4 Tips for Reducing Guest Acquisition Costs

September 5, 2015 NAVIS

Alongside the rise in third-party distribution costs, the hotel industry has seen the advent of NetRevPar, a way to calculate revenue that includes the cost of capturing the reservation; the growth of meta search engines into facilitated booking sites; and OTA consolidation that threatens to overpower the industry altogether. The NY Times noted last week in an article on the Expedia’s current attempts to purchase Orbitz, that the merger would give Expedia control over 75% of the US market for third-party online bookings. The idea that intermediaries are not only costly in commissions but also costly in their ownership of the guest is nothing new, but it is increasingly crucial to shift back into balance if hotels are to be solvent.

Tip #1 A Holistic View of Guest Acquisition Costs

Now more than ever, hotels must focus on lowering guest acquisition costs. The quick answer is to drive direct channel bookings—both online and voice—but in order to be truly effective at driving profitable bookings, hotels must take an objective look at guest acquisition.

The first step is to define and understand guest acquisition costs, the total amount spent to earn a guest from the first marketing touch point to the booking. This is more than CPC, the cost of the email list, or the cost of the commissions. Guest acquisition typically includes multiple touch points (from mobile to website to phone, for instance), as well as the opportunity costs of staff, such as marketing and reservations managers. The cost of guest acquisition is not easy to estimate, but it is critical to an understanding of profitability. Once guest acquisition costs are understood, the ideal combination of strategies can be put in place.

Tip #2 Incentivize Staff on Profitability

Once you have an understanding of the cost to achieve a reservation, staff can be encouraged to drive the highest yield bookings as opposed to a traditional “heads in beds” approach. This can apply to the marketing team when they are developing the content for and delivering campaigns, the reservations managers who are charged with training and mentoring reservations agents, and the agents, whom you rely on to sell longer stays and promotions. Front desk agents should not be excluded from consideration for incentives. Some hotels are “having front-desk employees take on the delicate task of reminding rewards members who book with third-party sites that they will not get points for their stay,” according to the NY Times.

Tip #3 New Market Segments Vs. Past Guests

So often when hotels are looking to grow revenue, they immediately try to tap into new market segments and start looking for ways to grow ancillary revenue on-site. However, thoughtful and consistent outreach to past guests is a much less costly strategy than researching and developing campaigns to new markets that may or may not be fruitful. Because you have data on past guests (and if you don’t, you should), it’s must easier to craft messages that will speak to their interests. NAVIS Reach can actually pinpoint the highest ADR guests to create campaigns specifically aimed at optimal revenue.

Tip #4 Balance Distribution Strategies, Create Direct Appeal

Conversations about distribution so often dead-end with commissions. Yes, OTA commissions have taken the wind out of the industry’s sails, rising 38% between 2009 and 2012, according to HAMA. Then there are GDS commissions paid to retail travel agencies, somewhere around $1.3 billion annually. And the costs of channel management technology, PMS direct connections, and so forth.

Distribution is about leveraging various channels to create the optimal revenue mix. If hotels rely too heavily on third-party channels, the system goes far out of balance, and in addition to costs skyrocketing, the hotel also loses out on “owning” the guest. However, hotels inevitably suffer without OTA marketing power in an increasingly expensive online space where it is difficult, especially for independent hotels, to compete in the search engines.

Hotels must be innovative in generating direct and profitable bookings. Robust loyalty programs are just as important as ever. Incentivize travelers to book directly with increased loyalty points. Driving phone calls (which offer a unique opportunity to establish a one-on-one relationship) via click-to-call campaigns can increase direct bookings. Take it a step further by equipping agents with incentives they can offer prospective guests to book directly. Finally, be transparent about the benefits of working directly with your property. Do you have lenient cancellation policies? Is your staff at the ready 24-7 to assist with questions or concerns? Even the simplest of these efforts can drive travelers to book directly regardless of where they discovered your property.

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