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A Case Study: Long-Term Benefits of Using Partner Agency to Improve Hotel Direct Booking

This article will be useful for you if you are running your business or involved in the e-commerce industry. Or if you are running an online retail or service business, this article can give you more understanding on how to link and balance between your direct marketing and partner agency marketing service and how to ultimately improve your sales revenue and plan for your online marketing. Back in 2013, a top Thai five-star hotel brand had a problem with its OTA marketing. The management team shared an important plot that their hotel was banned from its service listing for 2 months because the hotel set its direct booking price lower than the price on the OTA platform. The result? Over 50% loss of total online revenue! The Power of Online Partner Agencies It is commonly known that OTAs, delivery apps and e-commerce websites have a vast amount of visitor traffic as their major advantage. On top of that they run their own marketing to promote their listed hotel clients on an incredibly big budget. Try once and you’ll see: google “hotel in Hua Hin” or “online food service”, big names of these online agencies will take the top spots of your search result, if not the whole first page. The reason is obvious – using a partner agency is a convenient way of bringing in your sales revenue (before commission / GP). This reason alone is enough for hotels, restaurants, cafes, or any online merchants for that matter to get attracted to online partner agencies: It’s easy, low risk, no big investment. But as they say, nothing lasts forever. Relying too much on only a few or one channel of sales can only guarantee you trouble whenever the channel you rely on can no longer bring you the same amount of income. Through all my years in the hotel industry, I have learned that many hotels, local or international names, rely on OTAs as their main sales channel. Many hotel marketing managers and owners shared their numbers with me and it revealed quite a concern whether they realised it or not. Most of the big names you are familiar with rely 60-90% of their total online sales on OTAs! Fact: more than 60% of the hotel industry live and breathe through the service and the power of OTAs. The average 15-30% commission has become a common expense routine, leveraged by sales amount and choice of ad positions on each OTA platform. Is OTA A Sustainable Marketing Channel? It might look like a simple calculation at first—100 THB sales – 50% investment + 15% commission… With the above scenario you might think that 35% profit from OTAs is not a bad idea at all, plus it doesn’t require a team effort to create marketing strategies, sales strategies, booking system operation, etc. What could go wrong? Let’s look at the future and be realistic here. There will be times that we might not be able to maintain the same level of sales revenue (that comes through OTA), possible industry down time, competitor price war, or a more and more intense competition over ad placements that makes 15% commission no longer exist due to the fact that you might forget: your OTA partner is also just another company that needs growth and increase of revenue. If a hotel cannot maintain its sales growth, its OTA partner is most likely to transform into “an expense” that keeps growing and eventually becomes a burden–a big marketing dilemma. Sales Rev Is Everything! One of my clients made a contract that guaranteed minimum sales revenue through its partner OTA platform but failed to deliver. As a result, 1% extra commission took effect. Don’t ever let such small numbers as 1% deceive you, let’s put it in a simple calculation. Take it from the 100 THB sales above and add some more zeros: let’s say your hotel makes 100M THB of sales, you are bound to pay a commission of 15M THB. +1% commission means you have to pay 16M THB commission. The 1,000,000 THB difference that you have to pay is definitely a significant amount that can affect the hotel operations and cost management in many ways. One of the top Thai five-star hotel brands that I mentioned earlier was in the same situation here. Being banned from its partner OTA platform for 2 months took a huge effect on the hotel’s revenue channel due to the fact that 50% of its sales actually came through its OTA partner. And it’s a sad nature of OTA customers that most of them do not have loyalty to the hotel brands because they make their decision based solely on price. In fact, most OTAs even have a price comparison feature for their customers–people who are “looking for the best deal”. And this is why it is not easy at all for hotels to build their loyal customer base through OTAs–it’s not built for that purpose! Many of you must have realised by now, nothing is totally risk-free. Relying on only one channel of income is definitely a risk for your business in whatever industry you are in. Same logic, relying on only your OTA partner’s marketing team and policies without learning to develop your own marketing workforce, you are simply creating a deadend for your own business. In Search of A Sustainable Sales Strategy One thing I can tell you straight out is a sustainable sales strategy for each hotel will look different, that is because each hotel has its own preferred marketing style and target. While some hotels may not have a clear set target to hit and live through their OTA partners together with a few other offline marketings, others may have big scary numbers plus minimum yearly growth for the whole team to get stressed about from the beginning of the year. For the latter case, only OTA service cannot be enough. Through my years of hands-on experience with hotel clients, I have seen a

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MEASURING ROAS IN E-COMMERCE BUSINESS

