Understanding Guests Acquisition Costs

Before we had revenue managers, managing our property's bookings was easier to understand and straightforward early in my career. Reservations managers controlled inventory, and their primary job responsibility was to maximize sellouts. We only had three channels to watch & manage: Our Central Reservation System, our local reservation system, and the ever-busy group sales department bookings. This simplicity had its challenges. For one thing, inventory had to be opened and closed manually.

?Management's essential purpose is to steward the property and increase and expand the hotel's value as an asset in the owner's portfolio. Top-line solid growth and prevailing economic circumstances experienced by the hotel industry, growing demand, increased room rates, higher spending on incremental & ancillary revenues combined with lower inflation help keep expenditures in line.

However, as we witness the hospitality industry's shift into a slowing growth environment concerning demand and pricing, management's push in continuing to increase the significant aspect, precisely room revenue, is now being challenged and will undoubtedly lead to a reduced value of the asset.

The truth is the expense associated with customer acquisition has increased as the room rate charged increases. OTAs & 3rd party "champions" continue to embed themselves between the guest and the hotel at a rate that should concern revenue managers. There are no out-of-bounds to obtruders like TripAdvisor, Expedia, and Priceline. When we start to feel that rate integrity and revenue management can't get any more complex apps like HotelTonight and Waylo bring more direct customer involvement in price negotiation. With easy cancellation policies pushed on the hotels by the OTAs, the potential guest can disregard their previously booked reservation and make a change to book at a lower rate.

The ramifications to the industry and ownership are staggering and, for the most part, not often understood and thereby underestimated. These interlopers are keeping amounts greater than budgeted for the most part. The yield rate on the Room is affected as well. Expedia, for example, gives the guest an option to pay for their Room when they book (to the OTA) or when they arrive at the hotel. When the OTA is paid directly, they capture 15% upwards to 26% of the booking and remit the hotel's net amount. Most properties don't account for the expense that the OTA collects for processing and procuring the reservation. Additionally, the hotel's PMS & CRS systems generate costs associated with the reservation to assure that the property receives it.