1. The Internet: The Ultimate Survival Tool for Hoteliers in 2009 The Travel Industry Association’s (TIA) latest survey predicts a drop of at least 1.3% in overall leisure travel in 2009. Corporate travel will be down by at least 5% as a result of massive layoffs and economic contraction. There are already visible signs of decline in the corporate and association meetings and group travel business, which is expected to accelerate in 2009. Even with this expected decline in travel demand due primarily to the current economic environment, online travel bookings in 2009 are projected to grow by 10.5% and reach $116.1 Billion (eMarketer), primarily as a result of the dramatic shift from the offline to online channel.
Here at HeBS, we firmly believe that a comprehensive ROI-centric Internet marketing strategy is the hotelier’s perfect “survival tool” in the current economic environment. In the difficult year we expect 2009 to be, Internet marketing can help smart hoteliers generate incremental revenues, improve marketing ROIs, attract more affluent travelers and out-smart the competition. For the past 13 years, our experience shows that Internet-savvy hoteliers with robust Direct Online Channel strategies are the winners in economic downturns like this one.
2. Critical Trends to Consider in Your 2009 Internet Marketing Strategy The hotel’s overall competitiveness today is determined to a great extent by how well it manages its Internet marketing and distribution efforts. In 2009, more than 55% of all travel bookings and up to 40% of all hotel bookings in North America will be generated from the Internet (eMarketer, HeBS), which represents a 10-12% growth over 2008. Another 25-30% of hotel bookings will be directly influenced by online research, but booked offline. By 2010 the Internet will contribute over 45% of all hotel bookings in North America.
The negative impact of Online Travel Agencies (OTAs), also referred to as third-party online intermediaries or TPIs, is expected to increase in 2009 due to lower travel consumer demand and higher amounts of unsold hotel inventory.
The ratio between the direct and indirect online channel will continue to improve in favor of the direct channel, from 52:48 back in 2002 to 60:40 in 2007 and is projected at 62:38 in 2008. Some major brands already enjoy a healthy 85:15 direct vs. indirect online channel ratio.
The following five distinct trends must be taken into consideration when planning your 2009 Internet marketing budget:
Online vs. Offline Channel: The online channel is definitely the frontrunner. Online bookers are predominantly influenced by online marketing and advertising formats, including online chatter and customer reviews. Now more than ever, billboards along the highway, hotel print brochures, and other traditional means of advertising should be shifted towards the web. In 2008, a remarkable 68% of hoteliers reported that they would be shifting their budgets from offline to online marketing activities (HeBS 2008 Benchmark Survey).
Internet vs. GDS: Further erosion of the GDS channel is self evident: less than 17% of hotel inventory in the US is sold via the GDS today and the number of retail travel agency locations in the US in 2008 has declined to less than 18,000 vs. more than 35,000 in 1996. Most major hotel brands sell more hotel rooms via their brand websites opposed to the GDS.
Web 2.0 and Social Media: Web 2.0 and consumer-generated media sites continue to create a lot of buzz in the industry. Online travelers are increasingly influenced by social media sites and peer reviews like Tripadvisor.
Direct Online Distribution has become the way to do business on the Web. Greater amounts of room inventory at higher ADRs are being sold direct to consumer via the direct online channel—the hotel’s own website. Marketing the hotel online via search marketing, email marketing, strategic linking and online sponsorships has to be the main focus of the 2009 hotel marketing budget.
Channel Cost-Effectiveness and ROI: The shift from more expensive to less expensive distribution channels has become the norm in hospitality. Lessening your dependence on higher cost channels and driving more revenues through your own website should become the main objective of your 2009 marketing budget.
Planning the right marketing budget for 2009 requires hoteliers to balance limited funds with marketing strategies that will generate the highest possible returns, so that your hotel website can function as your main revenue-generating channel with the highest ROI.
3. The Online Travel Marketplace
Size of the Market
North America: The $200 billion travel industry expects $105.1 billion of online leisure and unmanaged business travel bookings in 2008 (eMarketer, 2008). For 2009, online travel bookings are projected to grow by 10.5% and reach $116.1 billion.
