Exploring Costs and Tools in the Seven-Step Guest Journey

The exploration in the blog post "Decoding Hotel Expenses: Understanding Costs Through the Guest Journey" laid a foundation for understanding how costs impact each stage of the guest experience in the hospitality industry. However, the complexity and depth of these costs warrant a closer, more detailed examination.

This blog post provides an in-depth analysis of the costs associated with each phase of the guest journey. It will meticulously break down the financial layers from the moment of inspiration to the post-stay phase, where loyalty is established. This detailed analysis aims to reveal the subtleties of financial management at each step, highlighting the potential for a significant impact on a hotel's profitability and ability to delight guests.

The post aims to offer a comprehensive exploration, providing readers with nuanced insights and actionable strategies. It is designed to equip hoteliers with an enhanced understanding of optimizing financial performance while continuously elevating the guest experience. This piece is not merely a continuation but an expansive deepening of knowledge to transform hotel cost management perspectives.

Before proceeding, please read "Decoding Hotel Expenses: Understanding Costs Through the Guest Journey" to better understand the subject.

Cost categories

In the previous post, we looked at the three primary cost categories pivotal to a hotel's financial health: Customer Acquisition Cost (CAC), Cost of Goods Sold (COGS), and Operating Expenses.?These categories are allocated to each step in the seven-step guest journey as high, moderate, or low. Let's start by taking a look at the allocation to each step.

Customer Acquisition Cost (CAC)

Here's a summary of how Customer Acquisition Cost (CAC) is allocated across the different steps of the guest journey:

1. Inspiration:CAC Allocation:?High. This stage involves substantial investment in marketing and advertising to spark the interest of potential guests. It includes costs for brand awareness campaigns, social media advertising, and other forms of outreach aimed at inspiring travel.
2. Research:CAC Allocation:?High. Continued investment in marketing is crucial as potential guests explore destinations and accommodations. This includes maintaining an engaging and informative online presence, SEO efforts, and targeted advertising to keep the hotel top-of-mind.
3. Shop and Book:CAC Allocation:?High. This phase sees significant costs related to booking platforms and final marketing efforts. Costs include commissions paid to online travel agencies, booking engine maintenance, and promotions to encourage bookings.
4. Prepare:CAC Allocation:?Low. The customer has already been acquired by this stage, so direct acquisition costs are minimal. However, there may be minor expenses related to pre-arrival communications to enhance the guest's anticipation and satisfaction.
5. In-House Experience:CAC Allocation:?Low. The focus at this stage is on delivering the service, not on acquisition. CAC is minimal as efforts are directed towards ensuring an exceptional stay, which can indirectly influence future acquisitions through positive experiences and word-of-mouth.
6. Share and Review:CAC Allocation:?Moderate to High. Post-stay efforts to encourage guests to share their experiences and leave reviews can be considered part of CAC, as these actions enhance reputation and influence future guests. This may include follow-up communications, review incentives or social media engagement.
7. Remember and Return:CAC Allocation:?Moderate. Efforts to encourage repeat visits, such as targeted email campaigns, loyalty program promotions, and personalized offers, are part of CAC. These strategies are focused on maintaining a relationship with past guests to foster loyalty and repeat business.

In summary, CAC is heavily concentrated in the early stages of the guest journey (Inspiration, Research, Shop, and Book) and transitions to maintaining customer relationships and fostering loyalty in the later stages. This strategic allocation of CAC throughout the guest journey helps ensure a balance between attracting new guests and retaining existing ones, contributing to the hotel's overall profitability and success.

