HAMA Sales & Marketing
Efficiency Study
Hospitality Asset Managers
Association
Agenda
HAMA Sales and Marketing
Efficiency Study
Acquisition Costs—A Deeper Dive
– Frank Camacho, white paper author
Solutions in process
– Industry, Brand, Hotel
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Booking Brands and Stay Brands
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HAMA Sample P&L
Database
468 hotels from 2009-2012
Data elements
– Total Sales and Marketing Spend
– Commission Expense (retail only)
– Total Revenue
– Room Revenue
– Number of rooms
– Group/Transient split
“Same store”—340 hotels
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Chain Scale
Hotel Chain Scale
Number of Hotels in
Sample
Luxury
Upper Upscale
Upscale
Upper Midscale
TOTAL
69
120
209
69
468
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Management Type
Management Type
Number of
Hotels in
Sample
Franchise/Mgt Company
Brand Managed
Owner Operated
TOTAL
295
162
11
468
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Location Type
Location Type
Number of Hotels in
Sample
Urban
Suburban
Resort
Airport
Interstate/Highway
Small metro/town
TOTAL
195
145
46
41
30
11
468
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Size of Property
Number of Guest
Rooms
Number of Hotels in
Sample
< 150
150-299
300-449
450-599
600+
TOTAL
193
149
73
23
30
468
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Segmentation
Dominant Business Type
Number of
Hotels in
Sample
Transient
Group
TOTAL
408
60
468
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Partial Chain
Representation
Chain
Number of
Hotels in
Sample
Chain
Number of
Hotels in
Sample
Marriott
202
Fairmont
19
Hilton
92
Independent
13
Hyatt
36
Four Seasons 12
Starwood
28
Kimpton
11
IHG
23
Denihan
9
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Commissions Rise at 2x the Rate of Revenue Growth
(retail commissions only)
40%
35%
30%
15%
Room
Revenue
Total
Revenue
Total S&M
10%
Commissions
25%
20%
Total Acq
Costs
5%
0%
2009
2010
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2011
2012
Contribution to Operating Expenses
and Profit Ranges—NYC 2012
Cost Type
Low Contribution
Commissions
80%
Only
Commissions + 70%
Sales/Marketing
Source: Kalibri Labs—NYC Prototype test
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© 2013 Kalibri Labs
High Contribution
90%
80%
HAMA White Paper:
The Rising Costs of
Customer Acquisition
– Upper Upscale & Luxury
Segments
F Camacho Consulting
13
Topics
•
•
•
•
•
•
•
•
Background
Room Revenue and Acquisitions Costs – 2009-2012
Sources of Cost Growth
Fee examples
Growth by Category
Comparison to Franchised properties
Growth Varying by Brand
Recommendations
14
Background and Approach
• During economic recovery costs typically rise at a slower pace than
revenues – concerns this wasn’t happening
• Analyzed P&L for 6 properties in detail over a 4 year period
• Developed framework to examine costs of customer acquisition
• Started with 468 U.S. and Canadian properties in the Kalibri database
representing over $7 billion in revenue
• Focused on 104 upper upscale and luxury, managed properties with
brand affiliations
15
Finding 1: Flow Through Was Not Improving Customer Acquisition Costs Rose Almost 23%
16
Acquisition Costs Can Be Driven Centrally
or By Local Decisions
• Acquisition costs divided into five categories, two external and three
internal:
• External costs:
– Brand allocations – including those for Brand marketing, advertising,
promotions, national and global sales offices, and loyalty programs.
