Hot off of attending EyeforTravel‘s Social Media and Mobile conference in San Francisco, i was very interested to read the results of the study.
I happen to like the Digital IQ series from L2. I think it has a good methodology, though I disagree with some of the conclusions that they reach on the extent/impact they confer on successful brands (more on that later).
L2′s methodology evaluated each hotel’s efforts across four parameters:
- Website (30%)
- Mobile presence (20%)
- Social media presence (20%)
- Digital marketing (30%)
Somewhat surprisingly, the distribution of the evaluations provided a near-perfect bell curve (see below chart). What was not at all surprising is that far and away the largest chains achieved the highest scores, as they theoretically have the most resources to bring to bear.
But even so, that represented only 14 hotels chains. What was a little surprising however was the uneven scores of various brands within the large chains, particularly Hilton, Hyatt and Fairmont Raffles.
Correlation with financial performance is weak
Where I thought the report reached — significantly — was when L2 intimates there is correlation between digital brilliance and financial success, represented by better stock performance and higher RevPAR.
However when you look at the actual statistics the correlation is very weak. The numbers actually suggest no correlation at all while the regression line in the charts paint a very different picture.
Now I get that they are in the business of selling digital marketing services, but while the charts are pretty, the data is insufficient.
Henry Harteveldt (co-founder of Atmosphere Research Group) tends to agree, noting that:
“For hotels, which distribute through multiple channels, it is very difficult to conclude there is a relationship between ‘digital IQ’ and a hotel’s stock price.
“Direct online bookings are predominantly leisure and independent/small business travelers, which are going to be at or below ADR/RevPAR averages. Furthermore, online bookings generally represent about 25% of a chain’s sales.”
Tying this back to the EyeforTravel conference, we definitely saw some success stories and a maturation of how travel companies are using social and mobile strategies in their operations. the L2 scores highlight that this is still much potential for improvement.
L2 Invokes the hotelier boogeyman: OTAs
The rankings are in and of themselves interesting, but one of the elements I want to address is the statement that says that if brands were better at digital they could increase the amount of direct bookings through their website and recoup the $2.5 billion that OTAs cost hoteliers.
Mostly they are referring to the gap in booking cost between ($2-$6) to process a direct booking versus the commission ($40-$120) that an OTA takes, as cited in the L2 report.
Iâ€™m sure that there is an opportunity to drive higher margin revenue through direct bookings. I donâ€™t dispute that at all. But upon further inspection, the gap between the real cost of a direct booking and the cost of a booking through the OTA channel isnâ€™t quite as wide as the report implies.
In fact, this is a false number.
- it presumes that if the OTAs were taken out, the hotels would magically reproduce all the bookings.
- it presumes that the hotels would not have to spend any money to acquire the traffic that the OTAs provide.
In order to get traffic to their own sites, hoteliers must spend on SEM and SEO activities. Cost per click rates vary by keyword and geography.
As an example, hotel keywords in New York City or Las Vegas are highly competitive and may be in the $5 range, but for other locations, like say St. Louis, may be much lower, closer to $1. The costs may seem small on this level, but remember that Priceline spent over $900M on online advertising in 2011.
But the raw CPC rates are only a part of the story as the real key is conversion from clicks to bookings. Pegasus Solutionsâ€™ latest edition of The Pegasus View reports that:
“Monthly look-to-book ratios are continually climbing at a pace of about +20% over prior year, with Januaryâ€™s average look-to-book ratio swelling to a new record of over 4,500″.
Furthermore, according to Brian Nowak, analyst for Nomura Securities, OTAs typically see conversion rates more than twice as high as can be expected from a hotel. Meaning that on a relative basis, hotels would expect to spend twice as much as an OTA to drive the same level of bookings.
Other interesting data points that caught my eye
L2 points out that hotels lag in the frequency of email communication, sending only an average of 0.23 emails per week to their customers, far behind retail, magazines and fashion brands.
While the numbers may be accurate, I’m not sure that is a bad thing (I feel that I get more than enough emails already). Given the amount of leisure trips an average family takes, it’s unlikely that a dramatic increase in email frequency would drive commensurately higher bookings.
But perhaps more targeted emails post-booking and post-stay can enhance the hotelâ€™s ability to drive higher RevPAR through upsell of other services/activities and enhance loyalty and lead to future re-booking.
2. Social media
Luxury hotels lead in Facebook engagement, by a long shot. Brands like Fours Seasons, Mandarin Oriental and Ritz-Carlton are having much more success in terms of audience size and engagement despite having a much smaller target customer base and number of properties.
Only 10% of hotels surveyed provide full booking capabilities within Facebook, while 54% transport interested parties to the basic web platforms.