By 2010, online travel bookings are expected to reach $128.9 billion (eMarketer).
How significant is Internet distribution in hospitality?
North America: The Internet has changed the way lodging is negotiated, managed and purchased.
Hospitality (USA, % of all bookings):
In the US in 2008, over 37-38% of all bookings in hospitality will be generated from the Internet (33% in 2007).
Another 25% of all hotel bookings were influenced directly by the Internet (online travel planning and research) but booked offline (phone, groups, meetings and events, walk-ins).
4. Key Customer Segments and the Web Leisure Travel: At least 55% will book travel online in 2008; over 60% by 2010. TIA predicts a modest drop of 1.3% in overall leisure travel in 2009. Even with this economy-instigated decline, online travel is expected to increase by at least 10% as a result of the shift from the traditional to the online channel.
The Bottom Line: Leisure Travelers, including family travelers, seniors, romance, special occasion travelers etc., are overwhelmingly using the online channel to research, plan, and book.
Over 40% of business travel bookings in North America will be online in 2008
SME (small and medium enterprises) business travel
Survey: up to 86% of bookings (unmanaged business travel) are performed online (eMarketer)
Preferred Methods Used by US Business Travelers to Book Travel Reservations:
(eMarketer, September 2008)
The Bottom Line: Business Travelers prefer to plan and book online, especially the unmanaged business travelers from small and mid-sized companies.
89% of meeting planners research event locations via the web.
Meetings market projected to grow to $175 billion by 2008, with travel representing 54% of the total.
In 2008, 41% of all groups and meetings travel revenue, or $39 billion, will be booked online (PhoCusWright)
91% of corporate meetings are for less than 200 participants.
2/3 are Small Corporate Meetings are for less than 50 participants (PhoCusWright, 2007).
The Bottom Line: Many corporate meetings are small in size and are now being planned locally (within the state or neighboring state).
5. What Happened to Traditional Distribution in Hospitality?
GDS Distribution: 2008: GDS will contribute less than 15% of all hotel bookings. 2008: Internet will account for 38% of all hotel bookings. (2008, HeBS, PhoCusWright)
US Travel Agency Retail Locations (U.S. Data):
(Airline Reporting Corporation, HeBS, 2008)
Major Hotel Brand CRS Bookings For the first time ever, in 2007 the brand websites of the top 30 hotel brands generated more revenues than the GDS. This trend has accelerated in 2008, as illustrated by the following table:
Q1 2008 Reservation Sources for Major Hotel Brands
CRS Hotel Bookings
Reservations Q1 2008
Reservations Q1 2007
Growth/Decline Q1 2008 to Q1 2007
- Brand websites
GDS Travel Agent
Total for CRSs
The Bottom Line: Rapid growth in the Internet channel, flat GDS channel, declining voice channel.
6. Direct Online Channel vs. Indirect Online Channel In the offline world hoteliers enjoy more direct sales (75%) than indirect (agency, intermediary) sales (15%-20%). In the online world hotels are less aggressive than the airlines in bypassing the third party intermediary and agency channel. This year for example, 62% of online hotel bookings will be direct sales, though some major brands already boast direct vs. indirect ratios of 85:15 (Marriott, Hilton, etc).
Hotel suppliers’ online market share is growing as hoteliers are becoming savvy Internet marketers. It will take consistent efforts to maintain and improve this share in the future. Here is a snapshot of the dynamics of the direct vs. indirect online channel in hospitality:
Overall for the industry (USA):
Hotel Branded Websites
(Merrill Lynch, HeBS)
The top 30 hotel brands have become excellent eMarketers. In 2008 the average ratio between direct vs. indirect online CRS sales is expected to remain fairly flat at 80:20 in favor of direct CRS bookings. Here is the breakdown from Q1 2008:
Internet Source Breakdown for Major Hotel Brands
Internet Bookings Q1, 2008
Share of Internet CRS Reservations Q1 2008
Brand Sites (1)
OTA-Retail Sites (2)
OTA-Merchant Sites (3)
OTA-Opaque Sites (4)
7. Hotel Product Commoditization Over the past 13 years a significant commoditization of the hotel product has occurred, largely because of the unprecedented price transparency brought on by the Internet and the unhealthy industry practices of competing online on price and price alone. In addition, online travel agencies (OTAs) and their price-focused marketing initiatives have been responsible for the further commoditization of hotel products and services.
