An excellent question that come up on LinkedIn from Simon Carkeek, Executive Director at the equally excellent EyeForTravel, is relevant to every hotelier out there. It most certainly inspired this article (unfortunately it is of very little use to him as an answer – for which I apologise) which I wrote thinking of “the best in class” rather than what is really happening in the market. The question (reproduced with his permission) can be found here:
“What determines where travel companies advertise online? And what rates are paid for various types of advertising?
I am currently looking into the costs of and reasons for online marketing campaigns and wanted to ask the group what determines whether a site is worthy of advertising budget. I’m less interested in SEO or the PPC campaigns on the likes of Google, MSN and other generic search engines, but rather the budgets people allocate to advertise on travel specific sites such as deals publishers, meta-search engines and online travel communities / social media sites. Specific information I’m looking for includes:
What kind of volumes of traffic do advertisers look for? What kind of click through rates do they look for? What are the going rates? What revenue models work the best (PPC, PPA, commission based)? Banner advertising – do companies still pay for impressions/page views, or would it always be a PPC model these days? What do advertisers look for in a site other than traffic levels?
Does anyone have/know of any documents/research with this kind of information that you are able to share with me? Or do you know how I’d go about find this out for myself?
Any advice you can give is much appreciated. Will be happy to share my findings with anyone who is able to contribute.”
Simon Carkeek, Exec. Director, eye4travel
Mr. Carkeek’s question is indicative of the complexity and variety of answers he is expecting to receive. Different companies obviously have very different ways of thinking, and there will hopefully be many different, specific figures that will go his way. If this is the preliminary groundwork for another excellent report from eyefortravel, I can only wish them the best of luck in quantifying some of this stuff.
Having worked in multiple environments, I know that less accountable factors such as “gut feeling” or habit are still in use, but I have also come across a couple of examples of “doing it properly”, and that is what I think you might find useful here.
The client was a luxury collection with properties mainly in USA and the Caribbean. Upper 4 star hotels in their majority – with a couple of really famous properties in the mix and an unusually structured management team. (Hopefully further down it will become clear that this is relevant because it allowed for efficient flow of critical information amongst executives).
- Can we measure the results?
Investment in electronic advertising was always subject to one paramount criterion: Measurable ROI. Irrespectively of the method of calculating charges (PPC, % commission or “exposures”) if a channel or the company’s internal processes and systems could provide reasonable measurement of results, the campaign had a good chance of taking off.
- How much additional work would it cost us?
It is relevant to mention here that the costs of the campaign were also evaluated against the processes and work-load that would be generated by the campaign. The specific collection was rather “lean on the ground” without large teams of people delivering at property level so if a campaign had certain complexities to it (e.g. delivering of a promotional item or value-add-on for a booking) we would always take these into consideration.
- What were the opportunity costs?
Opportunity costs were also looked at in every case, and from two slightly different points of view.
Traditionally, we would examine the potential return in terms of volume (we were looking primarily at volume of roomnights here, not just the % of ROI as the right roomnight levels always justify a little more aggressive payments). If a certain opportunity A was looking like generating more than another opportunity B, then opportunity A would get the green light first. This staggered processing of opportunities was very useful – amongst other reasons – because of man-hour considerations; so only the number of opportunities that could realistically be handled would be eventually allowed to take off, and the decision didn’t have to be conscious (you often run out of time before processing opportunity F, but you didn’t run out of time in the midst of working on opportunity B or C just because you allowed the processing of opportunity F take up vital time).
The second, and rather non-traditional view of opportunity costs, is associated with the cross evaluation of ROI against all other revenue generating channels and segments.
To understand this approach and the logic behind it, it is relevant to mention here that the collection run almost completely (they were in the forefront of trying to do so with wholesale business as well) on BAR.
With occupancy levels being low during large sections of the year (this was a very new company with a lot of properties coming out of massive long-term renovations, so the starting point was lower than one would expect) the importance of filling up the hotels was at the top of the to do list. (Every revenue manager will tell you that you fill up your hotel first; then you may start any serious efforts to yield through improving your ADR).
Working with such a pricing structure, and with empty rooms to fill, the company would look at each campaign and could compare the opportunity costs and potential ROI across segments. As long as the ROI could be measured, a comparison was very easy. Would we spend 5 thousand dollars in aiming at incremental business in Expedia for additional % commission in each booking, or would we give this money up as a promotional add-on for an e-mail campaign to loyal members? Would we invest it in GDS cpm based advertising or would we go for brochure contributions with yet another wholesaler (which would produce results in a year and a half from the point of investment)?
The primary decision making tool was a universal % target for commission/payment levels. All BAR model channels would be analysed for a % cost of roomnight. The most expensive would be the “walk” point in negotiations for pricing of advertising, the cheapest would be the “wish” point and anything in between would be acceptable.
Another important criterion came from relationships. Larger organisations, companies that were important to the collection had more bread-and-butter business for the hotels, would always get priority. Without breaking parity, and working with a narrow range of commissions even for the best partners, giving them advertising dollars was the single method of showing preference to them on a day to day basis – and it worked well too.
The principle of this universal % payment/ROI approach rings true. For me, comparing costs and monetary/relationship benefits across all relevant channels (which is only really realistic if your pricing model is BAR and parity) has to be the correct way to run a business. It allows for nimble, justifiable and accountable investment.
In final point? There may be varying levels of money you have in the marketing pot, and as a company most likely there will be varying attitudes towards different media, accounting and payment practices and personal views. Choice for investment should come following consideration of alternative opportunities, their real costs (obvious and hidden) and always, always based on measurable results. Even if the non provable media with which you are presented has more to offer in your opinion, think of the way and cost you will have identifying bookings from it. In my experience you will always be better off with the measurable; if for no other reason, because you will be able to show your boss an unsinkable ROI figure 🙂