pays the most gets the highest placement for their desired search terms.

While some directories like TripAdvisor are used frequently by guests, most directories are never used by actual guests and are therefore not valuable marketing channels. The ones that take payments for prominent listings also take payments from OTAs. It’s possible for a hotel to pay a directory for a sponsored placement only to be outspent by an OTA selling the hotel’s own inventory, thereby costing the hotel a listing fee on top of an OTA commission.

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Pros:

  • Can place your hotel before the eyes of guests who are accustomed to trip planning using certain directories.

Cons:

  • Can cost money for better visibility.
  • Lack of control over property information.
  • Lack of control over guest reviews.
  • Necessitates time spent responding to reviews, uploading photos and keeping the listing up-to-date, if the directory allows hotel claiming and updates.
  • Often thick competition from competing hotels for prominent placement.

Franchises & Flags

Franchises and flags give hoteliers access to established clientele, identifiable brand familiarity, services, and existing marketing channels.

Guests know what they’re getting when they book with a franchise. They know exactly the style, the amenities, the service, and character to expect from a franchise. This allows guests to make a purchase decision quickly, and to seek out specific franchises where they have stayed in the past, enjoyed their stay, and therefore know what to expect.

Additionally, many frequent travelers, particularly business travelers, are members of loyalty programs for flights, car rentals, and hotels. Guests who are part of these programs often seek out and stay at a specific hotel brands time and time again in order to build up points.

Running a franchise hotel takes away some of the cost and hassle of providing additional services for guests. Many franchises provide organizational and promotional services for the franchisee, including some forms of marketing, partnerships with taxis and airport transport, food service providers and catering, insurance companies, maintenance, and so on, removing the necessity for hotels to form these new business relationships themselves. Hoteliers who run a franchise can reap the benefit of pre-existing business relationships made with the franchise brand.

The combination of lack of surprises, expected standards, widespread national coverage, and loyalty programs gives large branded franchise hotels a compelling built-in customer base that is very attractive. Hoteliers often choose to run a branded franchise hotel in order to take advantage of these benefits. In exchange, the franchise brand takes a percentage of the hotel’s profits.

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Pros:

  • Hotels gain frequent guests who are loyal to the franchise brand.
  • Hotels gain access to the loyalty programs, web conversion engines, online digital marketing partnerships, and other extant marketing channels run by the franchise brand.
  • Hotels can take advantage of extant services provided by, and business relationships made with, the brand.

Cons:

  • Some brands take a percentage of the hotel’s profit, in exchange for the hotel having use of the brand. Others charge annual brand and franchise fees.
  • Some franchise owners have pricing flexibility, but many others are restricted by the brand franchise and cannot alter their rates.

Direct Channel

The direct channel is the most straight-forward and intuitive marketing channel, but it sometimes comes with costs necessary to work well, including the costs of time, money, and hotel resources. The most prevalent manifestation of the direct channel is a hotel website complete with reservation capture system. From the website, guests book rooms directly from the hotel. This removes the need for a middle man who charges additional fees.

That said, it is often challenging to properly market and maintain the direct channel. The following are some considerations hoteliers need to think about when creating and publishing their direct channel marketing presence.

Website

A hotel website is the heart and soul of the direct channel. It is the destination to which all other marketing activities funnel traffic, and acts as a “conversion engine”. Hoteliers need a web presence that serves as a digital representation of their property that guests can use to make inquiries and book rooms. It can be relatively inexpensive to publish a simple hotel website. However, technology evolves quickly, faster than any other industry, and websites published yesterday are out of date tomorrow. For example, websites published five years ago—and never kept up-to-date—currently can’t support mobile and social visitors and interactions.

It can be an expensive, tedious and time-consuming process for hoteliers to stay on top of web technologies as they emerge, and keep their digital marketing up-to-date. It is possible to find services that do this for the hotelier, each with its own range of fees.

Online Reservation Capture (Internet Booking Engines, or IBEs)

Many smaller hotels opt to have a simple contact form on their website. When a reservation inquiry comes in, they open their email, record the information, and process the credit card. This is a manual process that works best for small properties with a handful of rooms. For larger hotels, they need a more robust, automated booking engine that can deliver updated availability to guests when they make web queries.