Here are several important developments in distribution in hospitality that have contributed one way or another to commoditization of the hotel product:
Working with Online Travel Agencies (OTAs) that propagate the Web with price-driven hotel offers.
Rate Parity across all distribution channels has become the industry norm over the last 6 years. Though a highly positive move aimed to prevent price erosion, rate parity has contributed to the commoditization of the hotel product and services.
Best Internet Rate Guarantee has become the industry norm—this is good news. The bad news is that every player in the industry offers best rate guarantees, and this marketing aspect has stopped being a differentiating factor.
Matching the rates of the hotel’s comp set has become the industry norm. Rate comparison reports provide a quick snapshot of the hotel comp set’s current, 30- and 60-day out rates, so maintaining this “comp set rate consistency” has never been easier.
Just imagine how the hotel world looks through the eyes of the average travel consumer:
You find practically the same rates for comparable hotels (same room type/stay period) in any destination (i.e. same rate for midscale limited service hotels, same rate for economy hotels, same rate for full service hotels, etc.)
You find the same rates for the same hotel (same room type/stay period) whether you research the hotel’s own website or Expedia and Orbitz, call the hotel 1-800 number or speak to a travel agent. Under the scenario described above, how would the average travel consumer select a hotel? Obviously hoteliers have to offer something more engaging than just rate parity and best rate guarantee to attract today’s savvy online travelers. Providing unique value proposition to the potential customer and differentiating your hotel product from what the competition is offering are two of the strategies smart hoteliers utilize today.
A comprehensive de-commoditization Strategy in 2009 has the important goal of providing a unique value proposition to hotel customers. This strategy identifies unique aspects of a hotel product and destination and develops a differentiated approach to a hotel’s key customer segments. This strategy allows hoteliers to create unique specials and packages, event-related getaways, seasonal promotions, and launch marketing initiatives that provide unique value to the customer.
A robust de-commoditization strategy involves the following:
Focus on the value side of the Price vs. Value Equation.
Differentiation of the hotel product offering from offerings by the comp set.
Differentiation of the hotel offering from the indirect channels (i.e. third-party online intermediaries).
Differentiated approach to the hotel’s different key customer segments (i.e. family travel, business travel, meeting planers, wedding planners, etc.).
8. A Word of Caution: Advertising on OTA Websites In this economic downturn, Online Travel Agencies (OTAs) are desperately trying to generate incremental revenues, including advertising on their sites, to supplement their decreased margins. Sales pressure from the leading OTAs such as Expedia, Travelocity and Orbitz has intensified tremendously over the past year. In addition to banner ads, Expedia recently introduced TravelAds, a pay-per-click advertising program. Expedia proclaims that “similar to traditional search engines, this pay-per-click auction model is great for any budget”. The only caveat is that when users click on the sponsored listing, they do not go to the hotel website, they go to the hotel page on Expedia to make the reservation. In other words: advertising cost plus Expedia’s margin equals a total cost to the hotel of as much as 30%-40% from the booked hotel revenue.
Does it make good business sense to pay OTAs (who already make hefty profit margins from hotel’s net rates in the so called merchant program) to profit even further from hoteliers’ own inability to properly utilize the Internet and to damage even further the hotel brand and price integrity? HeBS firmly believes that this is yet another proof of the existence of a new kind of disparity in the hospitality vertical: between smart, Internet-savvy OTAs on one hand and Web-illiterate hoteliers on the other.
The OTA’s merchant model has greatly injured the hospitality industry and has done long term damages to the hotels’ brand and price integrity. You do not more proof than that; just look at the diminishing ADRs. The so called “rate parity” is in fact acceptance of the merchant-discounted rates as the hotel rack rates. The hotel’s discounted rates on Expedia have become de facto the hotel’s published rates. Though claiming to be “free of charge”, these merchant services cost hoteliers dearly. They cause long term damage and downward pricing pressures (both online and offline) beyond repair.
