With the focus today on Net RevPAR and managing cost of OTA distribution this study on costs of customer acquisition and revenue growth in the industry really focuses in on the issues facing hotels. Its not just commission costs that we need to deal with but we also need to consider the cost of marketing. The ability for marketing to align with revenue management is critical, to build a truly commercial approach to customer management. As Imran Hussain, Director at THC/Endeavour so eloquently puts it: “If marketing and revenue were to have a love child it would be called Commerce”.
The white paper addresses the following topics:
- 2009-2012 Cost Increases Compared to Revenue Growth – While total customer acquisition costs rose by 23 percent, brand allocations grew by 37 percent and third-party commissions by 34 percent, while local property marketing (including property specific Internet and paid search) increased by only six percent, or less than two percent per year.
- The Changing Marketing Mix – As a result of the disproportionate growth of external marketing and sales costs, properties now control less of their marketing spend. (44 percent versus 49 percent in 2009).
- Commission Cost Growth Differed Widely by Brand –For the top 10 brands included in this study, cost increases during the three years ranged from a low of 10 percent to a high of 72 percent.
“The travel industry has been undergoing enormous changes over the past 10 years driven by a combination of technology, a global recession and the changing nature of global business,” said study author Frank Camacho, a senior travel industry executive and consultant. “Owners should be examining the long term relationships they have to ensure that they still produce economic benefits. If not, they need to consider this when choosing partners and negotiating new agreements.
“Implicit in the findings of this study is the conclusion that channel mix has a substantial impact both on revenue growth and its profitability. If rising brand costs are unavoidable in the near term, then effective channel optimization becomes even more critical,” Camacho added.
- Franchised Properties Fared Even Worse –Room revenue of franchised properties grew by just under 22 percent during the 2009-2012 time frame, but their total acquisition costs rose by almost 27 percent, driven by increases in commissions of 48 percent and brand allocations of 36 percent and mitigated by on-property spend of only 15 percent.