Additionally, it is often impossible for hoteliers to list their excess inventory on OTAs or with the GDS on their own. Thus, it is often necessary for hoteliers to purchase or subscribe to a 3rd-party reservation system, or CRS. Hoteliers have a plethora of options, however, many CRSs take a commission fee for every transaction that passes through their CRS.

See our whitepaper on Hotel Booking Engines for more information.

Search Engine Optimization (SEO)

Search engines will continue to be a valuable source of traffic and online reservations for some time. Having a solid SEO plan in place allows a hotel’s website to convert at peak performance. However, since search engine algorithms are volatile, changing daily, implementing any SEO strategy can be risky.

For example, implementing an SEO strategy popular five years ago could cost a hotel its search engine ranking, causing it to be penalized by Google. Some of what was once acceptable SEO is no longer acceptable by Google. A business could become completely invisible on search engines if it contracts unscrupulous or ill-informed SEO agencies.

While having a prominent listing on Google can be incredibly lucrative, it can take an enormous amount of research and effort to keep a website up-to-date with Google’s SEO best practices. Read our whitepaper on Hotel SEO for more information.

Social Media

The goal of social media is to point guests and fans to a direct marketing channel in order to capture their online reservation. It is very hard to do social media correctly. More often than not, hoteliers will create their social media profiles, speak to an empty room for a few weeks, and then give up.

In order to use social media correctly, hoteliers and hotel marketers need to invest time and passion into the network before it will ever bear fruit. This time can be costly and exhausting, and may not deliver results for weeks, months or even years. Download our free eBook for more information: A Hotelier’s Guide to Social Media.

Search Engine Marketing (SEM) and Pay Per Click Ads (PPC)

Traditional billboard, newspaper and magazine advertisements have been superseded by web advertising. SEM and PPC advertising accounts for the majority of all advertising revenue generated in the world today—Google advertising alone has made more money each year than all print advertising combined since 2007.

Anyone can start an SEM or PPC campaign, but the learning curve to execute such a strategy effectively can be steep. It is very easy to quickly waste a year’s marketing budget in a month, if one does not take care. It takes good intuition and experience to choose the right advertising targets, place the correct bids and manage a monthly budget.

For these reasons and more, many hotels hire agencies to perform SEM and PPC services for them. This compounds costs, levying the cost of the campaigns and the agency fee upon the hotel. It can be very difficult to see positive return on investment (ROI) concerning paid online advertising.

Mobile

Mobile devices are increasingly being used to make travel related planning and purchases, including hotel bookings. Google predicts that guests will be booking travel from mobile devices more than they do from desktop or laptop PCs by 2013. It is therefore important that hotels optimize their direct conversion channels for mobile devices by purchasing a mobile optimized website.

Mobile optimization entails crafting a new website with fewer scripts, larger buttons and text, and smaller images in order to improve load speed over wireless networks and aid swipe navigation (see our whitepaper on Mobile Optimized Websites for more information). Good mobile optimized hotel websites come complete with a mobile optimized booking engine. It can be expensive to optimize for mobile, but the cost has been going down precipitously as mobile need has risen. It is very easy, however, to purchase a mobile optimization package ‘done wrong’—that is, hosted on a 3rd-party domain, or within a directory, or without an included mobile redirect, and so on.

Email

Despite the growth of social media and the explosion of mobile guests, email marketing is still a powerful tool hotels can use to connect with guests. It is also one of the more affordable direct marketing tactics. It demands a little time collecting emails, creating lists, crafting messages and evaluating results, but less time than many other marketing activities.

The costs are time and any 3rd-party services used to manage email lists. These range anywhere from $10 a month to thousands a month, depending on the size of the hotel’s marketing list and frequency of emails.

Deals

Online deal services like Groupon, Living Social and Amazon Local have millions of subscribers who are looking for good deals. Joining one of the services and offering their members a substantial discount is a quick way to fill empty inventory.

One drawback of using deal services is that many of them won’t accept a proposed deal unless the hotel offers a significant discount–so significant that the hotel might not make much money. However, the brand exposure is a great opportunity for a hotel to snag repeat customers and future online bookings. The risks and rewards need to be weighed heavily before embarking on this strategy.

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Pros:

  • It can be cost effective to pick one or two direct marketing activities and excel at them.

