Internet Marketing Overview: Cost Per Acquisition (CPA) versus Cost Per Click (CPC)
By Donald R. Smith Executive Vice President, Nor1 Inc. | October 28, 2008
Many hotel companies prefer a CPA model since it can be tracked to an actual stay; thus, the individual hotels pay for actual business received. CPA is a lower-risk option than CPC and much easier to manage, however, both have benefits depending on the needs of the company.
How Distribution has Changed over the Years
Before the growth of online travel sites in the late 1980s, most hotels worked on either a high margin net rate (usually offered to volume wholesale partners such as inbound tour operators and some consolidators), or on a commission basis (most of the bookings from external sources were commission based.) With the onslaught of online consolidators and OTAs (online travel agencies) over the past decade, many required the hotels to work on a high margin net rate basis. Most of these online travel sites required net rates since they had difficulty receiving payments from many hotels via the commission model. Sights like Expedia, Hotels.com and Travelocity grew very fast through organic growth, ability to maximize the use of online marketing (purchasing key travel-related words commonly searched by consumers) and by acquiring some key local aggregators that offered good inventory in popular destinations such as Las Vegas, New Orleans, Orlando, and NYC. Occupancy was down overall and hotel properties needed the online business to meet their occupancy goals.
In the late 1990 and early 2000s, the tide began to change. Several hotels and hotel chains began to negotiate with some of the large online travel sites in an attempt to regain control on the margin and inventory as well as to establish selling rate parity. This created a campaign by many chains to require their franchised and managed hotels to offer their lowest rates to the chains and prohibit them from offering lower rates to online retailers. The "best rate guarantee" would only be on their Web sites, resulting in the majority of online reservations being made on the brands' own sites.
Today, the distribution model has once again shifted. Search is very relevant and the new vehicles for distribution are search companies such as Google and Yahoo! and travel search-specific sites such as SideStep and Mobissimo. Most hotel groups are moving an increased share of their advertising dollars to online venues for a few key reasons: Online advertising is trackable, the message can be changed quickly, and most importantly, it is in a medium where the majority of unmanaged business and leisure travel booking takes place. The challenge is making sure that a CPC or CPM campaign is managed for a positive return and this can be very challenging, requiring hotel/hotel groups' revenue management teams to work very closely with their online advertising group, ensuring the ads are timed with their need periods and booking lead times. When working with an online site, the hotel/hotel chain is presented with several choices. It is important to first understand the different options being made available to them.
Definition of Terms