Max Starkov and Mariana Mechoso

Hoteliers, we are already in that time of year again: marketing budget planning season. In this environment of uncertainty and mixed economic news, many hotel owners and operators are finding themselves in a state of confusion. Should hoteliers be proactive by raising their marketing budgets, or is it safer to be reactive and wait to see what will happen with the economy over the next few months?

For over two solid years, hoteliers found themselves having to accomplish more with less. They faced the end of 2008 and the beginning of 2009 with slashed marketing budgets, staff cuts, and an even more urgent need to show the ROI of every dollar spent. Needless to say, it was a challenging time for many of us in the industry. In 2011, however, it’s time to be more ‘cautiously optimistic.’ It’s time to un-shrink the hotel marketing budget!

2011: The Good News and the Bad News

Let’s start with the good news. All signs are pointing to yes, the hospitality industry is in recovery mode. The industry projects to end 2010 with important increases in two of the three key performance measurements, according to the latest forecast of Smith Travel Research (STR). In 2010 occupancy is expected to increase by 4.4% and RevPAR by 4.3%, while ADR is expected to end the year flat. In 2011 occupancy will grow a further 1.4% while RevPAR will increase by 5.3% and ADR by 3.9%.

So what is the bad news?

The bad news concerns the need for fresh investments in marketing and customer engagement, inventory distribution infrastructure and human capital i.e. the need to increase marketing budgets in 2011.

During the height of the recession (over the past two years), a number of very important developments occurred that profoundly changed hotel marketing, customer engagement and inventory distribution in hospitality:
  • The Internet established itself as the main travel planning and booking channel. In the US, 45% of all hotel reservations will be booked online in 2010 – compare this to less than 15% via the GDS! In Q2 2010, Internet bookings for the top 30 hotel brands reached 52.4% while GDS Travel Agent bookings contributed to only 21.8% and voice to 25.7% of total brand CRS bookings (eTRAK).
  • The Hyper-Interactive Travel Consumer became your main customer. This new breed of consumer is tweeting, posting, texting, emailing, communicating with friends via Facebook and Twitter, and commenting, often in real-time, on hotel and dining experiences via review sites. Most hotel websites are not equipped to handle the hyper-interactive nature of this consumer and read like a static online brochure.
  • Social Media: engaging your customers via social marketing has become not only the norm, but is expected by past, current and future hotel guests.
  • Mobile Web: the mobile channel has already become an important travel planning and transaction channel in the U.S. and worldwide. Hotel guests and travel consumers in general are already mobile-ready, and hoteliers and travel suppliers have to respond adequately to this growing demand for mobile travel services.
  • Channel Convergence: Today’s hyper-interactive travel consumers are seeing your marketing messages across a variety of different channels. Now more than ever, there is a convergence of new and traditional digital formats, of interactive and offline marketing channels.
  • Multichannel Marketing: Some marketing initiatives, if judged on their own merits, generate disappointing ROIs. For example, many hoteliers are struggling to justify returns from social and mobile marketing initiatives which rarely produce significant ROIs as stand-alone marketing formats. But unleashing a promotional campaign simultaneously across all available marketing channels produces a compounded effect and far greater returns than each individual marketing format.
  • The Online Travel Agencies (OTAs) gained market and channel share during the recession. In Q2 2010 the OTA share of the CRS bookings for the top 30 hotel brands reached 33%, compared to 25.4% in Q2 of 2008. Revenue leaked from hotels to the OTAs in the form of abnormally high merchant commissions will reach $5.4 billion in 2010 alone. Read more in HeBS’ recent article “Déjà Vu: The Billion Dollar ‘Leakage’ Continues to Drain the Hospitality Industry”.

All of the above developments require new investments in aligning the hotel marketing and distribution efforts with the new hyper-interactive travel consumer, in acquiring new multichannel marketing and technology capabilities, in boosting the direct online channel to overcome OTA dependency and in staff trainings and professional development.

Industry Benchmarks: How Are your Peers Allocating their Budgets?