Cons:

  • It can be expensive and tedious to try to excel at all direct marketing activities, and very challenging for all of them to pay off.
  • Unless the hotel has purchased a digital marketing subscription, the hotel’s online marketing will age quickly as soon as it is purchased.
  • It is challenging to be successful with the direct channel without significant investment in one or more digital marketing strategies.

Software as a Service (SaaS)

SaaS takes the direct channel and simplifies its hassles to streamline the conversion process. Simply put, a SaaS digital marketing system (DMS) connects all of a hotel’s marketing channels, making it easier and more cost effective to manage and update them.

The cost, time, and hassle, which are the primary drawbacks of using the direct channel, are spent on researching service providers and agencies, or learning and implementing the technology oneself. SaaS uses professional technical knowledge to produce modern software that is constantly updated, removing the necessity for hoteliers to spend their own time and resources learning, or paying a myriad of agencies and professionals, to provide a service.

Additionally, SaaS gives editorial control directly to the hotelier. Instead of calling up web development agencies to make small changes to a website or a mobile optimized website, for example, hoteliers can log-into the browser-based software and make editorial changes on the fly, instantly publishing these changes to all of their marketing channels.

SaaS reduces the cost of modern software. Agencies and independent designers are limited by budget, and therefore can only produce services and software that fit within their design and production budget. Alternatively, SaaS is a multi-million-dollar technology, constantly updated. With SaaS, hoteliers have access to million-dollar technology for a small subscription fee. With agencies or independent developers, hoteliers pay multiple thousands of dollars for thousand-dollar technology that stagnates and grows outdated as soon as it is published.

See our infographic to learn more about the differences between the SaaS and agency software business models.

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Pros:

  • Connects a hotel’s online marketing channels together, making it easier to update content.
  • Keeps all published online marketing content consistent.
  • Digital marketing technology, such as websites, are constantly updated by the software to keep them modern and up-to-date.
  • Pricing is simplified into one monthly or yearly subscription fee. This prevents hoteliers from having to manage dozens of different payment plans with different service providers or agencies.

Cons:

  • Hoteliers enjoy the benefits of SaaS only as long as they continue to subscribe to it.

Summary

A little knowledge can help hoteliers understand their options and select marketing channels to pursue, but it takes hard, constant work to keep up with them in order to make them profitable. SaaS seeks to solve this problem by placing the hassles of research, time and expertise in the hands of industry professionals, reducing the cost of high-converting digital marketing and saving time for hoteliers to spend managing their hotels.

Customer acquisition channels have evolved so much over the years that to ignore the digital channel is a business crippling decision. Hoteliers should start with a new, modern website and mobile optimized website hosted in the cloud and optimized for search engines. From there, hoteliers should choose the customer acquisition channels that work best for their own goals.

Glossary of Terms

BILLBOARD EFFECT: Hotels notice that they see more direct online reservations after listing rooms with an OTA. This is because guests use OTAs for discovery, and then continue their travel research by going to the hotel website directly, where they can make an online reservation. This is called the Billboard Effect.

BOOKING ENGINE: See IBE.

CUSTOMER ACQUISITION CHANNELS: Digital, online channels where hoteliers go to market to potential guests. Each channel needs its own strategy in order to successfully market to the unique guests that spend time there. Customer Acquisition Channels can include, Facebook, mobile devices, and search engines.

CRS: Central Reservation System. A system hoteliers use to manage and organize their inventory availability and to open, close and otherwise process reservations.

DIRECT ONLINE RESERVATION: A reservation made directly from the hotels own CRS.

GDS: Global Distribution System. Communicates with CRSs from airlines, hotels, car rental services and more all over the world, combining them all into one database.

IBE: Internet Booking Engine. A GUI that communicates with a CRS, allowing guests to book rooms directly from a hotel online.

ONLINE RESERVATION SYSTEM: See IBE.

OTA: Online Travel Agency. They retrieve information from GDSs and CRSs to provide travelers with a centralized way to book many types of reservations.

SAAS: Software as a Service. SaaS is subscription-base. Because of this, SaaS developers are free to update the service over time as technology evolves, ensuring that he product never becomes outdated.

SEARCH ENGINES: Websites like Google that guests use to find hotel websites.

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