Mr. Starkov

Website / Online Mechandising / SEO

Brand Erosion, or How Not to Market Your Hotel on the Web - Revisited

By Max Starkov, President & CEO, Hospitality eBusiness Strategies Inc

Direct Online Distribution Has Become a Top Priority

This has been another difficult year for hoteliers. To begin with, there is a new realization among hoteliers that something has to be done to change the status quo in online distribution. Hoteliers are becoming more and more frustrated with the fact that they are consistently losing leisure and business customers alike to the online discounters. For many hoteliers Direct Online Distribution has become a top priority.

Last year we concluded that travel suppliers in the other travel sectors were well ahead of hoteliers in aggressively adopting direct-to-consumer online distribution. This continues to be the case a year later. Since 9/11 all major airlines and car rental companies aggressively adopted the "Direct Web Distribution Model" i.e. direct-to-consumer sales via the Internet as the centerpiece of their online distribution strategy. If we include Southwest Airlines, which has a very unique direct-to-consumer online business model, the direct-to-consumer share of U.S. airline online distribution will exceed 62% this year. JetBlue generates over 65% of its revenues through its website.

In the offline world hoteliers enjoy more direct sales (75%) than intermediary sales (25%). In the online world hotels are less aggressive than the airlines about bypassing the intermediary channel. This year for example only 52%-53% of online hotel bookings will be direct sales. Unlike the airlines, hoteliers have difficulty maintaining market share and finding the right formula to deal with online intermediaries. The lack of comprehensive Internet strategies, ineffective online distribution efforts and the explosion of the "merchant model" are partly to blame for the current situation.

Very few hospitality companies were able to take full advantage of the Internet as the most efficient distribution medium over the past year. Many hoteliers continued to suffer from their lack of understanding of the dynamics of Internet distribution. The online discounters took advantage of the situation and increased market share at the expense of hotels' direct and traditional distribution.

Hoteliers' online market share fell from 54% in 2001 to 52% in 2002 and it will take extra efforts to increase this share in the future.

Hoteliers are vulnerable due to the changing dynamics in online distribution and the proliferation of the merchant model. Hoteliers' direct share will depend to a great extent on how aggressive their direct-to-consumer sales efforts will be in the future.

Hotel Branding on the Web

Anytime an Internet user lands on a website, a branding interaction occurs. This branding interaction can be positive (brand-building) or negative (brand-eroding). The question is, who is the Internet user interacting with and who benefits from the branding interaction?

On the Hotel Website

On hotel websites, the branding interaction is between the Internet user and the hotel, its product and offerings. Over the past two years hotel websites have become the main "point of contact" with potential customers. A well functioning, fully optimized hotel website is a real branding asset that serves as the chief instrument to capture new markets, entice potential customers to stay at the hotel and facilitate transactions. Surveys show that overwhelming majority of customers will not stay at a hotel with a poorly done website that does not reflect well the hotel product and the destination. It is becoming a common belief now that if your hotel website is not up to par there is something wrong with the hotel itself.

On the Search Engines

Search engines are considered major brand builders on the Web. Hotel listings or paid advertising on Search Engines, Directories and Portals (e.g. Google, Yahoo, MSN) contribute directly to the brand building of the hotel itself. Due to the nature of these services and their perceived impartiality, the branding interaction is exclusively between the Internet visitor and the hotel. A natural (algorithmic) listing of the hotel website, paid hotel banner ad or pay-per-click sponsored listing directly contributes to the brand building of the hotel, not of the search engines.

Hotel listings and paid banner ads on the Online Intermediaries

Some hoteliers claim that by positioning their hotels on the online discounters like Hotels.com, Travelocity or Expedia.com they are "branding" their hotels. We believe that this is a very na"ive justification for a very unhealthy Internet distribution strategy. And here is why.

When the Internet user lands on an Expedia.com page, due to the nature of this service as an online intermediary, the branding interaction is exclusively between the Internet visitor and Expedia, and not with the hotel-advertiser on Expedia. In this sense if an Internet user sees a merchant hotel listing or a paid hotel advertising banner on Expedia, the visitor considers this as a positive branding experience benefiting Expedia ("Wow, these guys even have the Waldorf Astoria! Good for them! I made the right choice to visit Expedia!"). Website users tend to view hotel listings and banners in the same manner as pop-up ads and promotional features such as "Featured Hotels" or "Hotel of the Week" and treat them as yet another marketing gimmick employed by the online intermediary to sell them more stuff.

