Mr. Navach

Revenue Management

Eliminating Acquisition Costs to Get Heads in Beds

By Jeff Navach, Vice President of Marketing, MediaAlpha

What if I told you there was an easy and effective way to bypass the OTAs, reduce fees, and capture audiences you aren't currently accessing? And I'm not talking about a new idea or outrageous untested concept. I'm simply talking about a change in the way you think about digital marketing. It's a process that the OTAs have deployed for years that hotel marketers can do every bit as effectively as the OTAs.

Hotels continue to confront a familiar problem: How to attract direct bookings and reduce the impact of OTA fees. We all know how profitable it is when bookings come straight through the hotel, but there simply isn't enough reach to drive the same demand as the OTAs. So how can hotels increase their revenue while at the same time decrease OTA fees? The answer may be simpler than you would think. Hotels can simply use some of the same tactics as the OTAs and in the process significantly reduce customer acquisition costs.

While it's true that OTAs benefit from a tremendous amount of volume, what hotels may not realize is that they can go to the same traffic sources that the OTAs use to attract in-market consumers. Hotels can ensure that their ads appear right next to the OTAs and convert the very same consumers that an OTA would capture and sell to the hotel for a 20% commission.

OTAs know how to utilize the entire marketing funnel and make sure that they participate in comparison search channels so that they capture leads uncontested. There is no reason why hotels should not use these very same tactics and tools to bolster their online presence, monetize traffic on third-party websites, and land bookings in the same way OTAs do. Hotels can go to the same fishing pool as OTAs and hook bookings right alongside them.

In order for hotels to successfully capitalize this direct booking channel, marketers need to evolve their mindset towards digital marketing:

Focus on Lead Generation

It's easy for hotels to get lost in the forest of branding. Naturally, effective marketing includes an awareness component and must pull on levers that hit the widest potential audience. However, too many times hotels will not bring captive audiences all the way down the purchase funnel into conversion.

Take for instance the ubiquitous display ad. Despite the fact that display advertisements are the weakest-performing type of media a brand can buy, they are widely used and comprise a significant share of the typical marketing budget. While it is true that you must be known and recognized in the industry, how much of your marketing budget should be allocated to display?

The prevailing notion is that display ads are necessary to stay top of mind with consumers and eventually this will lead to higher mindshare and ultimately conversions when the consumer is ready to book. Yet Google reports that in 2016 the average conversion rate for display was 3 times less than search ads. Unless you are Pepsi in a brand recognition war with Coca-Cola, why would you accept a .89% conversion rate on display, when you could get a 2.7% on search?

Factor in the fact that click through rates for Google's display network are .35% and search is 1.91%. Factor in also that approximately 50% of clicks on mobile ads are accidental and that 54% of users don't click banner ads because they don't trust them, and that a whopping third of the Internet find display ads completely intolerable. Even Facebook, which historically has much better click through rates than Google, topped out at 1.25% in 2016, still less than search ads. It is difficult to deny that ad avoidance and banner blindness is at an all-time high. People are not seeing the brand, they are not clicking on it, and they very likely are not booking rooms from it.

Yet budgets still increase disproportionately in the display category. Display advertising spend increased 55% last year while search increased at more than 10% less. In fact, eMarketer reported that 2016 marked the first time when display ad budgets exceeded search ads, comprising 47.9% of the entire U.S. ad spend.

Substantial budgets are allocated to Facebook as well. As a fundamentally closed network, it is an extra step or two (or three) before users go past the consideration phase and into an intent stage of purchasing. For all of the eyeballs Facebook advertisements can garner, it is not a sophisticated conversion machine that draws high-intent consumers to the bottom of the funnel. And if your message is not appearing at the time they are ready to purchase, there is significant risk that you will not win the booking.

There is a high opportunity cost for putting so much stock into display. Just because display has always been part of the marketing mix doesn't mean display needs to be the entire focus. Hotel marketers seeking direct bookings should take a stand and get away from the herd mentality. Put that money to better use and focus on conversions, not eyeballs. Focus on targeting the right people at the right time, not a big splash with a large, inactive audience.