Every year for the past four years, HeBS has conducted the Benchmark Survey on Hotel Internet Marketing Budget Planning and Best Practices to assess hoteliers’ Internet marketing priorities and strategies for the year ahead. Regarding 2010 budgets, there were two key findings:

  • The economic environment prevailed as a factor when planning budgets. Even so, hoteliers continued to shift budgets from offline to online marketing formats. In last year’s survey, 51.1% of respondents said they were shifting a portion of their budgets to online because they believe Internet marketing produces the best results (55% vs. 10% that think traditional marketing is more effective).
  • For the first time, we saw static marketing budgets rather than budget increases. Thirty-nine percent said they were not increasing their overall marketing budgets in 2010, vs. 33% last year.

With lower marketing budgets to work with, where did hoteliers predict they would spend their money this year?


Source: HeBS’ 4th annual Benchmark Survey on Hotel Internet Marketing Budget Planning and Best Practices.

Overall, last year, hoteliers shifted their budgets from offline to online and focused most of their budgets on proven, ROI-generating Internet marketing initiatives such as website design, paid search marketing, and SEO. We also saw room being made in the budget for mobile marketing, Web 2.0 and social media.

In 2011, hoteliers should continue to move funds to the online channel, and carefully employ ROI-centric and customer-engaging initiatives. Additionally, with increased demand next year comes the need for increased marketing budgets.

Structuring Your 2011 Hotel Internet Marketing Budget

With shrinking GDS bookings, declining voice reservations and group market that will be flat at best next year, the online channel is the only growth channel. HeBS estimates a growth rate of minimum 6%-7%. But hoteliers do not want just any online bookings. The focus of 2011 hotel internet marketing budgets must be on driving bookings through the direct online channel, the hotel website. The OTA channel not only is not “free,” but also is, on average, 10 times more expensive than the direct online channel.

Curious as to how much money can be saved by focusing on the direct online channel? Click here to try the HeBS Direct Online Channel Calculator.

Hoteliers need a robust direct online channel strategy accompanied by adequate marketing funds to be able to a) take advantage of the steady growth in the Internet channel and b) shift bookings from the indirect (OTA) to direct (hotel website) online channels.

Here are a few guiding principles when reviewing the 2011 hotel Internet marketing budget:

  • Review and update the budget to meet growing travel demand and increase market share.
  • Include marketing initiatives that align the hotel marketing and distribution efforts with the new hyper-interactive travel consumer.
  • Shift funds to advertising formats with proven, direct, serious ROIs (SEO, SEM, email marketing), and initiatives that help the hotel engage customers and produce great indirect ROI, such as social and mobile marketing initiatives.
  • Hold off on advertising where you cannot measure results (e.g. print) and ROAS (Return on ad spend), or those that have not resulted in good ROIs in the past.
  • Re-evaluate the importance of each key customer segment and feeder market in the marketing mix. For example, if fly-in guests’ share has decreased due to airline capacity cuts and declines in corporate travel, focus on your drive-in feeder market.

What marketing initiatives generate the best returns according to your fellow hoteliers?

In the past few years, website design, website optimization, and search engine optimization were the initiatives which hoteliers said brought the best returns. In 2010, we see that even though social media and mobile marketing only recently made their way into the hotel budget, hoteliers are expecting good results from these new marketing channels:


Source: HeBS’ 4th annual Benchmark Survey on Hotel Internet Marketing Budget Planning and Best Practices.

In order to drive more direct online channel revenues, which initiatives should be included in your 2011 Internet marketing budget? Here are recommended marketing initiatives and share of each initiative, based on a hypothetical $100,000 annual budget:

Website Redesign

Over the past two years, many hoteliers who desperately needed website redesigns simply put Band-Aids on their existing sites to save precious budget dollars. In 2011, this approach needs to be rethought. The hotel website is the backbone of your Internet marketing strategy – the most important tool in your arsenal. Your outdated website allows your competitors to steal your market share.

There have been so many changes in the past 24 months that it would be virtually impossible to have kept up with all of them – the emergence of the hyper-interactive traveler, social media, mobile marketing, Web 2.0 functionalities, and more. If your hotel website is over two years old, there can be no excuses…it is time for a redesign. If your website is over a year old, keep it current with search engine optimization (SEO) strategies, a Web 2.0 optimization (interactive elements on your website) and ensuring you are fully addressing all your customer segments in your copy and navigation.

