Aug
1
A few years ago I wrote an e-book about selling hotel rooms online. As part of the research I compared OTA revenue growth to hotel industry occupancy growth. What did I find? Let me tell you…
Over a four year period: Expedia revenues up 1,250%.
Over the same four year period, Hotel industry average occupancy (UK), moved from 60% to, erm, 60%.
Expedia grew by replacing existing routes to markets for hotels. And the hotel industry helped them to do it, by simply not appreciating, then not investing in, the things they'd need to sell to their customers online.
Expedia makes a lot of money from selling your rooms. You make it comparatively easy for them to do by giving them (and all the other industry players) "rate parity". They hold a lot of power, attract a lot of customer loyalty and sometimes make more money out of selling your rooms than you do.
But a look at their latest quarterly report gives us some clues as to why they are able to sit between you and your customers and earn cash as they do so.
They have exceeded $1 Billion in quarterly revenue for the first time in their history. The booking revenue they generated through their websites for hotels, airlines, et al was nearly $8 Billion.
That's a lot of money.
But they're not sitting on their thumbs waiting for sales to happen. Instead they're investing heavily in their marketing.
Tell me, what's the marketing budget for your hotel? As a percentage of your revenue, how much do you spend on sales and marketing?
Hotels have a different cost structure to travel agent websites so I'm not expecting your marketing budget to be as high as this, but Expedia spent a whopping 38.2% of their revenue on "Selling and marketing" to make that $1 billion of sales revenue happen.
So they put a lot of effort into making sales happen. They obviously understand that marketing only works when you give it some fuel.
That fuel comes from you of course, it's the commission you pay them. What some of the less sophisticated hoteliers call "paying for performance". Paying a commission to a 3rd party is not an investment in the core marketing capability of your business. And at 20 to 25% of your revenue I'd suggest they pay a lot for the "performance" of getting Expedia customers to book at a hotel.
It's interesting to reflect that the internet was supposed to offer businesses a thing called (and forgive me for this horrible big word) "disintermediation" - which is the removal of the middle man. The benefit for business would be a leaner, more effective natural market place online. The relationship with the customer would be more direct and efficient.
Instead it appears that, in the case of the hotel industry, the intermediaries hold most of the aces, largely because they have invested in them.
There's nothing like being closer to the customer than anyone else. All that investment in selling and marketing means that Expedia is closer to many of your customers than you are.
Over the same four year period, Hotel industry average occupancy (UK), moved from 60% to, erm, 60%.
Expedia grew by replacing existing routes to markets for hotels. And the hotel industry helped them to do it, by simply not appreciating, then not investing in, the things they'd need to sell to their customers online.
Expedia makes a lot of money from selling your rooms. You make it comparatively easy for them to do by giving them (and all the other industry players) "rate parity". They hold a lot of power, attract a lot of customer loyalty and sometimes make more money out of selling your rooms than you do.
But a look at their latest quarterly report gives us some clues as to why they are able to sit between you and your customers and earn cash as they do so.
They have exceeded $1 Billion in quarterly revenue for the first time in their history. The booking revenue they generated through their websites for hotels, airlines, et al was nearly $8 Billion.
That's a lot of money.
But they're not sitting on their thumbs waiting for sales to happen. Instead they're investing heavily in their marketing.
Tell me, what's the marketing budget for your hotel? As a percentage of your revenue, how much do you spend on sales and marketing?
Hotels have a different cost structure to travel agent websites so I'm not expecting your marketing budget to be as high as this, but Expedia spent a whopping 38.2% of their revenue on "Selling and marketing" to make that $1 billion of sales revenue happen.
So they put a lot of effort into making sales happen. They obviously understand that marketing only works when you give it some fuel.
That fuel comes from you of course, it's the commission you pay them. What some of the less sophisticated hoteliers call "paying for performance". Paying a commission to a 3rd party is not an investment in the core marketing capability of your business. And at 20 to 25% of your revenue I'd suggest they pay a lot for the "performance" of getting Expedia customers to book at a hotel.
It's interesting to reflect that the internet was supposed to offer businesses a thing called (and forgive me for this horrible big word) "disintermediation" - which is the removal of the middle man. The benefit for business would be a leaner, more effective natural market place online. The relationship with the customer would be more direct and efficient.
Instead it appears that, in the case of the hotel industry, the intermediaries hold most of the aces, largely because they have invested in them.
There's nothing like being closer to the customer than anyone else. All that investment in selling and marketing means that Expedia is closer to many of your customers than you are.
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