Paying to advertise on the OTAs, on top of these long-term damages, simply doesn’t make much sense. HeBS considers hotel-advertisers on OTAs as being the Web reincarnation of the “Stockholm Syndrome” where the kidnapped victims (hoteliers) fall in love with their kidnapper: OTAs.
The Bottom Line: To lessen dependence on TPIs, use a Product Differentiation Strategy (unique product offerings like packages, suite specials, event and attraction-based packages, etc available only via the hotel site) and create an Ebooking Conversion Strategy.
9. Important 2009 Dos and Don’ts What should Hoteliers do in 2009?
Unlike the competition, do not cut your marketing spend, but re-evaluate the marketing efforts and advertising budget and focus on proven ROI-centric efforts and formats.
Shift funds from offline to online advertising formats.
Shift funds from brand-building to direct-response initiatives.
Track every dollar spent with sophisticated website analytical and campaign tracking technology (e.g. Omniture Analytics).
2009 Do’s and Don’ts What marketing initiatives should hoteliers they avoid in 2009? Hoteliers should NOT:
Experiment with unproven advertising formats
Advertise on Third-Party Intermediary Sites (TPIs) –ad cost+TPI commission = total cost of 30%-40%.
Try “sexy” new media initiatives (e.g. advertising on social media sites like YouTube, Facebook.com, MySpace.com, etc.).
Here is what you should focus on right now:
Proven ROI-centric Internet marketing strategies + formats.
Launch a comprehensive Internet Marketing strategy to reach potential customers.
Launch a Local Internet Marketing Strategy to reach drive-in and impulse-buy customers.
Launch a Differentiation Strategy as a top priority: identify and promote the unique value proposition of the hotel.
Take a hard look at what you are doing: are you taking chances with new and unproven marketing formats? Is your Internet marketing budget ROI-centric? Are you a smart marketer, or are you advertising blindly, distributing limited marketing dollars in unproven or incalculable areas? Most importantly, have you satisfied the basics? These include:
Website Re-design and Optimization.
Website analytics and campaign tracking.
10. Step-by-Step 2009 Internet Marketing Action Plan Step 1: Audit the 2009 Internet Marketing Budget/Plan
Overhaul the budget to become ROI-centric.
Hold off on online advertising that has not proven to bring you ROIs in the past.
Customer Segmentation Analysis + Action Plan:
Take a hard look at how your property markets to your key customer segments (e.g. meeting planners, business, leisure).
Re-evaluate the importance of your key customer segments and feeder markets in 2009 (e.g. if fly-in guests’ share is decreasing due to airfare hikes, cuts in corporate travel budgets, or reduced airline capacity, focus more on your drive-in market).
Step 2: Become a Smarter eMarketer
Focus on marketing formats that generate above industry-average returns.
Implement the latest website analytics+ campaign tracking technology:
Track post-impression and post-click activity.
Track bookings, room nights, revenues from every campaign.
Adjust marketing spend instantaneously based on ROIs.
Don’t fall for “free” analytical tools–they simply do not work.
Step 3: Back to the Basics: Focus on the Direct Online Channel
Your hotel’s efforts in the direct online channel provides both short-term, immediate as well as long-term, strategic benefits
Your ROI-centric marketing plan should include:
Search engine marketing, including:
Organic search, paid search (PPC), local search, meta search, mobile search, Web 2.0 search
Email marketing to your own list
Online sponsorships and proven display advertising (banners, etc.)
Customer segment and feeder market initiatives
Step 4: Audit the Hotel Website Asset Hotel Internet marketing starts and ends with the hotel website. The hotel website has become the first, the only and in many cases—the last point of contact with the travel consumer. It is only natural that enhancing and optimizing the hotel website should be the top priority. Our experience shows that any website optimizations, enhancements or re-designs pay for themselves within 3-4 months.