If you are in e-commerce business e.g. online retail store, hotel, airline booking, etc, I believe that you are already familiar with “ROAS” (Return On Ad Spend) as a mean of measuring the performance of your campaigns. ROAS tells you how your ad budget is spent and whether it is good value for money against the cheap/expensive price that you pay for your ads. The question raised from this is what level of performance the ROAS you are looking at is reflecting. In this article, I would like to share my experience in running online ad campaigns for Hotels and how we should look at ROAS. But don’t worry if you are in other industries, I will make sure to share on that in later articles. What Is the Campaign Purpose? Most hotels start generating sales (bookings) by using OTAs (Online Travel Agencies) as one of their main online sales channels. The universal condition of working with OTAs is the commission rate that hotels have to pay by a percentage out of their sales revenue. After a period of time and a level of target sales reached, many hotels will then consider running their own online marketing to generate direct sales and thus to lighten the load of the commission that they have to pay to the OTAs. Direct bookings not only solves the commission problem, it also creates brand loyalty amongst those direct customers. While the customers compare and make their decisions based solely on the price shown on OTA platforms, the direct customers are likely to make their decisions based on the hotel’s brand image alongside its added offer as the total value perceived. What Is the Valid Benchmark for Your Ad Budget? Each hotel starts their direct online marketing at different stages of their revenue situations. Most hotels allocate their online marketing budget based on the industry benchmark – somewhat similar to what other hotels are doing. The budget could come solely from the management team’s decision in some hotels, while in other hotels the budget is translated from the online sale revenue i.e. from OTAs. Let’s see a bit of calculation for the latter case where, for example, the commission for OTA service is 15%. Question: what should be an appropriate amount of budget for direct online marketing and how does it compare in terms of ROAS? To set a simple scenario, let’s say our room price is 3,000 THB/night. Assuming that this is the price for 1 booking, the 15% commission is therefore 450 THB per booking. If a hotel brand generates 100 bookings per month in average, the revenue before commission = 3,000 x 100 = 300,000 THB, the revenue before commission = 3,000 x 100 = 300,000 THB, with commission payable to OTA = 300,000 x 15% = 45,000 THB. Therefore, it is reasonable to say that the hotel can start its online direct marketing budget by using the expense on OTA service as a benchmark, which in this case is 45,000 THB per month. How Much ROAS Means Your Campaign IS In Good Shape? Let’s consider an easy start where you budget your online ad campaign at 45,000 THB per month. How different are the ROAS’s in each scenario? Scenario 1: The return of your online ad campaign equals OTAsOnline ad budget = 45,000 THBReturn = 300,000 THBROAS = 300,000 / 45,000 = 6.67 Scenario 2: The return of your online ad campaign is lower than OTAsOnline ad budget = 45,000 THBReturn = 150,000 THBROAS = 150,000 / 45,000 = 3.34 Scenario 3: The return of your online ad campaign is higher than OTAsOnline ad budget = 45,000 THBReturn = 400,000 THBROAS = 400,000 / 45,000 = 8.88 The three scenarios show us that the return from the campaign determines the ROAS ratio, meaning every 1 THB spent on the online ad campaign brings back 6.67 THB of income (Scenario 1). This is the number that the marketing department can use together with other expenses to evaluate the overall performance. Should ROAS Be Evaluated by Comparing It to the OTA Performance? It is one of the easiest ways to set the online advertising KPI using OTA performance as a benchmark because doing so, you are comparing the performance of your online marketing department/agency to that of the OTA service you are using and the return is the most solid indicator. However, the important note is that comparing your online campaign performance to OTA will be the valid KPI only for 1-3 year period or longer. This is because the goal of your online advertising is to create direct bookings. The return from the direct bookings actually depends on many factors such as your website traffic, prices and promotions, competitors’ offers, booking engine fees, credit card service expense, as well as the performance of the key people involved in each step. What Is the ROAS That Should Be Expected to Begin With? I can give you a rough number based on my past experience – if you are brand new to online direct booking and has no traffic to your website or if you are simply a brand new hotel, 0-2 ROAS can be expected during the first 6 months (calculated from the total online marketing budget) followed by a steady growth caused by the gradually improved booking process. Numbers from the Hotel Industry? The ROAS numbers that I have come across during my 8 years in hotel e-commerce vary immensely depending on each hotel direction. I am familiar with hotel chains that manage and market for many properties and have years of experience in online marketing. ROAS usually varies along the hotel’s ADR (Average Daily Rate). ADR 1,000 – 10,000 THB → Avarage ROAS at 5 – 15ADR >10,000 THB → Average ROAS over 15(Watch how ROI 44 : 1 was achieved at a famous hotel chain with an intelligent tech vendor.) There is no one universal formula in digital marketing. Nothing can be achieved overnight. The most important thing that