As hotels begin to budget for next year, it’s a perfect time to look at their digital marketing mix. While many vendors ask about size of budget, allocation, and guest acquisition strategies, a hotelier actually needs more context on return on investment (ROI) to make an informed decision on 2017 spending. In other words, what are the highest converting and retention-driving digital investments? How can your digital marketing efforts support your hotel or owner’s broader goals of maximizing revenue and profit?
While digital marketing budget sizes vary widely by size of hotel and market, our customers see some commonalities when it comes to marketing mix. The majority of hotels are investing in a range of digital marketing activities, including search (paid and organic), display/retargeting, social media, email marketing, and other digital assets like the website. When it comes to the actual mix, most hotel marketers we speak with allocate roughly half of their digital marketing budget to search and display (see table 1).
Beyond the marketing budget, another consideration is cost of distribution from OTAs. In a hotel P&L, these OTA costs are separate from the marketing budget line item, often showing up in cost of goods sold. And depending on the type of commission cost (i.e., agency versus merchant), it may not even show up in the P&L. Therefore, not considering your marketing budget side-by-side with what you’re spending on OTA commissions can undermine any direct booking efforts, including brand.com and email marketing investments.
The (potential) payoff
Across industries, June 2016 eMarketer research shows that email continues to drive at least 4x higher ROI than all other marketing formats.
Also according to eMarketer, within the retail industry, email marketing is by far the most effective digital tactic for driving customer acquisition and retention, not SEO or SEM as often expected. Email marketing is also more effective at driving conversion, converting 3x higher than social media (source: eMarketer). In other words, Facebook Likes don’t always translate into bookings. Social media is absolutely important, but it’s more of a longer-term branding play than a conversion strategy.
These findings translate to hospitality as well. According to recent research from Performance Horizon and WBR Digital, email marketing is the most effective driver of return guests, ahead of social media (see table 1). Even Virgin Hotels, a brand that focuses heavily on social engagement, says that email marketing is still their best ROI digital investment. However, as mentioned above, email often receives the lowest marketing budget allocation.
In addition, leveraging email marketing for guest acquisition supports channel shift away from OTAs. How do you acquire the email in the first place if the guest is not yet acquired? Common email acquisition tactics include website signup or on-property initiatives. For example, many hotels empower the front desk to collect emails from OTA bookers, offer free wifi in exchange for an email address, or host events on property. These third-party lists can then be imported into your database.
Optimal hotel marketing mix
So what does all this mean? In a nutshell, determining the right marketing mix for your organization is critical. Benchmarks are a helpful starting point to understand how your peers are opting to invest, but the most important lens is your ROI.
Step 1: Gain a complete ROI view of all of your digital investments, including OTA commissions. You may need to work closely with other departments like revenue management to uncover true OTA spend and how that compares to the marketing budget.
Step 2: Make the necessary adjustments to your digital marketing mix, if required, to optimize for your highest converting and retention-driving channels. For example, we are seeing smart hoteliers reallocate some spend from paid search and display to email marketing, given the retention and conversion benefits.