Expand the Search Budget to the Bottom of the Marketing Funnel

So where should you reinvest those display dollars? One of the most effective ways to acquire new direct bookings is to ensure your brand appears in front of consumers at the moment they are making a purchase decision. And customers are not necessarily looking to buy when they search on Google. While Adwords are excellent for catching people who are researching hotels, they are not necessarily connecting you with consumers who are ready to book right now.

Google may be the 800-pound gorilla in search advertising, but it is increasingly difficult to reach the right audiences there. With the elimination of the right hand rail and reshuffling at the top of the page, there are fewer ad spots available, increasing price and competition. More relevantly (and despite Google's efforts thus far), it also does not represent the bottom of the funnel where buying is increasingly taking place. In other words, people may be considering hotel bookings on Google, but they are not necessarily ready to buy yet. So if your brand is present during the consideration phase, and not present in the buying phase at a comparison search destination, there is a good chance you will lose that consumer to the other hotels that are present.

Savvy hotel marketers are expanding how they think about search marketing to include comparison search inventory in their search budgets. Comparison search sites are those highly targeted, bottom of the funnel websites where consumers typically end up after a Google search. As consumers conduct more targeted searches - which typically include location, travel dates, etc. - they are also shown highly targeted travel ads. Until now, this has been fertile ground for OTAs, who use comparison search advertising to drive in-market consumers to their sites.

There is no reason for hotel brands not to be present right alongside the OTAs. In order to truly win at the direct booking game, hotels need to be where people are actually booking hotels, not just where they are researching hotels.

Decrease Acquisition Costs

It is not realistic or responsible to suggest that hotels should completely eliminate OTAs from their revenue channel. They represent a valuable and reliable booking source that is heavily embedded in the industry. While they play an important role, there are steps that hotels can take to mitigate their impact on revenue mix and customer acquisition costs.

When it comes to acquiring in-market travel consumers, hotels can do the same thing as OTAs. OTAs are currently capturing travel consumers at the point of purchase with little competition. They utilize comparison search ads to drive consumers to their sites and convert those consumers into hotel bookings, taking a substantial fee of 15-20% in the process.

OTAs are likely quite content with this situation, because they have very little competition from brands. Instead they focus on websites were people are looking to make bookings and advertise at the moment of highest purchase intent using comparison search media.

Comparison search media is available to anyone, not just OTAs. Hotels can compete right along with the OTAs for bookings right at the source-on the websites where people are looking to book hotels. This gives hotels a practical channel to more effectively attract new direct bookings in a places they historically have not been present. And for 20% less than they are paying today.

Make the Most Out of Your Advertising Spend

A key differentiator of comparison search media is the structured data that consumers provide that enables advanced targeting to ensure the right consumers see the right ads.

Advertising channels like display are still limited by relatively rudimentary demographic targeting capabilities. For example, users across the web or on Facebook will be served ads based upon demographic profiles to infer interest and likely purchase intent. With comparison search, consumers provide very specific criteria about their needs (hotel in Milan, 2 nights, traveling March 17-20) enabling highly targeted and relevant ads to be delivered based upon the user's specific search. This fundamental difference means that ad dollars are maximized for only the most relevant audiences. What's more, these are users that are ready to make purchase.

By investing in comparison search, hotels can improve targeting and ensure their ads are appearing in front of the highest value consumers at the right moment. Not only will this reduce OTA fees, but it also enables hotels to identify, acquire, and retain a new segment of travel consumer that is not otherwise shopping on a hotel website. In this regard, comparison search can also open access to an untapped market of new consumers.

For a long time, OTAs have capitalized on comparison search media and have been rewarded with healthy margins as a result. Now hotels can compete on the same playing field as OTAs to capture their fair share of these high purchase-intent travel consumers while significantly reducing acquisition costs. It's time for hotel marketing to get an upgrade. That can start with comparison search.

Jeff Navach is the Vice President of Marketing for MediaAlpha where he is responsible for leading all marketing activities, including brand development, demand generation and customer insights. MediaAlpha innovates at the intersection of programmatic technology and vertical search, bringing transparency and efficiency to both buyers and sellers. Its platform empowers advertisers to more effectively engage high-intent consumers through a variety of touchpoints to increase campaign ROI. Publishers gain granular control over their inventory to optimize yield and maximize revenue. Mr. Navach can be contacted at 773-988-8754 or jeff@mediaalpha.com Please visit http://www.mediaalpha.com. for more information. Extended Bio...

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