Treating Meta Search Marketing as a Distribution Channel Results in Loss of Direct Revenues for Hoteliers
We are currently witnessing an explosion of meta search sites and online publishers, facilitated by advancements in digital technology and advertisers' perceptions of these sites as "unbiased" online media players compared to the OTAs.
The most popular meta search sites and publishers in the hospitality and travel space include: Google Hotel Finder (with tentacles across the Google universe), TripAdvisor Meta Search, Bing Meta Search (powered by TripAdvisor), Kayak.com, Trivago.com (Europe), WeGo.com (Asia Pacific), HotelsCombined.com (Australia), and others.
The value proposition to travel consumers is undeniable: By adding real-time availability and pricing and enabling rate shopping, travel planners are now provided with everything they need to research and book their hotel stay.
The main question is: Why would any online travel consumer want to go to an OTA website when they can get all of the components needed for an intelligent hotel purchasing decision (hotel location, hotel information, customer reviews, and real-time availability and pricing) from Google Hotel Finder, TripAdvisor, and other meta search sites? Rightfully, here at HeBS Digital we consider meta search the ultimate "OTA-killer."
Example: Property Participating in TripAdvisor Meta Search
Meta search marketing is a crucial new tool in hotelier's direct online channel efforts. By being part of meta search marketing on websites like Google or TripAdvisor, hoteliers are leveling the playing field with the OTAs and giving travel consumers the chance to book directly with the hotel and generate incremental revenues at more than acceptable ROAS (return-on-ad-spend).
Is Meta Search an Advertising or a Distribution Channel?
One of the biggest misconceptions in the industry today is that meta search marketing is a distribution channel – a "set and forget" initiative. The popular belief is that once the hotel is enabled on a meta search platform like Google or TripAdvisor, the job is done and the bookings will keep on coming.
This industry-wide misconception is the main reason why some major hotel brands and some third-party booking engine vendors operate meta search as a distribution channel, utilizing a commission model (cost-per-acquisition), thus depriving their member hotels or hotel clients from serious direct online revenues.
In our view, meta search is not a distribution channel, nor is it a "set and forget" marketing initiative. Meta search marketing is a key component of hotelier's direct online channel efforts. It is a complex online advertising format that requires daily – quite often hourly – ad spend and bid management, instant reaction to what other advertisers are doing, monitoring of budget spend on a daily basis and monitoring of rate parity (that is often abused by the OTAs), in addition to real-time room availability and pricing feed.
For instance, since only the top three positions on TripAdvisor and the top two on Google Hotel Finder matter on any property profile page on these sites, merely enabling these services is meaningless – OTAs will push the property down or out of the top featured listings.
Example: Property Participating in Google Hotel Finder
This is why branded hotels rarely see themselves in Google Hotel Finder meta search pricing menus or among the top three featured advertisers in the TripAdvisor meta search menu.
As mentioned, as an advertising format, meta search marketing is quite complex. Real-time hotel inventory availability and pricing feed constitute only a small part of the complexity of this new advertising model. The most complex aspect is the technology needed to manage ad spend (budget) - per property and per meta search publisher - on a daily and monthly basis, real-time bid management, conversion and ROAS tracking, campaign monitoring and ongoing optimizations and reporting on the property level.
All of this requires professional meta search marketing expertise and help, and sophisticated meta search management technology, such as HeBS Digital's proprietary MetaSearch Gateway.
As discussed earlier, some hotel chains and third-party booking engines operate meta search as a distribution channel and collect "success fees" in the form of agency commissions. This commission/cost-per-acquisition model works in the following manner: The hotel chain or booking engine vendor receives a success fee (agency commission) from every booking that comes from meta search, from 8.5%-10% for hotel chains to as high as 15%-17% for booking engine vendors.
How does the economics of this commission model work?
Booking Engine Vendor Example:
Now let's review an example of a booking engine vendor that charges an average commission of 15% for every meta search booking.
- For every $1,000 spent on TripAdvisor Meta or Google Hotel Finder, the booking engine vendor has to generate $6,666 in room revenue in order to break even ($6,666 x 15% = $1,000).
- The booking engine vendor has to maintain average return-on-ad-spend (ROAS) of at least 666% to break even ($6,666 revenue/$1,000 cost = 666% ROAS).
- Since breaking even is not an option for any booking engine vendor – which is in the business of making money – we would assume that the vendor would want to keep at least half of what the ad spend is for themselves ($500 for every $1,000 spent). In this case the booking engine vendor must generate as much as $10,000 for every $1,000 of ad spend in order to keep at least $500 for themselves, which means an average ROAS of 1,000% ($10,000 revenue/$1,000 cost = 1,000% ROAS).
Hotel Chain Example:
- The hotel chain charges an average commission of 9% for every meta search booking.
- For every $1,000 spent on TripAdvisor Meta or Google Hotel Finder, the hotel chain must generate $11,111 in room revenue in order to break even ($11,111 x 9% = $1,000). In other words, the hotel chain has to maintain average return-on-ad-spend (ROAS) of at least 1,111% to break even ($11,111 revenue/$1,000 cost = 1,111% ROAS).
- Since breaking even is not bad for any hotel chain, we will assume that 1,111% is the ideal ROAS for any hotel chain that treats meta search as a distribution channel.
What's Wrong with the Commission Model?
To summarize the above case studies, a hotel chain would need a return-on-ad-spend (ROAS) of at least 1,111%, and a booking engine vendor would need a ROAS of at least 1,000% at 15% commission in order to successfully operate a meta search campaign on a commission basis for any property.
