Hotel marketers — especially those at independent properties but also branded hotels — need to adopt a “direct-is-better” distribution strategy, says Max Starkov, president and CEO of HeBS Digital, a New York-based digital technology, marketing and direct online-channel consulting firm.
“Channel management is the mechanics of distribution, the tactics,” he says. “It is the result of everything else you should be doing to master the direct online channel.”
In a wide-ranging phone interview, Starkov explained why many hotel operators have been deficient in their efforts to build more direct bookings. To him, it’s all about a hotel’s website.
What’s holding back hotel operators from developing additional direct bookings?
Go to any hotel and ask who is the owner of the website. Who in the property is incentivized when the website generates better than expected revenues, or who is being punished if the website doesn’t generate revenues? You’ll hear crickets in the room. There is no ownership, nobody at the hotel owns the website. Employees have no idea about the cost of distribution, have no idea that an [online travel agency] is multiple times more expensive than direct reservations. This is one of the reasons why we’re witnessing this dire state of the OTA-hotel relationship, where the OTAs are winning market share at the expense of hotels.
With a direct-is-better strategy, incentives, bonuses, compensation are directly tied to the online channel. We’re talking about key employees, here; not the concierge.
Is it a question of mind-set among hotel owners and operators, or are there other factors?
There are at least three problems. For an independent hotel, Expedia charges a 25% commission. If you have a $200 [average daily rate], and the average stay is two nights, that’s $400 in revenue, so cost for this booking through Expedia is $100. The hotel writes off this $100 they pay to Expedia as a cost of doing business, a distribution cost. At the same time, a booking that comes through the hotel website, which for our client portfolio the average is a 4% cost of sales. For the same example of $400 revenue, the cost is $16. But the $16 is not considered cost of distribution. It comes from the sales and marketing budget. The main difference is that the OTA commission is unlimited; there is no budget for that.
So you must start from the fundamentals. You create ownership of the hotel website and the direct online channel. You fix these idiotic accounting principals in which you treat one kind of distribution cost in one way and doesn’t go into the P&L at all, and on the other side the cost of distributing through the direct online channel, which is $16 versus $100, comes from your P&L. Why?
The second issue of why hoteliers are not winning the war against the OTAs is merchandising. It is the lost art of hospitality.
Merchandising is the skill to sell on value as opposed to sell on rate. In New York City, there are 450 hotels. If you do an analysis of how many of the hotels have a Broadway package, the answer is zero. It is too much work. How many hotels have a value-added package? Very few of them. They’re all competing on price. You cannot win the war with Expedia when you compete on price, because that’s all the OTAs are doing.
Why aren’t more hotels offering packages?
If you want to create a package and you’re a branded hotel, you have to create a special rate code, or promo code. It’s a two-week back and forth with your major brand. On the other hand, Expedia creates specials within seconds. Talk to your Expedia rep, tell him I need urgent help for this coming weekend. Within the next minutes, Expedia will have an exclusive 24-hour sale for this weekend only, 30% off, live, within seconds.
The final issue?
The third thing is funding, providing adequate funding for your direct online distribution channel efforts. Having your website that is up to standard, fully responsive, having all the merchandising, all the SEO, all the paid search, the retargeting.
There are only so many things the hotel can do, and generally speaking there are very few of them doing an adequate job in this respect. The main reason is funding. [With] the direct online channel, the cost of distribution comes from the P&L and is influenced by whatever is in the budget, while the OTA distribution comes from outside the P&L.
Who should take ownership of a hotel’s website and how effective can that be, particularly in a branded hotel where the websites are somewhat standardized?
If you are a branded hotel in New York City, say midscale and above, you have to have your vanity website, because you’re competing against a lot of independent hotels. Also, you’re competing with other branded hotels, and also you have an intra-brand competition. Marriott has 120 hotels in the New York City area, so if you’re a Marriott-branded property you’re competing with the remaining 119 Marriott hotels.
It’s difficult to change much language on your branded website. The major brands have become humungous machines, particularly now with the consolidation. The bigger the brands become, the less they can focus on and help individual properties.
In what areas should hotels focus their direct-is-better strategy?
The major brands don’t know leisure travel, period. At some hotels, the major brands provide 75%-80% occupancy Monday through Thursday. Come Friday, it’s 40%; Saturday, 20%; Sunday, 10%. This is where the hotel can do a lot of things. Don’t compete with the brand. Let them do the managed corporate business, but focus on incremental leisure travel, family travel. Focus on social events; the brands don’t know social events.
All the incremental business, no one is in charge of it, and that is where the direct online channel comes into play. Nobody is in charge of it, so that’s why the OTAs are taking advantage of this. They’ve tapped into unmanaged business travel, which now with smaller companies and many big companies that are liberating their employees to find the best deal, the unmanaged and semi-managed business travel is the majority today.
How can hotel marketers exploit the trend toward mobile?
More than 50% of searches on Google are via mobile. More than 50% of website visitors are via mobile. At the same time, bookings are lacking. The main reason is to a certain extent the user experience. You have many independent hotels that, when they build their website, they focus on appeal and how to be highly creative, with little functionality and merchandising. When you access this highly visual website, the mobile user can’t even find where the booking engine is.
In hospitality, on one hand, we’re not prepared for the mobile explosion by not updating our core asset, which is the hotel website, not preparing it for the mobile world to make it easier to use.
On the other hand, the payment system, the lack of adoption of mobile payment systems like ePay, Apple Pay and Google Pay is another major impediment. This is another example where OTAs win. The OTAs have created extremely, very easy-to-navigate sites. They’ve created mobile apps, which are used by millions of people. And the payment, once you have created your profile and stored your credit card, you can book via mobile as easy as 1-2-3.
What’s ahead in digital marketing for the hotel industry?
The future is one-to-one marketing. Here’s an example: You go to American Airlines and search for a business-class ticket from Los Angeles to New York City on May 1 and leaving on May 15. 60 milliseconds after that we already know that this person searched a business-class ticket to New York City and then we can start serving them a banner that says: “Coming to New York on May 1 and leaving on May 15? Why don’t you stay at the New York Palace Hotel in a suite and we have a special deal for you at X dollars?” When they click, they go deep into the booking process.
This is called dynamic rate marketing, where you take the knowledge of travel consumer behavior online and marry it with concrete availability and pricing. You provide an incentive for them to book.
You marry a lot of signals in the digital marketplace in order to create the most relevant marketing campaign that reaches the most relevant audience that is inclined to travel to your destination and stay at a hotel like yours. This is real-time data targeting, which is what the major brands are doing and smaller and mid-sized companies are beginning to do now, too.
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