Online Advertising as a Direct Response Tool

Online advertising plays a dual role: as branding and direct response tool. The Web offers hoteliers not only great branding opportunities, but also unlimited opportunities to create interactive relationships with their customers. Email marketing and pay-per-click marketing are only two of the very potent direct-response tools at the disposal of smart hoteliers.

Our experience shows that banner advertising works for hotels only on CVB and other non-transactional destination portals (e.g. Reno.com). Banner ads in general are losing their share as an online advertising format (percentage of total online advertising spending). Click-through banner rates have dropped from 2%-3% in 1997-1998 to less than 0.3% in 2002, which makes banner ads less and less logical choice as a direct-response vehicle.

Unlike the above scenario, pay-per-click marketing on the search engines, and consumer email marketing are ideal direct-response vehicles and powerful tools in the hotelier's direct-to-consumer online distribution strategy. Pay-per-click marketing is also a great branding tool. At an average 1.5%-3% CTR (click-through-rate) for every 1000 clicks a hotel listing will generate 33,000 - 66,000 pageviews, which are completely free of charge, due to the nature of this advertising format.

The Stockholm Syndrome

Here comes another interesting phenomenon we have observed over the past year: paid hotel advertising on online intermediary sites such as Expedia, Travelocity and Orbitz.

Does it make good business sense to pay online discounters (who already make hefty profit margins from your net rates) to profit even further from your own inability to properly utilize the Internet and to damage even further your brand and price integrity? This is yet another proof of the existence of a new kind of disparity in the hospitality vertical: between smart, Internet-savvy intermediaries on one hand and Web-illiterate hoteliers on the other.

The merchant model has greatly hurt the hospitality industry and has done long term damages to the hotels' brand and price integrity. You don't need a bigger proof than that, just look at the diminishing ADRs. The so called "rate parity" is in fact acceptance of the merchant discounted rates as your rack rates. Your hotel's discounted rates on Hotels.com and Expedia are de facto your hotel's published rates. Though claiming to be "free of charge", these merchant services cost hoteliers dearly. They cause long term damage and downward pricing pressures (both online and offline) beyond repair.

But paying to advertise on the online discounters, on top of these long-term damages, simply doesn't make much sense. We consider hotel-advertisers on the online intermediaries and discounters as being the Web reincarnation of the "Stockholm Syndrome" where the kidnapped victims (hoteliers) fall in love with their kidnapper (online discounters).

Here are few additional thoughts in this respect.

From a branding perspective, as mentioned above, the hotel presence on an online discounter website (via a merchant listing or a paid banner ad) benefits only the discounter itself, not the hotel. What about hotel banner ads as a direct response vehicle? In most cases the hotel banner on intermediary websites does not link back to the hotel website itself, but opens a page within the intermediary website i.e. this type of advertising is not an effective direct response tool either.

Experience of some of our clients show that banner advertising on online intermediaries achieves extremely low ROI and benefit primarily the intermediaries themselves, in addition to the total lack of branding effect as discussed above.

What can hoteliers do to avoid brand erosion?

The answer is very simple. Hoteliers must adopt a comprehensive Total Online Distribution Channel Strategy, a comprehensive online channel strategy, which turns the direct-to-consumer distribution model into the centerpiece of the hotel's Internet strategy and optimizes the balance between the Direct and Indirect Web Distribution Channel.

Online distribution is a very complex undertaking that involves a variety of online channels, services, marketing approaches and sales techniques. Therefore we call the Internet strength of a particular hotel "Sphere of Web Distribution Influence", which we define as the percentage of Direct vs. Indirect online distribution influence, presence and exposure of the particular brand. The higher the Direct Sphere of Web Distribution Influence, the less dependence on online intermediaries. The goal of every hotel company is to exceed the industry national average of 53:47.

The direct-to-consumer distribution model should become the foundation, the centerpiece of any hotel company's online distribution strategy. Why? First of all, The Internet is the ultimate "Direct Distribution Medium". Why direct distribution is so important? It provides the hotel with long-term competitive advantages and lessens dependence on intermediaries, discounters or traditional channels that are about to become obsolete.

Direct-to-consumer online distribution has benefits, - Direct online distribution is not just a theoretical, "ideal scenario" approach. Many surveys show that online customers prefer dealing directly with the travel suppliers, including hotels, when purchasing travel online.

