Earlier this month we had the opportunity to sit down with Tim Davis, the CEO of PACE Dimensions, about the current state of marketing in the hotel industry. Tim is an industry veteran who served for 9 years on the Management Board of Hilton, and prior to that was SVP in a number of roles including Distribution, e-Commerce and IT. Before that Tim was responsible for marketing for Hilton across EMEA. Tim now leads Pace Dimensions, a management consultancy firm specializing in improving the performance and competitive edge of brand-driven companies in the hospitality industry.
Tim, how would you describe the current state of marketing in the hotel industry? And how does this compare to other industries?
This is a very difficult question to answer precisely because of the range of sophistication across the industry coupled with the fragmented industry structure. This means that there are examples of high sophistication (loyalty programs for the largest hotel groups) and very low sophistication (direct mail of newsletters to previous guests) and everything in between. Having said that there are some definitive themes that characterize marketing in the hotel industry, and allows some comparison to other industries to be made.
Firstly it’s important to point out that marketing sophistication generally varies by size of the hotel company. In the top 5 largest hotel groups (representing 46% of all branded hotel rooms, and 22% of global hotel room supply) there are:
- dedicated marketing departments specializing in different areas of the marketing mix,
- scaled loyalty programs,
- sizeable budgets (circa. 4-5% of grr),
- relatively high levels of centralized investment in technology, and
- high levels of governance standards in place.
Here marketing is relatively sophisticated. Outside the top 5 and in the top 20 hotel companies (representing 24% of all branded hotel rooms, and 12% of global hotel room supply), the level of sophistication drops away quite quickly. These marketing departments typically have:
- specialists in different areas of the marketing mix,
- small loyalty programs with much more limited influence,
- much smaller budgets due to having half the number of rooms (of the top 5) and 2-3% of grr
- centralized technology provided by 3rd parties
- governance standards which are poorly adopted
The remaining 30% of branded hotel rooms and 2/3 of global hotel room supply have the very basics in marketing, generally confined to promotional consumer and digital marketing aimed at boosting demand during need periods.
When considering level of sophistication overall, the hotel industry is clearly skewed by the 50+ brands and 22% of global hotel rooms operated by the top 5 hotel companies. In comparison to other industries, most 3rd party studies place hotel marketing in the upper 2nd quartile of maturity therefore just below the median of average. This is also reflected in digital marketing where the hotel industry is placed at the bottom of the 3rd quartile or just above the median average. Interestingly the sectors that have higher levels of sophistication or maturity are generally where two conditions exist:
- the value of the brand equity as a % of the price paid for their product or service is high.
- the level of digital penetration and maturity in the sector is also high
The most sophisticated being media and entertainment, with sectors such as high technology, consumer financial services, online retail and healthcare also being higher than hotels.
What do hotels do better/worse in the field of marketing than other industries?
This is probably better addressed by answering which areas of marketing are hotel companies generating more value, and which do they add little value and why?
The three largest areas of operational marketing spend and focus is on:
- promotional marketing to consumers during periods of lower hotel occupancy
- loyalty marketing to attract and increase share of frequent staying guests
- driving demand directly to the brand online
This is primarily because of the ability to target, measure and demonstrate the returns on marketing spend is easiest. Digital marketing in particular provides much improved capabilities in all 3 areas, and has encouraged hotel companies to significantly increase investment where it can “throttle and direct” spend in ways that drives demonstrable improvements in demand and revenue.
Hotel companies also invest very significant sums of capital in product renovation, although the degree to which those investments are consistently applied and driven by marketing insight varies considerably. Brand standards tend to be better defined for the hotel facility and very poorly defined for services and the customer experience.
Where do you see hotel marketers struggle the most?
The biggest areas where marketers struggle most are:
Understanding customer value, which groups of customers represent the most valuable parts of the market. Then, knowing which of their existing customers have the propensity to grow and how they can target and attract more. The only customers that hotels understand something about (albeit limited) are those that elect to sign up to their loyalty program. Their understanding is often limited to value, frequency and a limited number of preferences for those that already stay most often.
