Hotel marketing costs are affecting profitability more than ever.
With profit growth slowing in the lodging industry, the focus among hoteliers is now shifting toward closely controlling costs, especially among management companies, whose earnings are directly tied to property performance (and incentives are tied to profits).
As the pressure to find cost savings mounts, experts say one of the most significant expenses to watch is marketing, which has only grown more expensive with the rapid growth of digital media.
In general, hotel management companies care deeply about costs, which have a direct linear effect on their ability to achieve profitability/incentive targets. And these days, marketing costs (especially OTAs and third-party channels) are rising at an alarming rate. Industry averages for marketing expenses typically range from about 4% to 7% of overall expenses, but can vary widely depending on the hotel and its management.
“Marketing is a minimum of probably 6% of your expenses, so it’s a pretty big number,” said Richard Millard, Chairman and CEO of Trust Hospitality. “It could be as high as 8% to 10%, depending on what you’re doing.”
Between just internal staffing, OTA commissions, digital marketing programs (paid search, banner ads, etc.) and other forms of advertising (print, radio, TV, billboards, etc.), hotels are currently fighting a rising tide of seemingly obligatory marketing costs. And all too frequently, it forces managers to scrimp elsewhere.
“Marketing is costing more and more, and that means the training and service level of people on the hotel side suffers, because some way, somehow that money has to be saved,” Millard continued. “So what we as an industry often cut back on, instead, is human resources and training.”
But it doesn’t need to be that way.
Finding the Right Balance
Smart management companies can still find methods to keep marketing costs from getting out of hand, while continuing to do all the right things to get their properties noticed in the marketplace. It requires careful planning, but it’s not impossible.
Experts say one core strategy for reducing and controlling hotel marketing expenses is to strategically outsource certain aspects of hotel marketing to third-party vendors and consultants, based upon the management company’s need and resources. For example, while it may clearly pay to hire a skilled, full-time revenue manager for internal staff, it may be more cost-effective to hire an outside agency for critical recurring functions that drive direct bookings such as email promos, search engine optimization (SEO) and paid search/pay-per-click (PPC) and metasearch campaigns.
“Marketing as a discipline has grown exponentially in how you reach a potential guest or interact with a guest. The reach has become enormous,” said Michael Tall, president and COO at Charlestowne Hotels. “There are certain disciplines and components of marketing that we feel are better left to those that specifically do that as their discipline. The key is figuring out what it is that you want to do internally as a management company, and what needs to be outsourced, and then it’s just selecting the right vendors and hiring the right people inside.” Another critical method is managing OTA relationships and working to drive customers toward booking directly, rather than through OTAs. OTA commissions can run anywhere from roughly 14% to 25%, depending on the scale of the relationship (rates tend to be higher for independent, unbranded hotels) and the company’s contract with each OTA, but savvy managers can save considerably by optimizing this particular channel.
“We want people to book in the lowest cost channels,” said Tall. “Understanding whether you are able to get a guest or enough guests to book on the lowest cost channels, versus having to go out and market or pay for acquisition to OTAs, is really the balance that you try to understand. That’s a huge part of our business: understanding what it is we desire from the OTAs, and what are we willing to pay to the OTAs to acquire the guests.”
It also comes down to making sure hotel marketers are constantly up to date on the latest marketing techniques and trends, and then both planning and acting accordingly. (This is another area where a mix of both internal and third-party guidance can prove effective.) Most importantly, marketers need to regularly analyze their various channels for a firm understanding of what’s working and what isn’t, as well as where the future lies.
“You can only cut so many corners. It’s not just about trying to save marketing dollars; it’s about spending those marketing dollars wisely,” said Millard. “The secret is to be on top of it. Marketing is changing and you can’t depend on one thing. Experience is great, having people who know what they’re doing is great and having the right technology is great. But you’d better pay attention. Don’t be too sure that what’s working in September 2017 is still going to be here in January 2018.”