Direct Online Distribution Channel

Also called "Direct Sphere of Web Distribution Influence", direct online distribution includes Internet distribution channels, business models, marketing programs, and Internet online media techniques that all share the same collective goal-to draw in the Internet user to end up transacting on the hotel website:

The Sphere of Direct Web Distribution Influence is all about benefiting from the Internet as the greatest direct-to-consumer distribution medium. Here are some of the direct channels, models, programs and techniques that share the same commonality: the Internet user transacts directly on the hotel website:

The Internet is all about positioning your hotel website at all "touch points" of interaction with the potential online customer. When looking at the Direct vs. Indirect market share in hospitality, it becomes obvious that in at least 53% of the cases, the Online Bookers should end up and transact on your hotel website in order for your hotel to be in par with the national averages.

Branded hotels without stand-alone websites represent a very interesting case. We firmly believe that all branded hotels should have their own website strategy, in addition to the corporate global website strategy. Why? The Internet does not care so much about global positioning, as it cares about location-specific website positioning. This is even more valid in hospitality. A proactive Hilton property can take full advantage of the popularity of the destination and position itself on local portals, directories, and search engines, DMOs, CVBs and incoming online services that are beyond the reach of the corporate website.

If your hotel is not generating at least 53% of its online bookings directly from the hotel website, and your online distribution is skewed toward the intermediaries, then you are not competitive on the Web and run the risk of long term price and brand erosion.

There is another reason why hoteliers should boost their own Internet presence. As a result of aggressive email marketing and Web-only promotions over the past several years, leisure and business travelers alike realized that all of the very good travel deals were to be found not through a travel agent, or calling a toll-free number, but on the Web. Will online travelers find these travel deals on your hotel website or on the intermediary sites?

The Hotel Website - Your 24/7 Sales Force

Direct online distribution starts and ends with the hotel website. But is your website user-friendly, search-engine-friendly and online booker-friendly? Performing a comprehensive evaluation and website optimization of your hotel website should become a top priority this year if you want to stay competitive and take full advantage of the Direct Online Channel.

What is website optimization? To begin with, a hotel website is not an online brochure. A hotel website is the hotel's only chance to achieve any growth and competitive advantage in these difficult times. It is the hotel's incremental revenue producing "virtual" 24/7 sales office. It is a "living organism" and should constantly evolve to better respond to the dynamics of online distribution and changing patterns of consumer purchasing behavior.

Your website should be optimized to become robust money making "machine". Partnering with a hospitality eBusiness consultancy specializing in Direct Online Distribution and proficient in website optimization can help turn your hotel website into a 24/7 sales force and achieve much needed growth in revenues and conversion rates through best practices and website optimization strategies.

Positioning of Your Website on the Web

Many surveys show that up to 85% of Internet users rely on search engines to locate relevant information on the Web (e.g. Google, Yahoo, MSN, etc). Lodging companies that do not have the marketing budget of the major intermediaries must rely even more on search engine referrals.

Therefore positioning of your hotel website on the major search engines is of critical importance otherwise no one will find your hotel.

Surveys confirm the existence of the so called "50% Factor" - roughly 50% of people that view the first results page of search engine listings go to the 2nd results page, and only 50% of them go to the third results page, and so on. Here's what Bear Stearns analysts say about Internet positioning on major distribution channels: "Our research uncovered that being listed in the top five assures the highest level of bookings, and that after the fifth slot, bookings drop dramatically". In summary, positioning is equal if not more important than pricing for the hotelier to make sound revenue management decisions.

Though some of the major brands have done a good job with their global websites, none of them fares particularly well on the local search engine level. For example, in order to be picked up by the search engines, a local Hilton property has to implement relevant copy and destination content with specific target keywords, description tags and meta tags that are completely different from the global Hilton.com website. It has to achieve link popularity on its own. Hence, the need a local branded hotel to pursue its own website and search engine strategy.

Online Lookers vs. Online Bookers

Another interesting phenomenon is the purchasing habits of online travelers. Jupiter Media Metrix estimates that nearly 60% of the online population in North America (192 million in 2002) uses the Internet to research travel. 50% of those researching travel information online (online lookers) actually make their purchases online (i.e. become online bookers). The other 50% look online, but book offline, due to privacy issues, security concerns, purchasing habits, or need to speak with a live agent to finalize the travel booking, etc.

