Strategists navigate shifting guest-acquisition terrain
 
Strategists navigate shifting guest-acquisition terrain
26 AUGUST 2019 7:33 AM

A lack of standardized metrics and control over commission rates are among the challenges facing revenue strategists looking to rein in guest-acquisition costs.

NASHVILLE, Tennessee—The cost to acquire a guest goes beyond commissions paid to third-party distribution channels, but how far it goes depends on who you ask.

The issue is that there are no industry standards on how to look at customer-acquisition costs, or even what to include, Paul Mengacci, VP of finance and analytics at Prism Hotels & Resorts, said on a panel at the Hotel Data Conference titled “Keeping up with the changing dynamics of customer acquisition costs.”

“It becomes math: What do you include in acquisition costs? Ultimately it’s about how you get to that net (revenue per available room) number. People look at very different methods and metrics,” he said.

“Does the cost of acquisition stop at booking? You do have to look at labor and tech, and how you generate ROI in other areas. It opens a can of worms, but you have to look at it from multiple points … independently and then put them back together.”

For example, payroll for a sales team and manager might be considered in the cost to acquire the guest, he said. “A sales manager is traveling a lot, going out and getting that group business. Is that acquisition cost?” he said.

“We have to remember that 50% of operating costs come from labor. That’s still going to be the largest component,” Mengacci said. “Cost of acquisition is in the ballpark of 15% to 25% of operating expenses. So we have to make sure we don’t overlook those other areas of the P&L.”

Kurt Furlong, chief revenue officer and partner at hotel management firm Genuine Hospitality, said for a resort property, the cost of amenities also plays into guest acquisition.

“There’s dozens of acquisition costs, varying by channel, down to even the loyalty costs. It’s more than the OTAs,” he said.

He noted for a more complete picture, many in the industry are shifting focus to net RevPAR as a performance metric. Net RevPAR takes distribution costs, including commissions and fees paid to third-party platforms, out of rooms revenue.

“That’s starting to gain traction,” he said. “As the conversation continues in the industry, it’s becoming more formalized so we’re able to have better comparable data.”

Pressure points
Furlong added that the burden is on operators to keep the conversation going about costs.

“Brands make their money on the top line; they don’t have the incentive we (operators) do, to make sure we’re getting better revenue channels to our hotels,” he said. “We want to put the pressure back on brands to have book-direct campaigns, driving that for the owner, so we’re able to bring profit to the bottom line easier.”

Genuine Hospitality’s Kurt Furlong, left, speaks on a panel at the Hotel Data Conference that also included Linda Gulrajani, of Marcus Hotels & Resorts. (Photo: Robert McCune)

Linda Gulrajani, VP of revenue strategy and distribution at Marcus Hotels & Resorts, said how much a hotel spends to acquire a guest should be determined by what booking channels are most effective and profitable, and ultimately how much that guest is likely to spend.

For example, she said, “group, for sure, is the most profitable because of all of the ancillary spend that comes with it.”

“We do understand the channels most profitable to us, and what channels don’t spend the money,” she said, adding that tracking total guest spend is difficult, and the industry needs to get better at it.

“First, we have to get all the data in one place, which is really challenging,” she said. “Today, it’s very fragmented. The further down the road we get toward personalization, the more (artificial intelligence) will help and the more we can look at acquisition costs from a very personal level.”

Third-party factors
One factor driving the cost-of-acquisition trend is the move by big hotel brands, such as Marriott International and Hilton, to negotiate lower commissions paid to online travel agencies for group business.

“The landscape of commissions is changing constantly,” Furlong said, adding that “other brands are going to follow” Marriott and Hilton, “and that’s going to change this whole calculation.”

Owners and operators of branded hotels have little control over that, Gulrajani said, but independent hotels have a little more flexibility.

“When brands dropped to 7% (group commission rate), there were some independents who thought maybe they’d have some leverage if they stayed at 10%, but didn’t necessarily,” she said. “An independent can flex on (commission); if they need to go to 10%, they can.”

Greater competition in the third-party distribution space, as Amazon and Google emerge as booking platforms alongside Booking.com and Expedia, also is likely to have an impact on acquisition costs for hotels, panelists said.

“I would hope that competition would drive down costs for us,” Furlong said, but he added it could also mean less share of the distribution pie for hotels.

“In the Americas, OTAs account for about 15% of the business. Bringing those big boys in there might reduce costs a little bit, but then does that 15% go to 25%?” he said.

“Losing direct is a big deal. When they enter the space to the level we know they can, it’s scary.”

Mengacci shared that concern. “I hope it could drive down costs, but it’s also giving up more inventory,” he said. “What is that going to mean for pricing, for them to have that much control?”

Gulrajani said Google and Amazon will bring a level of personalization to hotel booking that the industry currently can’t provide on its own.

“For the consumer, it’s going to be really cool because they know so much about you,” she said. Booking is “going to be way more personalized and quicker to get to the end point” with AI, she said, adding that “the hotel industry is not there yet.”

“It’s going to take us from being in the driver seat today, where we can control our placement somewhat, to in the future losing control,” she said. “The power is going to shift to the consumer.”

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