– Third party commissions – both transient/travel agent and group
• Internal/Property Costs:
– Local/property marketing and sales programs
– Local/property marketing and sales staffing and related expenses
– Other local expense including reservations
17
External Fees Related to Customer Acquisition
Vary in Type and Amount By Brand
Charge Categories
Fairmont
Four
Seasons
Intercontinental Marriott
Ritz
Carlton
Westin
Reservations
Brand/CRO
Outside/GDS
x
x
x
(included
above)
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
Marketing
Marketing Fee
Performance/Online
Marketing
Ad Co-op/Cluster
Loyalty Program
FT/Transient
Group/TA
some
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
Sales
GSO/NSO
Cluster/Region
Referral Programs
(in Brand)
(in Brand)
x
Commissions
Transient TA
Group
x
x
x
x
x
x
x
x
18
Finding #2: External Costs Grew 54% Faster
37% for brand allocations and 34% for retail commissions
19
Finding #3: Local Marketing & Sales Budgets
were held down
20
Franchised Properties Saw Even Greater
Increases in Third Party Commissions
21
Finding #4: Rising External Costs Further Tilt
the Balance of Spending
2009 Acquisition Costs: $348MM
2012 Acquisition Costs: $424MM
49%
22
Finding #5: Total Acquisition & Retention Costs
Vary Widely By Brand
23
Third Party Commissions Account For Much of
the Variance in Acquisition Costs
•
•
•
•
Third parties can contribute to revenue growth
However, don’t drive revenue increase as fast as costs growth
Different brands approach them quite differently
Three brands grew revenue faster than commission expense
24
Finding #6: For the top 10 Brands included in this
study, Commission Growth ranged from 10% to 72%
3 Brands Grew Revenue Faster than Commissions
25
Conclusions
1.
2.
3.
4.
5.
6.
Customer acquisition costs should be a major discussion item between
Owners and Brands.
If Brands become less able to deliver “uncommissioned” revenue, they
have a lower economic value
While costs have been offset by reductions in local spending, owners
shouldn’t allow local Sales and Marketing to be crippled
In new management agreements, customer acquisition costs must be
clearly stated and ownership has the right to approve incremental fees
Tracking the costs of customer acquisition should be an ongoing focus
for every property
Luxury and Upper Upscale segments were studied, but all segments
should be concerned
26
Sales and Marketing Spend
Declining in Efficiency
HAMA Study Metrics*
Net RevPAR
Revenue – (Commissions + Total Sales
and Marketing)/available rooms
Net Sales and Marketing
Efficiency
How much net revenue is generated for
every $1 spent in sales and marketing?
Revenue - Commissions
Total Sales and Marketing
* ~500 hotels; P&L data only; retail commissions only
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Net Sales and Marketing Efficiency
$10.00
$9.00
$8.79 $8.83 $8.85 $8.87
$7.94
$8.00
$8.09
$8.31
$7.95
$7.79
$8.08
$7.80
$7.64
$6.92 $6.92 $6.90
$7.00
$5.96
$6.00
2009
$5.00
2010
$4.00
2011
$3.00
2012
$2.00
$1.00
$-
Luxury
Upper
Upscale
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Upscale
Upper
Midscale
Notable Highlights
Branded luxury hotels were more efficient in sales and marketing
spend than the branded upper upscale
However, independent and small chains outperformed branded
luxury hotels in sales/marketing efficiency
Luxury hotels were 11% better in S&M Efficiency than the Upper
Upscale, but with a 100% premium in ADR and revPAR that was a
surprisingly narrow margin; they were 18% more efficient in sales and
marketing efficiency when total revenue was considered
Commissions in upscale hotels grew more quickly than other chain
scales between 2009 and 2012 but it was a close contest
Group hotels held steady in S&M efficiency from 2009-12 and were
9% more efficient than transient hotels (based on total rev); transient
were more 19% more efficient on rm rev; transient declined over time
largely due to the steep rise in commissions.
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Solutions: Industry, Brand
and Hotel
Hospitality Asset Managers
Association
Measure and Manage
Major brands have agreed to share data to
create these metrics for brand, hotel and
industry use
Change the metrics to evaluate hotel
performance each month; if you want Net
Revenue, then reward on Net Revenue
– Contribution to profit
– Net RevPAR
– Net Sales and Marketing Efficiency
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Contribution by Channel
Commissions and Transaction Fees
Erode the Revenue that Flows Through to Profit
COPE: 85.7%
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© 2013 Kalibri Labs
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HAMA Sales & Marketing
Efficiency Study
Questions?