Hotel Digital Marketing in a Down Economy￼
Hotel Digital Marketing in a Down Economy
These days it feels like mentioning the “R” word is tantamount to saying Voldemort’s name out loud. We all know it's here, but maybe if we refuse to acknowledge its arrival, it’ll somehow spare us the battle ahead. Sorry to burst that bubble, but the battle is about to begin.
Reading the Tea Leaves
GCommerce provides real time reporting to our hundreds of clients; meaning we sit on a metric-ton of data. In the last 90 days:
- Website conversion rates dropped 36.5% in November 2022 versus October and 26% over November 2021.
- Portfolio wide ADR in November increased by $50, while overall revenue dropped an astonishing 46%,
- Look-to-Book ratio has been cut nearly in half.
- Return on Ad Spend (ROAS) has actually improved in Q4, but impressions and volume are down. Simply put, less people are shopping.
Call this the canary in the mine, but we aren’t the only ones seeing the hotel digital marketing trends. Hotel clients are reporting declines in overall market demand, especially in city center destinations.
So regardless of your own prognostication on the health of the travel economy in 2023, let's assume that we are about to see a downturn. Hopefully a mild one.
What Happens Next For Hotels
As is so often the case, history instructs the future. When the hospitality industry experiences a downtown, a number of patterns repeat. Not to sound self-serving, but most hotels cut marketing spend, retrenching to their most basic programs in an effort to cut costs. Seems reasonable, but there is a more intelligent, less reactionary way to rebalance spending. Unfortunately, many hotels will eschew a methodical approach in favor of arbitrary cuts to all spending. There’s a reason that OTA’s have used recessionary periods to grow their share and influence in the industry. They become a more important revenue lifeline when hotel’s cut their own digital marketing.
Beyond hotel digital marketing activities, if history is a guide, hotels will fall into a few categories (with clear winners and losers).
RETREAT IS DEFEAT
2021 was the year of historical gains in ADR. Seriously, some of our client’s have increased their rates 300%+ over previous highs, and we all know rate flows. It can be addicting. As headwinds start to blow, some hotels will refuse to sacrifice their rate gains. They’ll argue that with inflation and rising labor costs, the rate is necessary to maintain profitability. They’ll point to studies that say that dropping rate in a recession does more harm than good. True, and we’ll reference those same studies in just a minute. But hotel rates in many markets have grown to unsustainable levels (300% over previous highs in less than 2 years is not “normal.”) Finding a more historically grounded hotel rate strategy is not the same as fire selling your property. Hotels in this category will see occupancies fall as more aggressive competitors win share. They’ll watch loyal hotel customers give less expensive competitors a try, opening the possibility that they lose them forever. Not good. Ultimately, these hotels will succumb to market pressure and reduce their rates, but harm will have been done.
Bookings have fallen off a cliff, cancellations have increased, market wide demand is down….react react react. This category of hotels does not lead their comp set in RevPar share. They’re not usually in second place either. They take pride in their ability to pivot quickly by pulling on the pricing and merchandising lever. They’ll drop rate, run flash sales, snuggle up to OTA’s and cut more proactive digital marketing for their hotel as their profitability plummets. It's a race to the bottom, and they’ll be determined to get their first. As mentioned previously, this course of action was well studied after the recession of 2008. It boils down to this - outsourcing your demand to fickle customers who will only do business with you if you’re “on sale” is a tough place to come back from. Hotels in this category experience the most significant declines in profitability during a recession, and they’re the slowest to recover on the back end. Long story short…don’t be this.
PLAY CHESS NOT CHECKERS
The last category of hotels will be a little more thoughtful, a little more strategic, then their peers. It starts with a fundamental understanding that:
Price Elasticity of Demand = Percent Change in Quantity Demanded / Percent Change in Price
Our belief is that, in the early stages of this next cycle, prices will be very elastic. In other words, measured drop in prices will lead to increased demand. However, especially in a recession, that curve flattens at some point (and often rather quickly). When the curve flattens, dropping your rate by $20 doesn’t result in more room nights, it just means that people spent $20 less on rooms they were already going to book. Smart hotel revenue managers will find that inflection point, and find it quickly (60-90 days). Once there, these hoteliers will establish something of a floor for their pricing, regardless of the insane actions of their bottom dwelling competitors.
What, then, for their hotel’s digital marketing. Rebalance, not eliminate. First and foremost, these hotel’s will focus on their past/loyal guests. Those guests have pre-existing price expectations, meaning they will be less likely to shop around if they see the property offering a competitive rate vs what they paid previously. Any discounts the property offers to stimulate demand will go to this cohort, rewarding them for their loyalty and continued business. They know that these past guests will be the key to their accelerated recovery on the back end of the recession.
What Are We Doing at GCommerce?
We’re rebalancing our marketing. For the last decade+ (with the exception of the pandemic), hotels have been focused on new client acquisition. They’ve been in the driver seat with OTA’s and flooded with demand from a well-heeled consumer. Our efforts were focused on efficient new-customer acquisition. Going forward, acquiring customers will still be important, but a renewed emphasis on building, nurturing and growing a loyal brand community will win the day for our hotel clients. That's a fancy way of saying that smart operators will want their hotel marketing to focus on their past guests in new and innovative ways. At the recent Historic Hotels and America annual conference, we unveiled Community Marketing, a new paradigm in hospitality digital marketing. It posits that programs devoted to developing a loyal and growing brand community is not only timely, it’s timeless. To do so, we must build a narrative around our brands, telling stories in compelling new ways. We have to focus on the new gold standard of first party data, and wean ourselves off of third party data that is increasingly disappearing. During boom times, demand is cheap and profitability is high. It’s hard to justify the extra effort required to make this kind of pivot. In a recession…
At the same time, smart revenue managers will want to do everything in their power to resist the allure of OTA demand. That battle is being fought through metasearch. Make no mistake, the OTA’s are geared up and ready to fight tooth and nail for those customers, but for the first time since OTA’s became a thing, hoteliers have a way to even the playing field. We expect budgets will increasingly rebalance away from traditional digital media, and towards metasearch advertising for hotels. With the launch of MetaDesk, GCommerce is poised to lead the fight for our clients. By a large measure, MetaDesk is more feature rich; more result focused than any metasearch platform in the industry. It's time to finally win a recessionary war against OTA’s instead of relinquishing ground.
Down markets are difficult, but they follow a pattern. Your hotel’s outcome is more dictated by marketing than in any other economic cycle. If you hold a strategic, long view, you can set yourself up for a decade+ of success. We’ve spent the last year getting ready, so let’s go win the day.