Cost of Goods Sold (COGS)

Here's a summary of how the Cost of Goods Sold (COGS) is allocated across the different steps of the guest journey in a hotel:

1. Inspiration:COGS Allocation:?Very Low. During this phase, direct costs related to goods or services are minimal as the potential guests are only inspired to travel, and no actual hotel services are utilized.
2. Research:COGS Allocation:?Very Low. Similar to the Inspiration stage, minimal direct costs are involved since guests are only researching and have not yet availed any services from the hotel.
3. Shop and Book:COGS Allocation:?Low to Moderate. Some direct costs begin to occur, primarily related to reservation handling and the use of booking systems, although these costs are relatively minor compared to later stages.
4. Prepare:COGS Allocation:?Moderate. This stage involves preparation for the guest's arrival, including stocking up on necessary supplies, room preparation, and other direct costs associated with getting the hotel ready for the guest’s stay.
5. In-House Experience:COGS Allocation:?High. This is the phase where COGS is at its peak, as it includes all direct costs associated with the guest's stay – such as room amenities, food and beverages, housekeeping, and any other guest-specific services.
6. Share and Review:COGS Allocation:?Low. Direct costs in this phase are minimal since the guest has completed their stay. However, minor costs might be incurred in managing feedback platforms or customer service channels for reviews and responses.
7. Remember and Return:COGS Allocation:?Low. In this final stage, direct costs are limited and mostly pertain to communication efforts to re-engage past guests, such as through email marketing for special offers or loyalty programs.

In summary, COGS in a hotel is mainly concentrated in the In-House Experience stage, where the guest directly consumes the bulk of goods and services. Other stages of the guest journey incur minimal to moderate COGS, depending on the operational costs, and are still preparation and engagement required for prospective and returning guests. Understanding this allocation is crucial for hotels to manage their resources effectively and ensure profitability.

Operating Expenses (OE)

Here's a summary of how Operating Expenses are allocated across the different steps of the guest journey in a hotel:

1. Inspiration:Operating Expenses Allocation:?Moderate. While this phase focuses on attracting guests, operational costs, such as maintaining a solid brand image and supporting marketing departments, are still involved.
2. Research:Operating Expenses Allocation:?Moderate. Costs include maintaining an informative and appealing online presence, like website operations and customer service support for queries.
3. Shop and Book:Operating Expenses Allocation:?Moderate. This stage involves expenses related to the operation of booking systems, customer support, and possibly technology upgrades to ensure a seamless booking experience.
4. Prepare:Operating Expenses Allocation:?Moderate. Preparing for a guest's arrival incurs operational costs like staff training, inventory management systems, and administrative tasks to ensure readiness.
5. In-House Experience:Operating Expenses Allocation:?High. This phase is the most cost-intensive, involving expenses for running the hotel's day-to-day operations, such as staff wages, utility bills, ongoing maintenance, and general administration.
6. Share and Review:Operating Expenses Allocation:?Moderate. Post-stay operating expenses include managing the hotel’s online presence, handling customer feedback, and maintaining customer relationship management systems.
7. Remember and Return:Operating Expenses Allocation:?Moderate. Costs here are associated with maintaining loyalty programs, marketing for repeat stays, and ongoing customer relationship management efforts.

In summary, Operating Expenses in a hotel are consistently present throughout the guest journey, with the intensity varying based on the nature of activities at each stage. The highest expenses are typically incurred during the In-House Experience due to the comprehensive operational activities required to maintain the hotel's services and facilities. Managing these expenses effectively across stages is crucial for the hotel's smooth operation and overall financial health.

The difference between CAC and OE

It isn't easy to analyze CAC and OE from an operational and strategic perspective if the definitions are not 100 percent clear. There are two ways to clarify the differences.

Variable or fixed costs?

One way is to classify the costs as variable or fixed. CAC is the variable cost for acquiring revenue, and OE is the fixed cost or the capacity cost to acquire revenue.