Here are some important items to consider:
Maximize the value of the site – it is the hotel’s most important marketing asset today.
Make the site reflect 2009 industry’s best practices: user-friendly, search engine-friendly, travel bookerfriendly, and Web 2.0 friendly.
Optimize, enhance, and re-design if necessary.
If the site is over 12 months old, a website optimization is now due in order to take full advantage of the much cheaper organic search related visitors to your site. Make sure the hotel website is optimized for:
Travel consumers: the site must describe all aspects of the hotel product and services.
Search engines: make sure the site H1 headers, body copy (keyword density), page titles, description tags and meta tags adhere to best practices.
If the site is over 2-3 years old, a website re-design should be considered, or at least budgeted for in early 2009.
Step 5: Identify Your Hotel’s Unique Value Proposition:
Identify which aspects of your product resonate best with your customers: why are people staying at your hotel to begin with? Good location, business amenities, free breakfast, etc.
Market your hotel’s unique value proposition to potential customers, for example create unique hotel offers based on your unique hotel product attributes or attributes in the local environment.
Value vs. Price Equation: do not compete on price only! Focus on the value side of the Value vs. Price Equation.
Step 6: Develop Your Hotel’s Differentiation Strategy
Hotel Product Differentiation vs. Third-Party Intermediaries (e.g. stay within rate parity, but provide gas rebates, room/suite upgrades, etc. if people book on your site).
Hotel Product Differentiation vs. Your Hotel’s Comp Set (i.e. offer what your competition does not).
Offer a broader selection of specials and packages than the competition and provide the variety of choices your customers expect:
Differentiated approach to the hotel’s different key customer segments (i.e. luxury lifestyle leisure, family travel, business travel, meeting or wedding planners, etc.).
Step 7: Establish Several Achievable Objectives for the Year:
Create a system for fresh website content creation on an ongoing basis.
Web 2.0/Social Media:
Develop a Brand Defensive Strategy and at least one Web 2.0 initiative for the hotel website.
Make eCRM your top priority:
Building interactive relationships; “Owning” the customer.
Pre- and post-stay email communications; cross-sells and up-sells, surveys and sweepstakes, and more.
Building Loyalty should be a main objective:
Via product differentiation (offering unique value proposition; de-commoditization of the hotel product).
Via customer differentiation (know your customer, personalization, promote existing or create a simple reward program)
Professional development and training.
11. Conclusion In the difficult economic environment we are experiencing, getting “back to the basics” is the hotelier’s most prudent marketing strategy. The Internet is the largest and most important marketing and distribution channel in hospitality and by using the step-by-step action plan outlined in this article, smart hoteliers can generate significant revenues, increase market share, and outsmart the competition with a ROI-centric online marketing strategy based on industry’s best practices.
We believe that a comprehensive ROI-centric Internet marketing strategy is the perfect “survival tool” in the current economic environment. Focusing on the most important Internet marketing fundamentals should become a top priority for the remainder of the year and 2009. Smart hoteliers with robust Direct Online Channel strategies in place will be the winners in economic downturns like this one. As you re-evaluate your hotel marketing plans for the year, seek advice from an experienced and ROI-centric Internet marketing hospitality consultancy to help you adopt industry’s best practices, implement latest trends, and utilize the Direct Online Channel to its fullest potential.
About HeBS Hospitality eBusiness Strategies (HeBS) is the hospitality industry’s leading full-service Internet marketing and strategy firm. Based in New York City, HeBS has pioneered many of the "best practices" in hotel Internet marketing and direct online distribution. HeBS specializes in helping hoteliers build and enhance their direct Internet marketing and distribution strategy, boost the hotel Internet marketing presence, establish interactive relationships with their customers, and significantly increase direct online bookings and ROIs. The firm brings a unique perspective to the industry, gained through working with over 500 hospitality companies including major brands, independent hotels, casinos, convention bureaus and hotel management companies worldwide. Find out more about HeBS at www.hospitalityebusiness.com, or contact HeBS at (212)752-8186 or firstname.lastname@example.org.
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