Traditionally, Marriott is a business driven by franchise and management company contracts. It is known for its branding, service and operational expertise. Starwood in recent years is placing additional emphasis on a similar path and shedding owned hotels as part of its "asset light" strategy. The resulting combined company sells franchise and management contracts while providing numerous services that effectively provide marketing and management capabilities to its hoteliers. Therefore, these specific brands and their parent companies are less driven by the real estate markets and more driven by consumer and business demand for their branded hotels. Multiple industry participants view the recent spurt of hotel consolidation as a trend that fuels a rivalry against the major OTAs. While there are other overarching factors, this is certainly a facet to consider.
While each chain and brand has defined a specific set of tactics for distributing rooms within the OTAs, Marriott and Starwood continue to aggressively steer consumers toward their brand sites even to the extent of foregoing top search placement within the OTAs. It appears these two brands view the major OTAs as expensive alternatives and want to control terms of distribution while providing lower cost distribution solutions to their branded properties. However, from a property perspective, owners and management companies may have different interests. If they are able to generate reservations at a reasonable cost, all things considered, then they may not have as much preference as to where the booking originates. That said, distribution costs do vary across channels and sites and consolidating two major hotel players could deepen the competitive divide between these particular Brands and the OTAs.
This consolidation will also continue to affect other segments of hotel distribution, such as managed travel and group bookings. Most major hotel companies are responsible for a significant portion of a branded property's marketing. Corporate negotiated rates play a role in this since the chain will have more control over inventory and pricing for any market where they have a significant share of inventory. It is likely that this will enable the combined company to tactically respond to RFPs and more confidently set pricing levels for their existing and potential contracts. However, this doesn't change demand levels within a market unless they apply these tactics to shift business from certain destinations to other locations more than occurs today. CWT's Whitepaper recently summarized markets where the combined Marriott and Starwood brands represent a significant portion of their corporate negotiated business.
Although we only covered a few reasons above, there are many areas of influence for properties to consider when it comes time for marketing and distribution. Each of these has technology underpinnings. As a result, technology that supports marketing and operational business processes will play a meaningful role as hotels continue to balance the value offered by a major marketing partner, such as a Brand or an OTA, against the ability to pursue their own marketing initiatives while minimizing any contractual limitations placed upon them. What's important for properties to maintain is the ability to react to changing customer demands and market dynamics by quickly launching relevant marketing initiatives for any segment of business. This is crucial to achieving sustainable success and requires a pliable marketing and technology infrastructure.
Marriott and Starwood's paid media spend was estimated at $96 and $55 million for 2014 by Kantar Media. This equates to spending $23k per property or $134 per room for Marriott and $45k per property or $155 per room for Starwood on an annual basis. Expedia and Priceline on the other hand spent approximately $2.8 billion and $2.6 billion in 2015, respectively. Most of these marketing budgets are directed at core marketing capabilities, such as branding, destination marketing and the marketing technologies required to attract and convert travelers from across the globe.
The following table shows the estimated number of solutions that are part of the marketing technology infrastructure for each of the aforementioned companies as it relates to their digital presence. These encompass software capabilities across multiple categories such as: Website Development & Management, Search & Social Marketing, Data Management, Advertising Infrastructure & Networks and Analytics solutions. However, these numbers represent only a sample of the full list of technologies each has in place to manage their digital and offline marketing presence as a whole.
Therefore, when a hotel purchases services from a Brand or OTA, part of the result arrives in the form of reservations. The investment made to generate those reservations is significant even when only considering the marketing spend and the underlying marketing technologies. It is also important to note the similarities and differences in how these dollars are being allocated in their efforts to reach a preferred customer audience. When combined with the marketing that happens for an individual hotel, it is evident how complex the marketing world is for a given property.
Evaluating a slightly broadened hotel marketing landscape for a moment shows the strengths of the companies in each segment as compared to a hotel's own website. Hotels have numerous decisions to make when considering how to market their property online and deciding what resources are needed to achieve their goals. When concentrating on the Search and OTA segment, given the significant amount of overlap across them, this table shows the general value of each.
There are many negotiating levers that may be material for any given OTA agreement, whether the agreement is with the Property, Brand or a combination thereof. It will be interesting to see how the OTAs continue to innovate their products and services to provide sales and marketing solutions to hotels and other travel service providers.
Consolidation at the hotel level, whether it occurs from deals like Marriott and Starwood, Accor or aggregations at the owner or management company level, may continue to change the allocation of leverage amongst the hotels, brands and OTAs involved. Ultimately, the parties have to find a reasonable solution based upon their knowledge of the market and control of these levers. Many levers exist, such as Pricing, Commissions and Placement within the OTA search results that will define the marketing agreements between the hotel and OTA.
In summary, the mega hotel mergers that are happening today, will continue to change the marketing and distribution landscape and the technologies intertwined within it. The combined company of Marriott and Starwood will cause changes in both the industry and its own resources. However, it will have to make many decisions regarding how the uniqueness of each brand will survive and how this will influence the next generation of marketing initiatives and supporting technologies at the chain, brand and property level.
Capsolve (www.capsolve.com) is a research and services company providing timely insights into marketing and technology solutions within the marketplace. Its research database contains thousands of companies across numerous software and technology categories, enabling companies to find and implement these products and services in support of their marketing programs with ease and confidence.