1. Customer Acquisition Cost (CAC):Nature:?CAC refers explicitly to the costs of acquiring a new customer. This includes all expenses directly related to marketing and sales efforts that lead to attracting a guest to book a stay at the hotel.Examples:?Advertising campaigns, promotional offers, commissions paid to booking sites, costs associated with SEO and digital marketing, sales team expenses, and costs for marketing tools and software.Focus:?The primary focus of CAC is on the conversion – turning potential guests into actual guests. It's a metric often used to assess the effectiveness and efficiency of marketing and sales strategies.
2. Commercial Operating Expenses:Nature:?These are broader and include all ongoing costs required to run the commercial aspects of the hotel business, not just those tied directly to acquiring new customers.Examples:?Staff salaries (beyond the sales team), ongoing maintenance of sales and marketing infrastructure, costs associated with general market research, brand-building activities not directly tied to immediate sales, general administrative expenses related to commercial operations, and technology upkeep costs for systems supporting sales and marketing.Focus:?The focus here is on sustaining and supporting the overall commercial operations of the hotel. These costs are necessary for the day-to-day functioning of the commercial side of the business.

Key Differences

• Direct vs. Indirect Costs: CAC is more about the direct costs tied to acquiring each new customer, while commercial operating expenses encompass a more comprehensive range of indirect costs that support the commercial infrastructure of the hotel.
• Short-Term vs. Long-Term: CAC often has a more immediate and short-term focus (i.e., acquiring new customers for the upcoming season), whereas commercial operating expenses include long-term investments in brand building and maintaining operational capabilities.

In summary, while there's some overlap between CAC and commercial operating expenses, they serve different roles in cost analysis. CAC is a more targeted measure focusing specifically on the cost of acquiring new customers. In contrast, commercial operating expenses cover the broader, ongoing costs of maintaining and supporting the hotel’s commercial activities. Understanding the distinction between these two types of costs is crucial for effective financial planning and resource allocation in the hospitality industry.

Allocation of resources

Another way is more strategic, where all resources, including sales and marketing personnel costs, are considered a Customer Acquisition Cost (CAC) rather than general operating expenses. This aligns with a more direct method of attributing costs to revenue generation activities. Let's explore this in detail:

1. Sales Personnel Costs as CAC:Rationale:?The primary role of sales personnel in a hotel is to directly generate revenue by acquiring new customers. This includes reaching out to potential clients, negotiating deals, managing corporate accounts, and actively pursuing leads to convert them into bookings.Impact on CAC:?Including sales personnel costs in CAC provides a more accurate picture of the investment required to acquire each customer. It ties the cost directly to the revenue-generating activity, making it easier to assess the efficiency and effectiveness of the sales team.
2. Marketing Personnel and Activities as CAC:Rationale:?Marketing efforts in a hotel are directly aimed at attracting new guests through various channels. This encompasses advertising, digital marketing, social media campaigns, promotional events, and other initiatives designed to raise awareness and interest in the hotel.Impact on CAC:?By categorizing marketing expenses, including personnel costs, as part of CAC, it becomes clearer how these efforts contribute to attracting new guests. It helps in evaluating the ROI of different marketing strategies and channels.

Broader Perspective

• CAC as a Comprehensive Measure: In this approach, CAC is seen as encompassing all expenses directly tied to the generation of new business, which includes the salaries, commissions, and related costs of sales and marketing personnel.
• Strategic Decision-Making: Understanding that sales and marketing efforts are direct revenue drivers can aid in more strategically allocating resources and budgeting in these areas. It can also help set more accurate performance targets for sales and marketing teams.

In conclusion, viewing sales and marketing personnel costs as part of CAC is a strategic approach in hospitality finance. It underscores the direct connection between these roles and the hotel's revenue generation, allowing for a more focused analysis of how these investments translate into new customer acquisition. This perspective can lead to more informed decisions about resource allocation and strategy in hotel companies.

Now, let's take a closer look at each step of the guest journey, uncovering the costs and tools involved and providing insights on optimizing these for the benefit of both the guests and the hotel. Whether you're a seasoned hotelier or new to the industry, this journey will provide valuable insights into the intricate workings of a successful hotel operation.

Read about costs and tools for each of the seven steps in the full blog post at https://www.demandcalendar.com/blog/exploring-costs-and-tools-in-the-seven-step-guest-journey