We don’t need more headaches and worries. Some things just need to be simple and straightforward and trustworthy.
The sun needs to rise in the east and set in the west. 2 + 2 needs to equal 4. And not quite as embedded in the fabric of the universe, we need to know that when we’re provided an analysis on something relatively simple, it’s solid logic and math. We get a financial statement with something off budget by 10%, and it should be pretty easy to explain. We send out a blast marketing email, and we don’t want the clickthrough rate to be fuzzy. Just give us the exact numbers.
But sadly, when it comes to the way we’re delivered the return on investment — or ROAS, “return on advertising spend” — analyses on our digital marketing spends, the numbers are anything but logical and simple. If you’re a branded hotel, you’re very likely being snowed.
And here’s how: When you spend money on meta search advertising — think Google search — you think you are competing for travelers who are searching for “hotels in.” If your hotel is in Warrenton, Virginia, you think that people who type into Google “Warrenton VA hotels” are going to have an ad for your hotel presented to them in the search results.
But for branded hotels, that’s not accurate. The brands do not allow you to do that type of advertising. The brands are performing that function already, and an individual hotel also doing that would overlap their work and drive the pricing of the ads higher. What you’re actually advertising for is your exact hotel search result. Yes, you read that right. If you are a Hampton Inn in Warrenton, Va., you are specifically bidding for travelers who are searching for “Hampton Inn Warrenton VA.” Why in the world would you need to pay money to advertise for that when the guest is already intending to come to your hotel and the search results are already going to lead the guest to book with you? That’s a very good question!
The reason is that if you search for a specific hotel in a specific city, the online travel agencies are trying to divert those guests to book your hotel through their websites. The top booking links that are returned in those searches are going to be third-party websites. And that’s good and bad. The business is coming to you. But you are going to pay a high commission on that piece of business. When you spend money on meta searches, you are only spending money to compete with online travel agencies in shifting the traveler from booking on the OTA website to booking on your brand.com website.
Based on that understanding, here’s where the analysis gets fun. Let’s say the guest was booking a $200 room for one night. They were searching for your specific hotel. If they had booked on the brand.com website, you would have netted $200. But if they book that room via an online travel agency, then you are netting $200 less the commission. Assume the commission is 15%, so you’d be netting $170 instead of $200, and you’d be paying a $30 commission to the OTA.
What your hotel is actually spending digital advertising dollars on is trying to avoid that 15% commission. Just trying to get the brand.com website more visible to the traveler so that they book directly instead of booking via a third party. And the payoff on that spending isn’t a booking. The payoff is simply that you can avoid the 15% commission.
Would you knowingly pay $40 to redirect that guest to brand.com and save the $30 commission? Of course not. That’s silly. But guess what? That’s exactly what you are doing. But you don’t see it that way because the calculation of the ROI/ROAS is flawed.
You are being told that you spent $40 to get the $200 booking, which is deceptive. The $40 spend really only got you $30 in incremental revenue. The analyses you are seeing take credit for the full $200, though, skewing the ROI/ROAS dramatically.
In fact, 99% of the analyses we review show that the hotel spent more money to avoid the OTA commissions than the total the commissions would have been. Therefore, the ROI/ROAS is actually negative.
What can you do? To address this particular item, one should review the digital marketing reports in depth, which could result in shifting all digital advertising dollars away from meta search campaigns and into campaigns that produce verifiable and legitimate ROIs. A savvy hotelier will not take reports at face value but instead will dive into the details and will question widely, or will lean on a hotel expert, because not all is always as framed or presented.
Steve Steinberg is the president of Chicago-based Murphy Asset Management, LLC. He has been involved in hotel and portfolio management since the early 1990’s. He brings expertise in hotel development, NOI optimization, management company oversight, lender relations and workouts, pre-opening support, hotel operations, sales and marketing/revenue generation, financial analysis, and property condition assessments. He provides asset management and consulting services for an array of clients, and also oversees the Murphy Asset Management business unit and team.
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