Panel dissects customer acquisition costs
17 OCTOBER 2014 7:16 AM
The hotel industry has the highest costs of customer acquisition in the travel space. Panelists during the Revenue Strategy Summit discussed ways to work around them.
NEW YORK CITY—There’s a reason the hotel industry has the highest cost of customer acquisition in the travel sphere. Actually, make that several reasons, according to panelists speaking Thursday during the Revenue Strategy Summit.
One is competition.
“It’s very noisy out there,” Ash Kapur, VP of hospitality revenue management and distribution for Starwood Capital Group, said of the distribution space.
“The barriers to entry are low,” he said, adding he meets with several travel tech startups every week.
Lack of innovation is another.
“The biggest challenge is we’re not creative enough. We’re looking outside our industry for creativity,” Kapur said.
Innovation must come from inside and outside the industry, said Minaz Abji, executive VP, asset management, for Host Hotels & Resorts.
But changing legacy systems might be the biggest reason, panelists agreed.
“Our systems in a lot of cases are archaic. That means a lot of investment, a lot of constant investment. … Raising that kind of capital is very difficult,” Kapur said.
An unlikely model
The hotel industry can learn a lot from airlines regarding taking back control of distribution, Abji said.
“When you make a reservation for an airline, you pay up front. They get the money right away. And then, when you want to make a cancellation or change, you pay a change fee or cancellation fee,” he said.
Airline executives live and die by fees, which account for 33% of the sector’s overall revenues, Abji said.
The sector also did a good job of making transparent the cost of booking on various channels, said Tom Seddon, chief marketing officer of Extended Stay America. “‘I can book this way and pay this much, or I can book this way and pay this much,’” he said.
It’s akin to consumers choosing a shipping option when they shop online. Same-day shipping costs a lot, while seven-day shipping costs much less. The value proposition between the two is clear, and consumers can choose accordingly.
The hotel industry has failed in this regard, Seddon said. The cost of customer acquisition is hidden, absorbed by hoteliers either because they don’t truly understand it or because they fear scaring off consumers.
The panelists emphasized that the hotel industry should not model itself after airlines as it pertains to service culture.
“There’s zero question in my mind that we don’t want to be like the airlines overall,” said Shafiq Khan, senior VP of channel strategy and distribution for Marriott International.
“From a distribution perspective, the stats tell you they have done a very good job of making sure they’ve protected the profitably of their business,” he said. But the comparison should end there, Khan added.
What hoteliers can do
What can hoteliers do when faced with a crowded, competitive, margin-squeezing distribution landscape?
Offer a reason to book direct, Abji said. He gave two examples.
First, hoteliers should take loyalty points off the table if a guest books through a third-party intermediary. Second, guests should receive an incentive, such as basic Internet access or some other value-add, if they book direct.
“If the industry did that right now without investing in technology … that would be a game changer,” Abji said.
Seddon pointed to Hilton Worldwide Holdings for a real-world example. Guests who book direct can use Hilton’s app for pre-arrival check-in and to choose their specific rooms.
“It’s a pretty straightforward thing,” he said, but it makes a big impact.
Kapur shared something hoteliers should not do—namely, alienating guests who are not high-status loyalty program members. Kapur shared a first-person account of being forced into a lengthy, non-preferred guest check-in line after a particularly arduous flight.
“The moment I enter the lobby I’m already segmented. … I’ve been told, ‘You go stand in that line. It doesn’t matter if you’ve flown for 24 hours.’ So I’ve already had a bad experience before I even go into my room,” he said.
There’s nothing inherently wrong with loyalty programs, Kapur explained. Hoteliers just need to pay more attention to personalization and making all guests feel welcomed.
“Elevate the experience for everyone,” he said.