Book Direct by the Numbers

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July 07, 2017
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Cindy Estis Green - cindy@kalibrilabs.com
GenevaRinehart- geneva@hospitalityupgrade.com

12,000 hotels and 52 million transactions — did it work?
 
Kalibri Labs collects transaction-level daily guest stay, booking and cost of acquisition data from more than 25,000 hotels and has a database spanning from January 2011 that is updated monthly. Bookings involving the book direct/member rate offers were isolated and a thorough analysis was undertaken with data from a sample of 12,000 hotels representing 52 million stays from May-December 2016.

Geneva Rinehart: geneva@hospitalityupgrade.com 
In your opinion, what was the main reason hotel companies launched book direct campaigns? What were they trying to achieve? 
 
Cindy Estis Green: cindy@kalibrilabs.com
Hotel companies had multiple objectives with these programs. They wanted to change consumer behavior by demonstrating that Brand.com is the place to go for the best rates. They also wanted to add more, frequently returning, loyalty members to their hotels’ guest pool and to reduce acquisition costs by having a larger share of the hotel’s business come through the lower cost direct channels.  
 
Geneva Rinehart: geneva@hospitalityupgrade.com 
Do you think the hotel companies achieved what they set out to do with these campaigns?
 
Cindy Estis Green: cindy@kalibrilabs.com
There is no doubt that there was a change in consumer behavior with an acceleration of booking growth through Brand.com and a deceleration through the OTAs. This demonstrates a shift in bookings into the direct channels. In addition, each hotel company has reported significant spikes in loyalty members. Our data shows that the growth in loyalty contribution from 2015 to 2016 was generally two to three times the rate of growth from the previous year, and even higher than that in some hotel segments. 
 
Geneva Rinehart: geneva@hospitalityupgrade.com 
What kind of ROI did the hotels get from the campaigns? Did the success come at a cost? 
 
Cindy Estis Green: cindy@kalibrilabs.com
We do our analyses based on net revenue. Net revenue means revenue after direct acquisition costs such as commissions, transaction fees, channel costs and loyalty fees are removed. When we evaluated the net revenue generated across our database from July 2015 to June 2016, the total net revenue generated for direct loyalty bookings for every $1 spent in acquisition costs was $12.50, while only $4.46 was generated for every dollar spent on OTA bookings. That differential is significant, and although every hotel will always be best served with a wide range in their mix of business, they should be mindful of the costs when they plan how much to target for each source.
 
In evaluating the cost of the book direct initiatives, there were many questions about discounting on bookings that might otherwise have come in at a higher rate. Many owners and operators question if there was a “trade-down” effect that came with the discounting. The Kalibri Labs analysis looked at these bookings to examine that impact. Although there was certainly some dilution in Brand.com revenue related to trade-down, many hotels countered that with either higher Brand.com volume or by an uptick in other segments that come in at a lower cost. Further, it was clear that the primary offset to any cost incurred for the program would come from the increases in loyalty membership to grow this base. Based on the median results, if a hotel brought in 35-70 new members that will return, it would have a payback on the initiative along with the residual benefit of more committed customers in the future. For those hotels that generally have a very high dependence on third-party channels, some were not able to shift enough to Brand.com to compensate for the reduced volume in the OTA channel. 

Geneva Rinehart: geneva@hospitalityupgrade.com 
What lessons can hotel companies learn from your data?
 
Cindy Estis Green: cindy@kalibrilabs.com
The two biggest messages for hotels are: (1) diversify your business mix so you are not beholden to any one third-party type of business that may increase its cost at any time, and (2) the larger your loyalty base, the better your foundation is for a healthy business. I have come to believe that loyalty contribution is the new system contribution. For 30 years, hotel brands have sold their flags based on how much business they bring through their own channels. Today, this can be best measured by the loyalty contribution. When hotels have 50 percent to 60 percent of their business coming through a loyalty program, which is already the case for almost half of the U.S. branded hotels, there is much less volume needed to fill through the higher cost segments including groups and meetings, local corporate accounts or ad hoc leisure sources. As the loyalty base grows, the need to find business through the highest cost channels is reduced. 
 
Geneva Rinehart: geneva@hospitalityupgrade.com  
Is it realistic for hotels to think they can shift consumer behavior?
 
Cindy Estis Green: cindy@kalibrilabs.com 
As far as behavior change, this campaign proved there is a large enough group of travelers who are not committed to a specific booking channel and are open to incentives to use other channels. Those only looking for a discount are likely to continue switching to any channel offering a lower rate. For those receptive to other benefits that might come from ongoing participation in a loyalty program, they will continue to respond to a brand’s offers whether they are rate related, value-add based or provide conveniences in the booking or stay experience. 
 
Geneva Rinehart: geneva@hospitalityupgrade.com  
Are book direct campaigns sustainable?
 
Cindy Estis Green: cindy@kalibrilabs.com 
The book direct campaigns were a great way to send a message to the traveling public – that engaging in a relationship with a hotel can pay off in many ways other than a one-time discount. For those who are likely to travel at least a few times a year, if the hotel brands make a compelling enough case, they will return to a hotel or a brand to take advantage of that value. If they rely on discounts, it is a benefit that can easily be shifted by another channel offering a better deal for the next trip. 
 
Geneva Rinehart: geneva@hospitalityupgrade.com 
How do you see book direct campaigns evolving in the future?
 
Cindy Estis Green: cindy@kalibrilabs.com 
I believe that the name of the game will be making the travel journey as seamless as possible. Rather than letting the discounts devolve into a classic race to the bottom, offering conveniences like mobile check-in, keyless entry and choose-your-own room will be much stickier to keep consumers connected to a brand or family of hotels. Just as the airlines have added functionality to their apps such as registration, notification for upgrades and seat selection, the hotel companies can offer travelers enough reasons to keep coming back for more. Services related to the stay experience, such as solving service needs while at the hotel, finding nearby restaurants or getting information about attractions or entertainment in a destination can all be folded into the hotel or brand apps that can serve an important role in consumer engagement. It will be interesting to see how both brands and third parties enhance the digital experience for travelers and how that is tied to their loyalty programs. Those that do this best are more likely to win market share in a world of travelers looking for convenience and value.

Cindy Estis Green is the CEO and co-founder of Kalibri Labs, a Big Data company that benchmarks hotel revenue performance net of customer acquisition costs. She can be reached at cindy@kalibrilabs.com.

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