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Tim Peter

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August 12, 2014

How Intermediaries Drive Up Your Costs: 5 Ways to Protect Yourself (Travel Tuesday)

August 12, 2014 | By | No Comments

Managing rising OTA and intermediary costs

If you’re like most hotel marketers and owners, you’ve probably noticed a disturbing trend: your costs for acquiring guests have been rising, probably by a lot.

But have you considered why?

It’s easy to blame the OTA’s for pushing increased margins and enhanced commissions. And, sure, some of that’s happening. But it’s not just the OTA’s. It’s happening everywhere. The real problem relates to who owns access to customers — and their ability to charge for that access.

Google dominates search everywhere except China and Russia (and in those countries, Baidu and Yandex, respectively, play a similar role in the marketplace). As more hotel marketers have shifted their marketing spend to paid search, it’s driven up the cost of that medium. Similarly, Facebook continues to change its algorithms, filtering what its users see and decreasing the reach of your social messages. The social giant’s recommended solution: paying Facebook for reach — again driving up your costs.

Email has also suffered, as Google changed its algorithms to filter email marketing messages onto a secondary, “promotions” page in its ubiquitous Gmail offering. This has moved your email marketing out of your guests’ primary inbox, increasing the difficulty of connecting with guests through this still-promising medium.

And don’t get me started on the whole net neutrality issue, where ATT, Comcast, and Verizon are pushing in the worst way possible — literally — to force you to pay twice to reach your guests. The attack on net neutrality represents such a major threat to the way we all reach customers that Google, Facebook, Amazon, Microsoft, Twitter, Yahoo!, eBay, LinkedIn, and a host of others have all publicly protested the move. It’s pretty telling that one hundred and forty disparate, competitive players — including those just mentioned — jointly issued a letter to the FCC that begins, “We write to express our support for a free and open internet…”, the clear implication being that the FCC’s current proposal would eliminate that very thing.

Add in travel industry consolidation such as TripAdvisor and Priceline’s recent shopping sprees and you’ve got an ideal recipe for higher customer-acquisition costs. This trend isn’t limited to the hospitality industry, of course, as Amazon and Hachette’s recent kerfuffle in the publishing space demonstrates.

To be fair, except for the net neutrality mess — which is just wrong — and maybe the Amazon/Hachette dust-up, none of these companies are bad actors. They’re simply following basic laws of supply and demand. Any Economics 101 student should be able to explain the underlying causes. When someone else completely controls the road to your customers, it shouldn’t surprise you when they decide to install tollbooths.

How Do You Respond?

Now, does this mean you should abandon a balanced approach to direct and indirect business? Nope. Not even a little. What it does mean is that you need to pay particular attention where your guests come from, what it costs you to acquire them, and what it costs you to keep them.

How can you do that? Here’s what I recommend:

  1. Expand your options. It may be cliché, but don’t put all your eggs in one basket. Yes, OTA’s can drive significant business. But think about your overall web presence and, for that matter, market presence, and how you can reach guests most effectively and efficiently. Your website plays a crucial role, serving as the central destination most guests will visit at some point in their decision-making process. Maximize and optimize search, social, mobile, retargeting, email, and voice channels to attract and retain guests, then use OTA’s and the GDS to supplement that core. Assume that every channel will get more expensive over time; invest in those that offer you the most control in your conversations with guests and seek alternatives to the rest.
  2. Learn to say “no.” While you want to give yourself plenty of options, that doesn’t mean you have to be on every shelf. You don’t need to sign every agreement offered you or provide inventory to every last “partner” on out there. True partners support one another. Choose those channels that work with you and for you to deliver guests you can’t reach on your own and ignore those that simply compete with you for the same guests. Remember, without your inventory, the myriad marketing and booking channels have nothing to sell. Use that to your advantage, particularly during this period of relative growth.
  3. Benchmark your effectiveness. How do your revenues and costs measure up to others in your market? Many marketing teams struggle to answer this critically important question. Are your acquisition costs high, low, or somewhere in the middle? Are your marketing channels priced appropriately relative to your competition? Are you getting the best return on your spend? The more you know what the world around looks like, the more able you’ll be to manage your marketing and distribution to achieve strong results.
  4. Build your customer database. The trend is clear: Own the data and you own the customer. Google and Facebook have essentially built their entire businesses on this principle. Continue to grow your customer database, then use that data to foster deeper, more relevant conversations with guests. Measure which promotions and messages resonate with which guest segments, then deliver targeted messages to those segments. Lather, rinse, repeat.
  5. Don’t assume there’s nothing to be done. Probably the single biggest mistake I run across comes from those who say “We can’t possibly compete with (aggressive competitor),” regardless of who that “aggressive competitor” is. Of course you can. Whether you work for an individual property, a management company, a major chain, or anything in between, you’ve got plenty of opportunity to compete effectively. Heck, you even can — and should — add your opposition to the FCC’s net neutrality plan. Sure, sometimes a competitor may gain a temporary advantage. Fine. Just remember that it’s always temporary. Continue to follow the other tips in this list to shorten the duration of that temporary advantage and to improve your position in the market.

Conclusion

Blaming any one player — Google, OTA’s, whoever — for the rising cost of customer acquisition misses the larger trend. As long as gatekeepers exist, you’re going to face the same problem. And, it’s unlikely all gatekeepers will ever disappear entirely. Instead, focus first on those areas such as your own web presence where your control is greatest, supplement your presence with an array of true partners, benchmark your results to evaluate new opportunities critically, and use your own customer database to offer guests the information most relevant to them.

Most importantly, keep pushing for improved results. While it’s unlikely you’ll avoid all tolls along the way, you certainly can find a route that works for your business.

Interested in learning even more about the future of hospitality e-commerce and marketing via the social, local, mobile web? Register to receive a special report I’ve produced in conjunction with hotel marketing firm Vizergy, “Digital Hotel Marketing in a Multiscreen World.” Developed specifically at hotel and resort marketers, the lessons can help your business adapt to the changing guest environment. You can get your free copy of the report here.

You may also want to review the tips in my recent presentation Digital Marketing Directions: Three Trends Shaping 2014 Hospitality Internet Marketing. I’ve presented this talk to a number of hospitality and travel-related organizations and you might find it valuable for your business, too:

Finally, you might also enjoy some of our past coverage of the social, local, mobile web and what it means for your business, including:

Note: A version of this post originally appeared on Hotel News Now, where Tim Peter writes a quarterly column for the magazine’s Digital Tech Impact Report.

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