PhoCusWright also reports that 50% of US Online Travelers looked online, but booked offline in 2001 (52% in 2000).

Simply put, if 100 people book on your website, at least another 100 will be influenced by your website to book your hotel, but will make the booking offline (via phone, walk-ins, etc). This underlines further the critical importance of your hotel Direct Online Distribution Strategy and your hotel website visibility to the bottom line.

Indirect Online Distribution Channel

The Indirect Online Distribution Channel consists of intermediary (third-party) online services, where the Internet user has access to hotel inventory and information, but transacts on the intermediary's website. There are three types of online intermediaries:

There is nothing wrong with using online intermediaries to upload your distressed inventory. But it is very wrong to turn these online services into your primary and, in many cases, only Web distribution channel. Why? If your hotel has not implemented all aspects of the Direct Online Distribution Strategy as discussed above, and your hotel signs up with online merchants like Hotels.com, your hotel will appear on the Web only through your discounted rates offered by these online intermediaries and their affiliates (e.g. Hotels.com has over 34,000 affiliated websites). Which means that Internet users will always "bump" into your discounted rates and nothing else.

Therefore, as far as the online traveler is concerned, these discounted rates are de facto your published hotel rates. Period. The result is major brand erosion and price dilution with serious repercussions. If consumers consistently find on the Web only your discounted rates in the $129-$139 price range, how can your hotel convince anybody to pay the $159-$179 rack rates -- online or offline?

Once hoteliers have exhausted all opportunities in the Direct Online Channel, then and only then, they should join a selected number of Indirect Online Services, giving preference (in that order) to the agency model, the opaque rate services and at the end and only if they still need help - the merchant model services. Why in that particular order? The answer is very simple. You, the hotelier, control your retail rates on the agency services. Your discounted rates are "hidden" on the opaque rate services and do not damage your price integrity. On the merchants your rates are "naked" and directly compete with your direct customers and existing business. Even among the merchants some services are preferable to others.

Business travel is another major consideration when using the Indirect Online Channel. A major trend over the past years is the blending of leisure and unmanaged business travel on the Web. Are your business travelers booking your hotel via Expedia or Travelocity? These mega online intermediaries claim that 30% of their bookings are business-related. Hoteliers' business travel strategy should become an integral part of their overall Direct Online Distribution Strategy to avoid losing their best paying customers to the online discounters.

Hoteliers should also be mindful of the fact that in 2003 less than 47% of their online revenues should be coming from online intermediaries, while 53% have to be from direct-to-consumer sales (i.e. via the hotel-owned website). If you do not fare better than the national averages, you are already behind your pro-active competitors and your brand and price integrity are in serious trouble.

Unfortunately we still observe many cases where the hotel website contributes 5%-10%, while the online discounters bring 90%-95% of the hotel Internet revenues. These are the "classic" examples of brand and price integrity erosion. On the brighter side, a number of our proactive hotel clients report 25%-35% of their overall revenues coming from the Direct Online Distribution Channel.

Conclusion

Online distribution is here to stay. The Internet has changed the way travel is being negotiated, managed and purchased. By 2005 over 20% of all hotel bookings will be completed on the Internet. This year alone 13%-14% of all hotel bookings will come from the Web and 53% of them will be direct-to-consumer. How does your hotel company compare to these national averages and where are your competitors? If you do not fare better than the national average, you are already behind your proactive competitors.

It's not just about selling over the Internet at any cost. You have to know that the Web can be either your best ally or your worst enemy. If your online distribution is skewed toward the online discounters, this can permanently damage your brand and price integrity. The direct-to-consumer model should become the foundation, the centerpiece of any hotel company's online distribution strategy. It provides the hotel with long-term competitive advantages and lessens dependence on intermediaries, discounters and traditional channels about to become obsolete.

Max Starkov is Chief eBusiness Strategist at Hospitality eBusiness Strategies, Inc. in New York City. He advises companies in the Travel and Hospitality verticals on their eBusiness and eDistribution strategies. Mr. Starkov has teamed up with HVS International Technology Strategies to provide eDistribution strategy consulting services to the hospitality industry. Mr. Starkov also teaches a graduate course on "Hospitality/Tourism eDistribution Systems" at New York University. Mr. Starkov can be contacted at 212-752-8186 or max@hospitalityebusiness.com Extended Bio...

