Here are existing hotel practices that really need to change, and 2017 is the opportunity to see if you can begin making it happen.
1. Stop treating your website as a hobby
We continue to see hotels relegate their online and mobile presence to an afterthought at worst, or a secondary fill-in strategy at best. Your hotel’s online and mobile presence needs to be front and centre of your entire strategy – not front and centre of your online strategy, but of your entire strategy.
Failure to consider your direct sales strategy first and distribution second automatically means that by design or (likely) by default, your organisation will favour sales via more costly distribution – because it seems easier. Worse, it causes your organisation to build a reliance on non-direct business and removes availability from the direct channel which causes further reductions in your capability.
In 2017, hotels need to stop thinking of their website/mobile sales as a bonus. Instead the attitude should be that anything not being sold on the website/mobile is a problem that needs to be solved. There must be strong and clear ownership of the online presence in every hotel and that strategy needs to take primacy. Accept that your website is no longer a hobby, it is a sales-generating machine, so allocate the financial and personnel resources it deserves or your business will be dictated by external parties if you do not. Can you make a change here in 2017?
2. Stop hiding third party commissions from your accounts
Understanding real cost of acquisition and developing practices to track it is crucial. The sad reality is that most hotels do not really know their cost of acquisition per distribution channel and specifically how it compares between direct business and indirect business. One of the strongest reasons for this lack of visibility is actually the accounting practices of hotels.
Two issues occur which obscure the real cost of your distribution.
The first issue is the “post sale” treatment whereby hotels do not budget in advance for how much they are willing to pay out in commissions to OTAs. They simply write the cheque for commissions once the guest has stayed. This creates a scenario where there are no restrictions on what you will allow OTAs to deliver to your hotel, even though every room sold via an OTA can be a lost opportunity to sell that room via your direct online presence at a higher profit. Worse, your accounts probably record all of those costs together as an innocuous-looking cost of sale line without breaking down each OTA as a specific cost line. The result is unchecked and often invisible expenditure on OTAs.
The second issue is where wholesale commissions are not recorded at all in the P&L. Take this example from Fáilte Ireland’s recent excellent report on Cost of Acquisition (http://bit.ly/2ieWJOS):
- A guest books through a merchant model online travel agency and pays the OTA €200, plus VAT, including a contracted mark-up rate of 20% that was previously agreed upon by the hotel with that online travel agency.
- Your hotel-collected revenue is recorded on your hotel’s profit and loss statement as €160 from the guest, but €218 is what the guest actually paid, (inclusive of VAT @9%) [the Guest Paid Revenue]
- The OTA collects its €40 commission before the guest even enters your hotel
- There is no place to record the €40 as a customer acquisition expense in the P&L.
The lack of visibility on real costs of distribution negatively influences strategic decisions. Hotels need to take steps to fix this issue and ensure that the data necessary to properly inform strategy is no longer hidden. Can you make a change here in 2017?
3. Stop putting barriers on your own marketing
Ironically, while OTA commissions are often paid “post-sale” with no real constraint (or visibility) on their true magnitude, hotels’ accounting practices will begin the year by trying to restrictively budget on what they are prepared to spend on their own online marketing and online presence. In other words, hotels view their own marketing on a “pre-sale” basis – asking what am I prepared to spend to get direct bookings – which often restricts spend.
In contrast to the post-sale approach, this often leads to immediate barriers on a hotel’s own success. Take this simple illustration of why a simplistic approach to budgeting for online marketing can result in lost opportunity:
Your hotel has a bar. You sell Guinness. If you run out of Guinness half way through the month, you don’t say to customers: “Sorry, we’ve exhausted our Guinness budget for this month, we have no more Guinness, go next door if you want some”. Instead, you buy more Guinness, and you will keep buying more Guinness as long as there is an opportunity to sell it.
Spending on online marketing also needs to be viewed this way – you keep buying more advertising as long as you have opportunity to convert at profit. Yet we continually find hotels capping their spends because of pre-defined budgets even when we demonstrate that there is still opportunity to get a return on online investment. You are sending customers elsewhere by not engaging with the opportunity.
Hotels need to think hard about why they continue to apply an outmoded budgeting/restriction approach to a new more dynamic marketplace where opportunity needs to be seized and where returns on investment can be measured quickly. Can you make a change here in 2017?
4. Stop incentivising staff on revenue
The consequences of some of the foregoing, particularly the lack of visibility that many hotels have on the real cost of acquisition, means that many staff responsible for business acquisition continue to be incentivised on revenue. This practice needs to stop, since incentivising revenue alone actually encourages more sales via the easier OTA path at the expense of direct sales.
In today’s marketplace, getting revenue is relatively easy. The battle is getting revenue at the lowest acquisition cost. Since profit is the aim, so that capital is made available for business development, hotels need to focus on NetRevPAR and eliminate old metrics. NetRevPAR is calculated as the Guest Paid Revenue (as defined in the example above) less total acquisition costs, divided by number of available rooms. It focuses on what you as a hotel are left with from what the guest was prepared to pay.
Put simply, incentivising staff to maximise NetRevPAR means that there is a required emphasis on lower-cost distribution such as direct-to web. Can you make a change here in 2017?
5. Stop believing that you can’t compete
Recent reports show Expedia spends about 28% of its revenue on online advertising. Booking.com spends more now on metasearch marketing than on Google advertising, and both figures are in the gazillions. Hotels often feel that the game is up and they can’t compete. But the wildcard here is the customer, who is increasingly savvy. And that means they shop around and they do seek validation by visiting hotel websites.
Therein lies your opportunity to convince and sell, to demonstrate that booking direct gets them something they don’t get on OTAs. Showing the same prices, features and conditions on your website as on an OTA means you will lose. You must demonstrate that direct customers are different and are something you want to encourage, and that requires clearly answering the online guest’s question of “What’s in it for me?”. If you understand how to do that, you actually can compete and you can redress the imbalance with OTA sales in your favour. It’s not rocket science but it does require effort and focus, and spend.
Can you make a change here in 2017?
Dr Des O’Mahony is CEO and Founder at Bookassist (http://www.bookassist.com), the multi-award-winning technology and digital strategy partner for hotels worldwide, and is a HSMAI “Top 20 Extraordinary Minds” recipient.