HOWEVER, it should be noted that across the U.S., occupancy across all weekdays is still hovering around 2019 levels. In prior industry recovery cycles, rebound in revenue growth was driven by a return of demand, with ADR growth following. This time we’ve experienced the opposite, with ADR growth leading the way.
Demand for stays Thursday through Sunday have continued to exceed expectations due to a shift in guest behavior. Over the last several years, there’s been a marked change in the average length of stay across the U.S. Guests are increasingly seeking longer stays, influenced by flexibility in work and travel norms. The rise of “workcations” and “staycations” has contributed to this trend, with many guests opting for extended stays to blend work and leisure.
The extension of a guest’s average length of stay creates an undeniable impact on hotel operations. Longer stays mean lower room turnover, which impacts housekeeping schedules and inventory management. Hotels have adapted by offering flexible check-in and checkout times, and personalized services tailored to longer-stay guests, including determining the frequency of housekeeping service during the arrival process. Long-term impact to guest satisfaction remains to be seen, as more guests return to a normal travel pattern and expect more frequent service during stays of two or more nights.
Longer stays and occupancy figures that don’t quite reach 2019 levels create another interesting dynamic: Fewer guests are traveling and they’re staying longer. Commercial strategy teams must be aware of the trends for their own hotels and markets as this trend continues.If guests begin returning to more traditional one- and two-night stays,how will that impact occupancy and ADR performance?
Rising Acquisition Costs
It’s no secret that the cost of acquiring a customer in the hotel industry has been on the rise. Competition in the digital space, especially from online travel agencies
(OTAs), has continued to drive up marketing expenses. The cost of digital advertising, search engine optimization SEO, search engine marketing (SEM), and customer loyalty programs are also significant factors in this increase.
When analyzing the cost of customer acquisition, it’s important to remember that every channel has some associated costs. There’s no such thing as a free booking. That’s why understanding each booking channel’s actual cost is critical to planning an effective commercial strategy for a hotel’s business mix.
The Value of an Optimal Business Mix
Based purely on a cost-per-channel assessment, hoteliers may think they should fill their rooms only with bookings from Brand.com or other direct channels. Realistically, however, hotels fill up with a mixture of demand from all channels. Most hotels have traditionally managed segment and channel mix somewhat passively. Many assume that channel selection is in the guests’ hands. However, for a hotel to improve its profit levels, the commercial strategy team must establish clear goals by segment and channel and pursue them with an intentional plan. Guests’ choice of the channel they use for information gathering or booking is heavily influenced by advertisers and suppliers of travel products, i.e. hotels.
It won’t help to plan for a higher percentage of higher value business if there’s no demand for it. However, if demand exists through more profitable channels, and the hotel isn’t poised to take advantage of it, they could leave a lot of money on the table. This isn’t the desired scenario for any hotel owner or manager. But you can avoid it with a proactive commercial strategy. However, if demand from high-profit channels is meager, and the lower-rated business faucet is running, a hotel should tap into this stream so long as it can justify that it makes some profit on every booking. Taking it on the top line with limited or no flow-through to the bottom line isn’t a sustainable method, even if it covers short-term operating cashflow requirements.
A successful commercial strategy team starts by identifying realistic market opportunities. In contrast to a legacy approach, the team will also consider costs along with \ revenue targets. Once the team knows what’s available and understands the value of each opportunity, it can decide which ones to pursue and how much it’s willing to pay to acquire the targeted business. The targets may not always be the highest value opportunities; they could be those that are more readily converted. Once the target is set and its value known, the team can establish and deploy funds to acquire it. Each hotel, along with its owner and operating team, can align spending with expected revenue to control costs and ensure they’re appropriate for the expected benefit.
Determining an optimal business mix isn’t about cutting out third party business and taking it all direct; it’s about getting the best mix of profitable business. Some third party volume may prove more attractive than direct depending on a number of factors, including seasonality. Naturally, channels vary in profitability, but it isn’t advisable to accept business through a channel that consistently contributes little to no profit. If a channel brings consumers that may return or spend more money in high profit ancillary revenue centers, or have longer stays, it may be worth paying more to acquire them the first time. This concept is sound as long as a hotel can prove that customers come back; that they stay longer and reduce operational expenses; and/or that they spend enough money in revenue centers beyond the room rate to make it worthwhile to incur the high acquisition costs.
Setting Objectives: Frequently Asked Questions
As you identify opportunities, it can be easy to revert to old habits. Successful commercial teams should spend some planning time identifying old habits and tendencies they want to avoid in the future. The following table highlights some common questions or challenges teams face:
The Importance of Commercial Strategy
Commercial strategy is a coordinated, data-driven operational framework that involves collaboration between sales, marketing, and revenue management to optimize revenue and profit while aligning with the organization's objective and leadership vision. This, in turn, leads to higher asset value and owner satisfaction.
You can’t overstate the importance of a robust commercial strategy in the hotel industry. In the wake of the pandemic and recovery cycle, hotels must evolve and embrace new ways of thinking about opportunities, new data, technology, data analytics, and customer-centric approaches to drive revenue.
Teams that embrace these changes, adapt to new consumer behaviors, and leverage effective commercial strategy practices will be well-positioned to thrive in this new era of hospitality.