HotelExecutive.com retains the copyright to the articles published in the Hotel Business Review. Articles cannot be republished without prior written consent by HotelExecutive.com.

Receive our daily newsletter with the latest breaking news and hotel management best practices.
Hotel Business Review on Facebook
RESOURCE CENTER - SEARCH ARCHIVES
General Search:

APRIL: Cultivating Guest Satisfaction and Retention

Simon Hudson

According to the Oxford Dictionary an apostle is a “vigorous and pioneering advocate or supporter of a particular policy, idea, or cause”. For hotels, creating apostles should be a priority. They are the most loyal customers and they are so satisfied that they want to convert others to share their experiences. But how do hotels create apostles? This article looks at how some hotels around the world are delivering not only superior products and services, but through customization and personalization are creating guests who would not dream of staying anywhere else. READ MORE

Edward Reagoso

In the hustle and bustle of being accountable for so many facets of the hotel business, a hotel general manager needs to do one thing to truly secure his or her future in our industry, that being “insuring your team members truly care about your guests stay.” Sounds simple enough, right? This is not rocket science and I mean no disrespect to anyone struggling with operations or sales issues that can often seem surmountable. We all have these problems at one time or another. There are resolutions to every issue we have. The resolution to any problem is really just a matter of applying a specific strategy that will minimize the issue or frankly, make it go away completely. How many times have you walked into a situation with a guest that was surprised and upset that a tiny issue was never dealt with by a front desk agent, housekeeper, waiter, maintenance person, or even a manager that worked for you? I have too, the important thing is that we learn from this and move forward. One must insure everyone on our team grasps the importance of caring and the application of certain techniques can solidify a culture. Getting everyone on your team to care about your guests really is the key. READ MORE

Rick Garlick Ph.D.

A primary objective of hotel operators is to keep their properties full of ‘heads in beds’ to capacity. While this goal is understandable, there is a risk hotels may market themselves indiscriminately and draw guests that are not a good match to their particular value proposition. While this meets a short term goal of wasting as little inventory as possible, there is a longer term risk that these guests may provide negative feedback about their stays, even though the hotel was being true to its own identity and branding. Indeed, the guest experience cannot be fairly evaluated apart from the expectations and preferences a person brings to the hotel from the time he or she books a room. Using a comparative restaurant example, a top steakhouse could never deliver a satisfying experience to a committed vegetarian, even if it provided the best cut of meat and the most attentive service. You have to like steak to positively evaluate the experience. READ MORE

Aaron  Housman

Things will go wrong. It’s inevitable in life and in business. And the sooner one gets to that conclusion the sooner he can get on with what comes next: preparing for the inevitable. In the hotel business that means following up with guests when the experience is substandard for any number of reasons, from guest service to property maintenance to the type of sheets on the bed. But there is a difference between just preparing for the inevitable and being well-prepared. Following up effectively with upset guests doesn’t happen accidentally. It is planned, trained tracked and executed every day. It is a way of life for best-in-class operations. READ MORE

Coming Up In The May Online Hotel Business Review


Feature Focus
Hotel Sustainable Development: Integrating Practices for the Environment and the Bottom Line
The term “sustainable development” was first coined in 1987. In a report entitled, “Our Common Future,” the Brundtland Commission defined sustainable development as follows: “Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs.” This definition immediately caught on. In the business world, it is sometimes referred to as a triple bottom line – capturing the concept that investments are profitable, good for people and protective of the environment. Within the hotel industry, companies have taken an active role in committing themselves to addressing climate change and sustainability. Hotel operations have realized that environmentally sound practices not only help the environment, but can lead to cost reductions, business expansion, and profit growth as consumers increasingly seek environmentally sustainable products and services. In a recent survey by Deloitte, it was noted that 95% of respondents believe that the hotel industry should be undertaking “green” initiatives. Additionally, 38% of respondents said they made efforts to identify “green” hotels before traveling, and 40% said they would be willing to pay a premium for the privilege. These results suggest that consumers want and expect sustainability in their travel plans. In response to these trends, many hotel companies and on-line travel agencies have even begun offering their consumers an opportunity to purchase carbon offsets to reduce the environmental impact of their trips. The May issue of the Hotel Business Review will document how some leading hotels are integrating sustainability practices into their hotels and how their operations, consumers and the environment are profiting from them.