Make the hotel website redesign reflect 2010-2011 industry’s best practices. A site redesign is a 90-120 day project (start planning now). Our experience shows that any website optimizations, enhancements or site re-designs pay for themselves within 3-4 months.

Share of the 2011 Internet marketing budget: 9%-10%, based on a 24-month amortization of the asset.

Web 2.0 Initiatives

Is your hotel website engaging website visitors? Is it aligned with the new hyper-interactive travel consumers? Or is it boring them to tears with the same stale visual and textual content?

Encourage repeat visits and increased time on the site by including Web 2.0 initiatives in your 2011 budget. Start with a blog on the hotel website, and then continue with customer feedback forms, photo and experience sharing, interactive sweepstakes, and an interactive calendar of events. These initiatives are affordable and worth the investment.

Share of the 2011 Internet marketing budget: 5%-6%.

Search Engine Marketing

Between 50-70% of hotel website traffic and revenue is a direct referral from the search engines which makes SEM and SEO especially important (HeBS). Sixty-four percent of leisure travelers and 65% of business travelers begin the travel purchasing process on the search engines (OTX Research).

  • Paid Search (SEM): We recommend that in 2011, hoteliers raise their paid search marketing budgets by at least 10%. Google Instant Search, recent changes in Google Places such as sponsored tags, and increased market share on Bing since they took over Yahoo Search have all made paid search marketing even more expensive and competitive.
    Paid search marketing is a popular advertising format for hoteliers because it works. If you are following best practices, conducting keyword analyses on a regular basis and consistently optimizing campaigns after measuring results with your analytical tools, then search marketing campaigns will generate significant revenues for your hotel.
    Share of the 2011 Internet marketing budget: 35%-40%.
  • Search Engine Optimization (SEO): Organic search engine referrals to the hotel website generate the most cost-effective bookings for any hotelier. Therefore it is paramount to optimize the hotel website, blog, social media profiles, mobile site, etc. to achieve best possible rankings across the search engines. On the hotel website make sure that the keyword density, H1 and H2 headers, page titles and meta data reflect best practices and latest trends.
    Share of the 2011 Internet marketing budget: 4%-5%.

Email Marketing
Email marketing is still an essential component of the hotelier’s direct online channel strategy, an easy way to send valuable messages to your key customer segments, and a very affordable line item in the Internet marketing budget.

Case Study:

A hotel in the Florida Keys was experiencing low occupancy in the months of April and May of 2010 and needed a quick way to generate bookings.

The results:

  • Sent: 56,567 email addresses
  • Opened: 10,743
  • Clicks: 4,541
  • Click through Rate: 42.26%
  • Cost: $700
  • Revenue: $8947
  • ROI: 1178%

Continue your efforts in increasing your email opt-in list, developing email creative that is eye-catching and consistent with your website design, and stay far away from email rental lists.

Share of the 2011 Internet marketing budget: 7%.

Banner Advertising & Online Sponsorships

These initiatives both offer great ways to reach your customer segments and target markets. Once you’ve budgeted for the essentials – redesigning or optimizing your website, paid search marketing, and email marketing—consider banner advertising and online sponsorships on relevant media.

Now and in 2011, hoteliers have access to tools that can help them make smarter and more ROI-generating decisions. Options now available for retargeting (putting your messages in front of people that have already visited your website) and behavioral targeting (marketing to people based on their web-browsing behavior), should replace previous methods of managing these initiatives.

Share of the 2011 Internet marketing budget: 5%-6%.

Social Marketing

HeBS’ 2010 Benchmark Survey on Hotel Internet Marketing Budget Planning and Best Practices showed that half of hoteliers surveyed (50% exactly) responded that in 2010 they are planning to create profiles for their hotels on the social networks.

As more and more hotels put more effort into social marketing, we are starting to see results that make us pay closer attention. Focus on engagement and not direct bookings, and ROI will be in the form of increased brand loyalty, buzz around your hotel, and then ultimately, incremental revenues. Include money in the budget for custom enhancements on Facebook pages, Twitter profiles, and YouTube channels. As an effective social media marketing strategy involves a significant amount of a time investment and the constant need to keep up with new developments and latest trends, also consider seeking help from an experienced Internet marketing firm to build a strong and cohesive social media strategy.

