Siloed data is a serious challenge for many hotels. Reservation records may sit in the booking engine, restaurant and bar spend in another system, spa and leisure bookings elsewhere, and marketing activity in separate online advertising and analytics platforms. In a market dominated by online travel agencies (OTAs), how can hotels get more value from their data to drive marketing performance and grow revenues?
Let’s explore how hotels can combine customer data from multiple locations to not only inform their marketing spend and make data-driven decisions but better define target cost per acquisition (CPA) and balance their reservations between OTAs and direct booking to maximize revenues.
What are the key metrics?
Two key performance indicators, total revenue per available room (tRevPAR) and gross operating profit per available room (GOPPAR), are commonly used to measure a hotel’s ability to generate revenue and be profitable. By looking at sources of income beyond just room revenue (revenue per available room, or RevPAR), these metrics provide additional insight into hotel performance.
At the management accountancy level, tRevPAR and GOPPAR are relatively straightforward to calculate. However, understanding total revenue at the level of the individual guest or reservation can provide much richer information to hotel marketers.
Booking revenue and total revenue—there’s a difference
If you look at the performance of your online marketing channels and paid search campaigns in a web analytics platform such as Google Analytics, you will be able to see the booking revenue generated. At a more granular level, you are able to see which keywords generated the best return on advertising spend (ROAS) and optimize your bids and budgets accordingly.
However, the booking of a room is just the first revenue-generating stage of a guest’s stay. Will that guest eat in your restaurant? Will they book a treatment in your spa? If you optimize your marketing spend solely on the basis of booking revenue, you are potentially missing out on a significant amount of actionable insight that will allow you to better understand your marketing performance.
For example, let’s assume that your best performing keyword in terms of ROAS is “central hotel Montreal”. On the basis that it drives more revenue per unit spend than “comfortable hotel in Montreal”, you may decide to adjust budgets or bids to increase bookings—but that decision would be based solely on booking revenue, not total revenue. What if people searching for “central hotel Montreal” never eat in your restaurant, whereas the “comfortable hotel in Montreal” searchers usually do, and often treat themselves to cocktails in the hotel bar afterwards?
By optimizing your hotel’s digital marketing strategy on the basis of one metric in isolation, you could be driving a decrease in tRevPAR, even if your monthly reports are showing an increased ROAS. Additionally, understanding tREV allows you to make better decisions on the value of direct bookings versus OTAs.
Looking solely at room revenue, the CPA of bookings from OTAs may appear more favorable than direct, but perhaps direct bookers spend more during their stay and so the higher equivalent commission may actually be more profitable.
How hotels combine data systems to win
In order to calculate total revenue, hotels need a system in place that ties all of a guest’s information together. This may be one system that integrates the booking engine with the restaurant, bar, and spa, or it may require the joining of data from multiple sources. To achieve that unification, there needs to be a unique identifier (or unique combination of identifiers) that allows these data sets to be connected.
For instance, a direct online booking will give you marketing channel information down to keyword and possibly search query level for paid campaigns. This booking will then produce a transaction reference number, as well as check-in and check-out dates. When a customer checks in, you can tie this transaction ID and date information to a room key or number—which will then likely be used for restaurant and bar spend as well as leisure club bookings.
Alternatively, a single CRM system could combine all of these data points at the customer level, facilitating ongoing opportunities in segmentation, loyalty programs, and personalized customer experiences. Regardless of which process is implemented, the end goal is the same: to link the total value of a booking back to the marketing activity that generated that booking.
Hotel Moneyball
Although understanding the true value of a booking is critical to marketing optimization, this process is not always straightforward. There are multiple technical challenges to overcome, as well as the more nebulous questions of organizational buy-in and internal culture.
Measuring tRev in a cohesive manner also requires an appropriate system of performance measurement. As optimization moves to tRev, reporting metrics need to move away from the KPIs reported in the analytics platform to the underlying profitability of the hotel.
This type of change may require a shift in thinking, with marketing managers and directors looking at management accounts, longer-term profitability, and custom metrics—rather than top-level, out-of-the-box KPIs from marketing platforms. Traditional KPIs may report that the return on advertising spend is falling, but we can’t imagine any CFO putting that KPI ahead of gross profit for the financial year.
You’ll understand if you’ve seen the film Moneyball (which, if you work with data in any way, you really should!). Would you rather have a batter who could hit well, or one with a less spectacular batting average who gets on base more? It’s getting on base that leads to runs; doesn’t matter if you’re walked to first.
If you keep striking out because your marketing measurement lacks sophistication, we know exactly what kind of challenges you’re facing—and the hospitality industry just happens to be one of our specialties. Contact DAC today to arrange a friendly chat. We’re ready to help.
