Guest acquisition costs continue to escalate at the same rate as room revenue growth, and if other hotel industry costs begin to increase sharply as well, the industry as a whole could face a negative impact on profitability and margins.
This was the conclusion of a study ran by the Hospitality Asset Managers Association that reviewed the financial results of over 100 luxury and boutique hotels affiliated with national brands between 2009 and 2012. Since the Great Recession of 2008-2009, room revenue growth at these hotels recovered by 23 percent. However, the guest acquisition costs, such as transaction fees, retail commissions, and sales and marketing expenses, increased just under 23 percent.
The report has highlighted the amount of money the hotel industry is funneling to third-parties like online travel agencies (OTAs). In addition, the report notes that many hotels do not track guest acquisition costs, because the metric is based upon information that is not collected in an organized fashion. In fact, many of the hotels analyzed only the sales and marketing line items, which have not increased as quickly as other costs and may not reflect the whole picture.
Guest acquisition costs for luxury hotels varied, but in general ranged from 15 percent to 20 percent of room revenue. Other comparable hospitality segments, such as car rental or airline flights, fall below that level.
While this particular study focused on North America, brands across the globe have experienced the same results. In addition, the study reported on major brands that have the scale to negotiate discounts on commissions and charges by third-parties, so non-chain, boutique hotels may actually face greater guest acquisition costs. In addition, certain regions in Europe and Asia may experience higher costs.
Between 2009 and 2012, brand allocations increased by 37 percent and third-party commissions grew by 34 percent. In contrast, local property marketing grew by only 6 percent. Room revenue for franchised hotel properties increased by nearly 22 percent. Total guest acquisition costs grew by 27 percent due to a 48 percent rise in commissions and a 36 percent increase in brand allocations.
The evolving nature of the hospitality industry in both online marketing and hotel distribution have had a disruptive impact, and both consumer expectations and technology are changing rapidly now. Concurrently, competition from online travel agencies (OTAs) intensifies, and hotels now must watch much more carefully how and where their rooms are being sold. This takes investment in appropriate systems and greater expertise to ensure that they can compete successfully in a highly volatile marketplace.
In fact, the key concerns and challenges facing the hotel industry in containing guest acquisition costs center on online marketing and distribution. A primary concern relates to the guest experience, and hoteliers may find they invest too much of their limited resources and time in pushing one-off transient bookings that create higher guest acquisition costs.
The key element to increase direct bookings and promote guest loyalty revolves around shifting towards building and managing closer relationships with customers. To do so means exceeding their expectations, and hoteliers must collect, store, and scrutinize the treasure trove of guest information already available.
This should not come as a surprise to hoteliers. The booking trends are shifting rapidly with the emergence of innovative technological solutions. With this evolution coupled with the numerous mergers and acquisitions within the OTA industry, staying competitive can become increasingly expensive.
Previously, having the cleanest rooms, most attentive staff and stunning facilities meant success. Now success means managing guest acquisition channels worldwide while keeping those costs under control.