Share of the 2011 Internet marketing budget: 8%.

Mobile Marketing

Make room in the budget for mobile marketing. HeBS own research and other industry sources show that between 1% – 1.5% of visitors to hotel websites already come from travel consumers accessing the hotel site via mobile devices. Sixty-seven percent of travelers and 77% of frequent business travelers have already used their devices to find local services (e.g. lodging) and attractions (PhoCusWright).

If your hotel does not have a mobile website yet, make this one of the first things you cover in your 2011 budget. This is not an expensive endeavor – a 10-page mobile website should not cost more than $1500—and this should be followed by a mobile booking engine, Google Mobile Ads leading to the mobile site, mobile contests and quizzes. You should already have started soliciting sign-ups to the mobile opt-in list (m-list) on the website via hotel email marketing campaigns, social media initiatives, interactive sweepstakes and contests.

Share of the 2011 Internet marketing budget: 7%-8%.

Website Operations and Campaign Management Fees

As a rule of thumb your website hosting, maintenance, textual and visual content updates, website analytics and campaign tracking, and phone reservation tracking should not exceed 6%-7% of your total budget. Campaign management and direct online channel consultation fees by your interactive agency of record should not exceed 11%-12% of your overall Internet marketing budget.

Conclusion

Hotel marketing budgets have shrunk considerably over the past two years. During the recession a number of important developments completely changed hotel marketing and customer engagement, including the emergence of the hyper-interactive travel consumer, social marketing, mobile marketing, channel convergence and multichannel marketing. These developments, plus the economy in recovery mode, require fresh investments and increased marketing budgets in 2011.

Continue holding every dollar accountable with analytics, carefully targeting your customer segments, and shifting dollars from advertising formats where you cannot measure results and you will start capitalizing from rising travel demand. Embrace multichannel marketing, and reap the benefits of far greater returns than each individual marketing format would bring. Most importantly, focus your budget dollars on driving revenue from the direct online channel vs. the indirect online channel and your bottom line will benefit exponentially.

With 45% of all hotel bookings in North America being made online this year, the effectiveness of your hotel website and Internet marketing campaigns in generating bookings will play a big part in determining the overall success of your hotel in 2011. Work with a partner company that understands best practices in hotel website design and Internet marketing, has proven results in the form of prestigious design and Internet marketing awards, and has transformed its clients’ hotel websites into their most cost-efficient revenue generator.

About the Authors:

Max Starkov is Chief eBusiness Strategist and Mariana Mechoso Safer is Senior Director, Marketing at Hospitality eBusiness Strategies (HeBS), the industry’s leading full-service hotel Internet marketing and direct online channel strategy firm based in New York City ().

HeBS has pioneered many of the "best practices" in hotel Internet marketing, social and mobile marketing, and direct online channel distribution. The firm specializes in helping hoteliers build their direct Internet marketing and distribution strategy, boost the hotel’s Internet marketing presence, establish interactive relationships with their customers, and significantly increase direct online bookings and ROIs.

A diverse client portfolio of over 500 top tier major hotel brands, luxury and boutique hotel brands, resorts and casinos, hotel management companies, franchisees and independents, and CVBs has sought and successfully taken advantage of the firm hospitality Internet marketing expertise offered at HeBS. Contact HeBS consultants at (212) 752-8186 or [email protected].

ABOUT NEXTGUEST

NextGuest provides hoteliers with everything they need to thrive in the digital world, with bespoke technology solutions developed to meet the needs of luxury hotel clients coupled with elegant design capabilities that bring brands to life. We marry the power of data with brand discovery to uncover unique strategies that apply to everything from website design, content marketing, CRM, and more, helping the world's top hotel brands maximize ROI as they acquire, convert, and retain guests throughout the travel planning journey. While each of our services is available on its own, the integrated technologies, marketing, and consulting offerings work together to increase digital engagement and generate revenue for hoteliers, allowing them to focus on what matters most — serving their guests. www.nextguest.com | [email protected]

Max Starkov
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