Hotel Insights: These 3 Hotel Industry Challenges Keep Hoteliers Up at Night
These 3 Hotel Industry Challenges
Keep Hoteliers Up at Night
In today’s rapidly changing travel and hospitality industry, identifying the right solutions and determining how to best leverage them can be daunting. Hotels wanting to best leverage technology to decrease costs, improve profitability and differentiate their offerings, should consider taking a holistic approach to seeking solutions.
Here are 3 of the biggest challenges that keep hoteliers up at night.
Skyrocketing Guest Acquisition Costs
Guest acquisition costs are constantly on the rise. Keeping them in check is paramount to hotel profitability. The key is finding a balance between increasing a hotel’s online reach through third-party channels like OTAs, while keeping the commission costs paid for third-party bookings down.
The real challenge for hoteliers is that the number of OTA bookings is growing within all market segments. According to a 2016 study by Kalibri Labs, third-party customer acquisitions cost hoteliers between 15%-25% of total guest-paid revenue. Each of those percentaes represents approximately $1.8 billion, totaling 27-45 billion annually.
Based on these stats, if hoteliers decreased customer acquisition costs by 1%, they would collectively save $1.8 billion. On the flip side, if customer acquisition costs increase by a mere 1%, hoteliers would collectively spend $1.8 billion more. You can understand why acquisition costs are one of the main reasons hoteliers are struggling.
Some may think that the solution is to eliminate all third-party distribution channels. However, OTAs invest significant marketing dollars to ultimately capture reservations that a hotel would not capture on its own. Instead, the real solution is to think strategically about the optimal role of third-party distributors in the overall mix.
The Complexity of Marketing Distribution
Hoteliers know the costs of distributing their inventory via online channels, whether they are commissioned channels or merchant models. However, the vast majority of hoteliers rely on sophisticated technologies and paid resources to manage them. Those additional costs need to be calculated towards understanding the real ROI of distribution and channel marketing in today’s complex market.
According to Kalibri Labs, there was a 40% drop in direct bookings from 2011 to 2015. At the same time, the cost of OTAs and metasearch giants are rising, with the growth rate of OTA commissions now at three times the growth rate of guest-paid revenue. However, another study from the same firm indicates that an increasing number of consumers are choosing to book on Brand.com sites rather than third-party sites for most chain sales. Although the OTA channels continue to grow, Brand.com grew at a faster rate in the last six months of 2016 when book-direct campaigns were in full swing.
While some hoteliers may believe that filling up their rooms, at any rate, is better than leaving it empty, this approach certainly doesn’t drive high profitability. By shifting customer acquisition from a higher-cost OTA to a lower-cost OTA, hoteliers can greatly increase their net revenue capture. Additionally, directing more business through metasearch sites such as TripAdvisor and Kayak can ultimately prove more profitable than acquiring customers through traditional OTA channels.
Additionally, once guests book and check into their rooms, hoteliers can now increase guest revenue with Viggo’s eCommerce solution. With this latest launch, hotels can now increase revenue from their guest during their stay by creating digital offers and services, promoted via Viggo’s Smart Stay Mobile App and Smart TV. These offers can be internal or external services such as room service, spa treatments, tour guides, attractions and more.
Dynamic Consumer Behavior
Travelers are dynamic consumers. Hoteliers need to understand a range of needs in order to market to them effectively. With such a wide range of consumers including business travelers, leisure travelers, bleisure travelers, groups, families and millennials—how can hoteliers effectively reach these consumers?
Personalization in messaging is key. Data from Skift indicates personalized marketing improves conversion rates by 10%-20%, and drives loyalty and increased revenue by three to seven times per visit. Experian’s research shows personalized subject lines delivered 26% higher unique open rates overall, with travel companies getting the biggest boost from personalized subject lines.
The solution to most of the problems and challenges outlined above comes from looking for opportunities to combine best-of-breed technology with services that allow your hotel to continually expand relationships with current and would-be guests.
Working with technology partners who truly understand the importance of driving increased guest connection, while also providing solutions to the modern challenges hoteliers face, can go a long way towards making hotels more competitive, and to helping hoteliers get a better night’s sleep.