A Best Practices Guide to Aid in Developing the 2007 Hotel Online Marketing Budget By Max Starkov and Jason Price
As many hotels enter the 2007 budget planning season, this article aims to help hoteliers construct a competitive Internet marketing budget. The hotel’s overall competitiveness today is determined to a great extent by how well it manages its Internet marketing and distribution efforts. It is not a question of how big the budget should be, but rather what to include and how much to allocate in the Internet marketing budget for a meaningful ROI and online revenue growth. This article takes a closer look at some important aspects of Internet marketing in hospitality and what marketing activities and line items comprise the 2007 online marketing budget.
2006 may have been a banner year in hospitality, but how has this success translated into the planning of next year’s marketing budget - especially as it relates to the online channel? While the hotel may have an internal formula for ROI, many hoteliers are confused as to what, where, and how much of the marketing budget should be devoted to the online channel.
The dynamic nature of the Internet further complicates the budget planning process. In an environment that consistently brings new fads, new online media formats and business models, new competitors, and new tools and methods to market a hotel via the web, how does a hotel marketer accurately and sanely plan next year’s Internet marketing budget?
Direct Online Distribution
This year 29%-30% of all revenues in hospitality in the U.S. will be generated from the Internet and another quarter will be directly influenced by online research, but booked offline. By 2010 the Internet will contribute over 45% of all travel-related bookings in North America.
Three very distinct trends have emerged over the past several years which have to be taken into consideration when planning your 2007 Internet marketing budget:
• Direct online distribution is the way to do business on the Web. More hotels are selling online than ever before. Greater amounts of room inventory, at higher ADRs, are being sold direct to consumer via the direct online channel—the hotel’s own website.
• The negative impact of third-party online intermediaries (TPIs) is still felt throughout the industry, but to a lesser degree. The ratio between the direct and indirect online channel continues to improve in favor of the direct channel: from 52:48 back in 2002 to 56:44 in 2006 and is projected at 62:38 by 2008. Some major brands already enjoy very healthy 80:20 direct vs. indirect online channel ratios.
• Further erosion of the GDS channel is self evident: less than 17% of hotel inventory in the US is sold via the GDS today, and the number of retail travel agency locations in the US in 2006 has declined to 19,300 vs. more than 35,000 in 1996.
The cost to sell directly to consumers via the hotel website can be as low as $3-$5 per transaction. Compare this to the hefty distribution costs via the GDS (as high as $27 for a typical 2 night stay at $100 per night), and the third-party online intermediaries such as Expedia, Travelocity, and Orbitz ($50+ for a typical 2 night stay at $100 per night). Reducing the reliance on these two very expensive channels will directly affect the bottom line.
The potential to shift even more revenue through your own direct channel has never been greater. Hopefully the following guidelines will help you define your online marketing budget in the years to come.
Case Study A:
Shifting Market Share from the Indirect to Direct Online Channel
A prestigious California resort with rich meetings, spa and golf product redesigned and launched its new website two years ago. The re-launch included website optimization, a destination web strategy, email capture and newsletters, and search marketing. The resort also adopted a new anti third-party online intermediary (TPIs) strategy and launched a very aggressive direct online distribution strategy, and in the course of two fiscal years tripled its Internet marketing budget.
As a result in 2005 bookings via the property website increased by 78% and revenues by 79% compared to 2004. In 2006 direct bookings are expected to grow by a further 54% and revenues by 62% vs. 2005. In the same time bookings from TPIs decreased by 75%. This significant channel shift and realized higher ADRs from the direct bookings more than offset the increased Internet marketing budget, and allowed the property to re-claim “ownership” and establish interactive relationships with its customers.
Framework of the Online Marketing Budget
The shift from more expensive to less expensive distribution channels has become the norm in hospitality. Therefore lessening your dependence on higher cost channels and driving more revenues through your own website should become the main objective of your 2007 marketing budget. Here are the top items to include as you devise the Internet marketing budget for next year. Concluding case studies further illustrate the impact of your online marketing budget.
Internet Marketing Budget Considerations:
• Website Redesign – Overhauling the look and feel and bringing the site up to par with 2007 online user expectations
• Website Optimization – Enhancing the website navigation, keyword rich body copy, and all the necessary optimization, visible and invisible
• eCRM and establishing interactive relationships with your customers
• Search Engine Marketing – Launching pay per click marketing, paid inclusion marketing, local search, and vertical search marketing
• Strategic Linking – Building incoming links from highly authoritative websites
• Email Marketing Strategies – Growing the hotel’s own opt-in email list and launching frequent and relevant email communications with your customers and prospects
• Email and Online Sponsorships to potential customers in your feeder markets and to your key market segments (e.g. family travelers, romance and couples, meeting planners, wedding planners, etc.)
• Destination Web Strategy – Making your hotel the “hero” of its destination
• Display Advertising – Placing banners on highly relevant sites to grow brand recognition and drive traffic and incremental revenues
• Consumer Generated Media (CGM), including blogs, trip planners, customer review sites, experience sharing, etc.
• Website Hosting and Maintenance – Ongoing content, image and functionality updates and enhancements
• Professional development and Internet marketing expertise – Partnering with leading hospitality experts in Internet distribution and marketing strategies. Work with a firm that is fully transparent on how they spend your marketing dollars and who will teach you the best practices in direct online distribution, and do not outsource this vital core competence to vendors that “keep you in the dark.”
• The “Human Factor” – allocating funds for payroll for part-time or full time Internet marketing personnel.
Please Note: Which of these online marketing activities are necessary over a twelve month period depends on previous investments as well as hotel objectives.