With customer acquisition costs escalating in an increasingly intermediated distribution environment, hoteliers need to re-think their sales and distribution strategy and regain control of their inventory.
Bob Gilbert: Time for a rethink
Bob Gilbert, CEO of HSMAI (Hotel Sales & Marketing Associates International), visiting Singapore to attend Asia Connect, the HSMAI Asia Pacific event which opened in Singapore this morning, quoted a study done recently by the Hospitality Asset Managers Association (HAMA) which showed that revenue acquisition costs outpaced hotel revenue growth from 2009 through 2012.
The white paper, “The Rising Costs of Customer Acquisition,” focused on 104 upper upscale and luxury managed properties in the US and Canada and it showed that from 2009 to 2012, room revenues increased by 23%, almost 7% compounded annually while the cost of customer acquisition grew almost as quickly as revenue, at just under 23%, in the same period.
The report looked at both the external costs of brand allocations (for marketing, advertising, major promotions, national and global sales offices and loyalty programmes) and third party commissions (for group and transient bookings), as well as the internal costs of marketing and sales programmes, including local marketing, sales staffing and other expenses, including reservations staff.
Said Gilbert, “The study showed that customer acquisition costs are rising 2-3 times faster than RevPAR growth, that’s a trend to be concerned about. There is so much intermediation going on, so many emerging players. The hotel industry has become bifurcated and the hotel brand is no longer where people buy. The whole landscape of intermediaries has changed and added levels of expenses that weren’t there before.
“Hotels have been paying those expenses and there has not been a re-allocation of expenses – questions such as what do you need to change at corporate office, or how do you reassess and reallocate pieces of customer acquisition costs?
“Costs keep going up – Google search, and now charging for organic search. Some are charging hotels for content. Everyone’s found a way to make money and extract money from hotels and their valuation has been off the back of hotels.”
Gilbert said that disruption was also happening in the group business segment. He quoted a study that showed that the range of group business being disintermediated now ranged from 18% to 65%. “That’s an expense you didn’t have 10 years ago and it’s no longer sustainable how hotels structure their global sales offices. If you have sales teams just to manage intermediaries, that’s like fuelling the fire.”
Asked if he felt hotels were fighting a losing battle since the consumer is after choice, and would rather shop at “discovery” platforms rather than brand-specific sites, Gilbert said, “I don’t believe it’s a losing battle. Hotels need to understand how customer behaviour is changing in terms of how you develop relationships. You want your customers to come direct but you got to make it easy for them and use intermediaries for filler business and not for primary sourcing.”
Gilbert also said that hotels were fully aware of the disruption being created by players such as Airbnb, which currently has a valuation of $10 billion. “As small as their market share is now, they recently said that 1% of their business is now corporate travel. Like all new businesses, they will go into a maturity phase and the grey areas around rules and regulations will be resolved.”
Gilbert said that hoteliers could take lessons from the airline industry in the US which has been able to reduce share of distribution costs from 35-40% to 5-7% over the last two decades. “No travel agent commissions, no storefronts, no sales people, they have taken control of their inventory.”
The lessons? “Qualify your distribution costs, optimise your channel mix and use those channels that give you ROI. Otherwise, you will always be vulnerable to any new technology that comes along.”
With airlines regaining control of their inventory, Gilbert conceded that hotels have become “the last milking cow” for intermediaries and he predicted that there would be increased focus by hotels on creating new benchmarks on customer acquisition costs.
“It’s when hotel owners take notice of the margins – that’s when change will happen.”
Meanwhile, HSMAI would be allocating more resources to APAC and a new managing director, Jackie Douglas, based in Sydney, would drive the association’s engagement with the region. This includes setting up a revenue management advisory board for APAC and launching a revenue optimization event.
Photo: Shangri-La’s Rasa Sentosa Resort
