The billboard effect is dead. What now?
04 DECEMBER 2015 7:03 AM
New data suggests the marketing benefits of a hotel listing on an OTA are waning. Hoteliers need to act now to combat the rising cost of acquisition.
The so-called “billboard effect” has long been the ace up the sleeves of online travel agencies. The term, studied in an October 2009 research report from Cornell University’s Chris Anderson, describes the marketing benefits of listing a hotel on an OTA website.
Travelers do their initial research on, say, Expedia, the thinking goes. When they find a hotel they like, some will book then and there while others will go to that hotel’s proprietary website to transact. Thus, the OTA acts as a “billboard,” advertising a hotel and then sending travelers directly to brand.com.
“We’re not so bad!” OTA reps would say. “List with us, and we’ll actually increase your direct traffic!”
Many criticized the findings back then, arguing the sample size was too small. Others lobbed the critique that marketing benefits can be found anywhere a hotel appears online.
Still, the term “billboard effect” and its apparent benefits stuck.
Not anymore, says Cindy Estis Green, CEO of Kalibri Labs. During The Hotel Experience show (formerly the International Hotel, Motel & Restaurant Show) in New York City in November, she declared the billboard effect officially dead.
The number of prospective hotel guests who switch over to book on hotel websites after shopping for rooms on OTAs will continue to fall, she said, citing yet-to-be-released findings from her next “Distribution channel analysis report.”
The result? Higher hotel distribution costs for you, dear reader.
(For more on Estis Green’s presentation, check out this recap over at Travel Weekly from frequent HNN contributor Harvey Chipkin.)
Lest you think all is lost, there are tactics you can employ to combat this crunch in commissions.
Getting smarter about your distribution strategies is the obvious suggestion. Sources tell us all the time that OTAs are but a tool in the distribution toolbox. Make that “tools,” rather. Not all OTAs are created equal. They serve different customers in different regions with different expectations and different booking windows. If you understand your target customer, you’ll be more likely to use the right tool at the right time to encourage a booking.
And OTAs are not the only tool. The best revenue managers encourage guests to book direct. A savvy marketing strategy is crucial in that regard. Offering incentives, such as free Wi-Fi or other perks, also helps.
The best tactic, of course, is knocking the socks off guests at the property level to encourage a repeat booking. If someone comes back to you, he or she is far more likely to book direct.
And if you can’t beat them (meaning the OTAs), you can always get bigger.
That’s the conclusion of some analysts (see Quote of the Week below), who say the hotel industry will continue to consolidate to reap economies of scale and bring more clout to the negotiating table, according a report on Wednesday from HNN’s Sean McCracken. An excerpt:
Christopher Agnew, managing director for MKM Partners, described (Marriott International’s) plans to buy (Starwood Hotels & Resorts Worldwide) as designed to combat online travel agencies.
“They want people to book directly,” Agnew said. “I think the airlines have done a very good job with that. I’m a Delta guy, and they let you just live in that environment. I think (Marriott) wants that sort of engagement. Scale matters from that perspective.”
Matt Costin, managing director for BDRC Continental, agreed that distribution challenges will continue to make large-scale mergers an appealing option in the hotel industry.
“Even the biggest operators are being outflanked by the big OTA brands,” Costin said. “Speaking to a couple of our biggest hotel clients, they came up with remarkably similar comments. They no longer look at each other as competition but they do with the OTAs. That’s a compelling argument to join forces.”
Clearly not every hotelier will buy into that argument. Bigger, after all, is not always better.
But as the OTAs continue to consolidate—and the revenues they squeeze from hoteliers continue to gain—it’s clear the hotel industry must do something to swing the pendulum back in their favor.
Now on to the usual stuff …
What’s making me happy this week?
That so many hotel companies scored a perfect 100 rating in the Human Rights Campaign’s annual “Corporate equality index”, a U.S. benchmarking survey and report on corporate policies and practices related to lesbian, gay, bisexual and transgender workplace equality.
A safe and welcoming work environment for all employees shouldn’t be the exception; it should be the norm—particularly in an industry with such a focus on hospitality and such a need for skilled labor.
Kudos to the following companies for making the list:
- Borgata Hotel Casino & Spa;
- Caesars Entertainment Corporation;
- Choice Hotels International;
- The Cosmopolitan of Las Vegas;
- Hilton Worldwide Holdings;
- Hyatt Hotels Corporation;
- InterContinental Hotels Group Americas;
- Kimpton Hotels & Restaurants;
- Marriott International;
- MGM Resorts International;
- Starwood Hotels & Resorts Worldwide; and
- Wynn Resorts Limited.
Stat of the week
4.9%: Increase in operating expenses for U.S. hotels in 2014, according to 2015 edition of CBRE Hotels’ PKF Hospitality Research’s “Trends in the hotel industry” report. This increase is the greatest annual growth in expenses per available room since 2007 and uncharacteristic of the strict cost controls implemented during the initial years of the recovery from the 2009 Great Recession.
Quote of the week
“Size does matter for the big hotel groups.”
—Adam Maclennan, director and head of United Kingdom and Ireland at PKF hotelexperts
Interviewed for an HNN article titled “For large hotel companies, size matters,” Maclennan was one of several sources who argued that the larger a company is, the more leverage it has when negotiating deals.
Reader comment of the week
“If u thought key money was tough to get during 2015, wait till u try to grab some after the Marriott-Starwood merger! Less competition among flags = less key money for developers! Not all mergers are good for the industry, or the consumer... Bob.”
—Reader “BobSonn” after reading “Key money falls further out of favor.”
As I wrote above, bigger doesn’t always mean better.
The opinions expressed in this column do not necessarily reflect the opinions of Hotel News Now or its parent company, STR and its affiliated companies. Bloggers published on this site are given the freedom to express views that may be controversial, but our goal is to provoke thought and constructive discussion within our reader community. Please feel free to comment or contact an editor with any questions or concerns.