The problem with the above "ideal" ROAS scenarios is that today the industry is seeing average ROAS of only 500%-600%-700% from meta search. Though here at HeBS Digital we see higher than the industry average ROAS from meta search due to our proprietary campaign and bid management technology, the MetaSearch Gateway, this is an extremely competitive field with 10-15 OTAs bidding for every property. The fact that only the top three positions on TripAdvisor and the top two on Google Hotel Finder matter further pushes the bid price up.
ROAS from meta search is dependent on a multitude of factors. On TripAdvisor, for example, these include the "bubble" rating on TripAdvisor, what the property's star rating is, how its ranking is among other hotels in the destination, whether the top 10-15 reviews are positive, and whether the property is proactively managing reviews and responses.
Yes, a certain percentage of properties will do a phenomenal job of branding and customer service, and as a result enjoy higher ROAS, but these are the exceptions and constitute less than 15% of properties.
In the "what's wrong" analysis, we are not even touching on the most obvious question: How is a booking engine vendor charging the hotel client 15% commission any different from an OTA such as Booking.com charging the hotel the same OTA commission? Meta search marketing is part of the overall direct online channel marketing strategy, and the hotel should not allow this precious direct online revenue initiative to fall into the hands of an OTA-style commission arrangement.
Why Do Hoteliers Always Lose from the Commission Model?
Let's assume an average ROAS from meta search of 600%, which means that for every $1,000 spent, the hotel chain or the booking engine vendor will generate $6,000 in total revenue:
- The hotel chain commission – at 9% – will be only $540, well below the break-even point.
- The booking engine vendor commission – at 15% – will be $900, well below the break-even point.
With the current commission model, both the hotel chain and the booking engine vendor will lose money with every booking for the majority of the properties for which they are running meta search campaigns. What would they do in this case?
The hotel chainwould most likely lower the bid to decrease the cost and the property would be kicked out of TripAdvisor's top three most visible spots or the top two spots on Google Hotel Finder. As a result, the property's meta search campaign would just linger, producing next to nothing in clicks and bookings, thus allowing the OTAs to continue taking advantage of the property.
The booking engine vendorwould most likely discontinue the campaign entirely and advise the property that meta search is not working for them (which we know is not the case).
For many hoteliers a ROAS of 500%-$600%-700% is a good return for the property compared to the OTA fees the property pays when the booking comes from an OTA. If the meta search lead from the property's own page on TripAdvisor or own presence on Google Hotel Finder goes to an OTA site, the property risks losing the customer to another property once the customer enters the booking process on any OTA. Last but certainly not least, a direct booking coming from meta search allows the property to "own" the customer.
We believe that by treating meta search as a distribution channel and utilizing the commission model used by some hotel chains and booking engine vendors, hotels are deprived of tremendous direct revenue opportunities from meta search.
What Should Hoteliers Do to Take Advantage of Meta Search Marketing?
To begin with, start treating meta search as a marketing initiative, similar to paid search, online media, retargeting, or email marketing. Meta search marketing is a great way to level the playing field with OTAs across the fast-growing meta search eco-system. Advertising on the meta search sites is easy and stress-free if you partner with an experienced meta search marketing firm with sophisticated technology such as HeBS Digital's MetaSearch Gateway, a one-stop meta search marketing platform that enables, runs, manages, tracks, and reports on any property's meta search marketing campaigns on Google Hotel Finder, TripAdvisor Meta Search, Kayak.com, Trivago, etc.
How much should hoteliers budget for meta search marketing? In our recent article, "The Smart Hotelier's Guide to 2014 Digital Marketing Budget Planning", we recommend 5%-10% of the annual digital marketing budget be spent on meta search marketing. For example, here at HeBS Digital, a Google Hotel Finder meta search package starts at $400/month and a TripAdvisor Meta Search package starts at $750/month. These cost-effective meta search marketing packages include the advertising spend, property CRS connectivity to the MetaSearch Gateway, campaign management, daily bid and ad spend management, conversion tracking and reporting.
Conclusion:
Let's set the record straight: Meta search marketing is not a distribution channel. It is not a "set and forget" initiative, but a complex advertising format that requires hourly and daily ad spend and bid management, instant reaction to aggressive bidding by the OTAs, monitoring of budget spend on a daily basis, and monitoring of rate parity (often abused by the OTAs).
Therefore, we believe that by treating meta search as a distribution channel and utilizing the commission model by some hotel chains and booking engine vendors, hotels are deprived of tremendous direct revenue opportunities from meta search. Meta search marketing is part of the direct online channel, and the hotel should not allow this precious direct online revenue initiative to fall into the hands of an OTA-type of commission arrangement.
Meta search marketing must be part of hoteliers' concerted efforts to shift share from the OTAs to the direct online channel, i.e. to the hotel website. In addition to other fundamentals such as website re-designs, SEO, SEM, online media and retargeting, email marketing and social media, meta search marketing is an important tool to help hoteliers lessen their dependency on the OTAs and drive more direct bookings through the property website.
About the Author and HeBS Digital
Max Starkov is President & CEO of HeBS Digital, the hospitality industry's leading full-service digital technology and marketing firm (www.HeBSDigital.com).
HeBS Digital has pioneered many of the best practices in hospitality digital technology and marketing, and direct online channel best practices and strategies. The firm has won over 250 prestigious industry awards for its digital technology, including its proprietary MetaSearch Gateway, digital marketing and website design. These awards include numerous Adrian Awards, Davey Awards, W3 Awards, WebAwards, Magellan Awards, Summit International Awards, Interactive Media Awards, IAC Awards, and others.
A diverse client portfolio of hospitality clients: restaurants to major hotel brands, luxury and boutique hotel chains, resorts and casinos, hotel management companies, franchisees and independents, and CVBs are benefiting from HeBS Digital's direct online channel strategy and digital marketing expertise. Contact HeBS Digital's consultants at (212) 752-8186 or [email protected].
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