Understanding the needs, behaviors and attitudes of its potential and existing customers. Hotels understand levels of demand by geographic market, and very blunt definitions of customer type (based on the rate paid, and period stayed).
Sources of funding. Although hotel companies and owners affiliated to brands in aggregate spend very high levels of investment in all aspects marketing (5-15%) of grr, and then in addition spend significant sums on local sales and marketing, and commissions; these funds are fragmented across marketing programs, regions and destinations and seldom reflect where the best sources of demand exists.
The single customer view. Their technology ecosystem separates brand distribution, revenue management, brand service delivery, customer insight, and business intelligence into many legacy technology systems and databases. Gaining a single view of customers, inventory, pricing, distribution, service delivery and business intelligence, and then being able to act on it is frustrated by layers of unintegrated and inflexible technology
Organization, resources and governance. For the largest majority of hotel companies, insufficient focus is placed on hiring and developing the right skills in digital marketing, strategy and planning, and analytics. Equally many organizations are limited by organization silos with competing priorities, characteried by very slow customer outcome delivery and unable to keep up with the level and speed of change in the external environment. The constraints of annual budgeting processes driven by hotel operations, and the fragmented way in which budgets are held, also undermines a brands ability to act with impact and speed.
What do you see are the differences between big global brands, regional chains and independents
The primary difference is the basis on which they compete, but importantly large global brands, regional chains and independents can compete very effectively if they recognise what is really their core strength and how they can build defendable barriers, and then focus. Too often hotel companies spread themselves too thin …..for resource allocation and network growth.
The Large global brands: They primarily benefit from brand strength, distribution, loyalty programs, penetration in home markets and tier 1 & 2 cities; where they have scale, and where demand is polarizing and value increasing. There opportunity is to leverage their scale by:
- improving digital maturity in marketing, distribution and customer experience
- bringing their brands to life by defining and delivering consistently the customer experience that differentiates their brand
- improving their customer and business insight, through technology transformation & investment; then executing more effectively by empowering cross functional teams around customer outcomes, and adopting agile approaches to deliver improvements quickly.
- understanding their most valuable customer segments and focusing their collective financial resources more productively to create greater impact
The regional hotel companies: Their core strengths are based on knowledge and penetration of their home markets, and their ability move quickly. Regional chains should focus on:
- increasing share and penetration of core markets…avoid spreading too thin
- differentiating brands and making them more relevant to the most valuable market niches they can easily reach and influence
- focusing limited sales & marketing resources on most valuable segments
- partnering with scaled digitally mature companies able to provide and innovate quickly the essential business capabilities required; segmentation, targeting, advocacy, customer experience management, distribution, revenue management
The independent hotels: Their core strength is based on developing highly differentiated customer experience, and using their local market knowledge. Independent companies should focus on:
- making themselves visible through scaled partners on a payment for performance basis
- building lasting relationships with existing customers and developing advocacy
- differentiating through value and relevance for what customers need
- executing on the basics in facility and service delivery extremely well
Over the years how has technology influenced marketing & ecommerce for hotels
Hotel companies have never had so much opportunity, the flexibility to act and the ability to afford to do so. Technology innovation, cloud computing, it service development and big data has given brands the ability to segment, target and build close and powerful customer relationships with consumers that have a high propensity to buy their products and services.
The rapid evolution of scaled it service providers and more integrated industry ecosystems has also meant that gaining critical capabilities can be done quickly and at a cost that is affordable to small and large companies, and proportionate to the benefits they generate.
The most important capabilities that have been developed and improved are:
- retailing to a global market
- segmenting and targeting individual and valuable consumers
- building advocacy to generate demand
- innovating and delivering frictionless and personalized customer experiences
- improving revenue productivity and yield
- gaining improved customer/business insight to better inform marketing, operations and product innovation
Overall increasing digital maturity in the hotel sector will reduce revenue and profit overall but equally will polarize it to those that either adopt it quickly and execute well or those that disrupt and create new lines of business and business models.
Those that do will take a greater share of the revenue and profit available, as well as the consistently growing demand for hotel services that is forecast to continue year on year beyond 2030 at 3-4% per year.
Read some of Pace Dimensions latest research on the Digitisation in travel and hospitality here.
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