Hotel Marketing Acquisition Costs Keep Rising

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
kalibri LABS. Confidential & Proprietary Information

Booking Brands and Stay Brands

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

Chain Scale
Hotel Chain Scale Number of Hotels in
Sample
Luxury 69
Upper Upscale 120
Upscale 209
Upper Midscale 69
TOTAL 468

Management Type
Management Type Number of
Hotels in
Sample
Franchise/Mgt Company 295
Brand Managed 162
Owner Operated 11
TOTAL 468

Location Type
Location Type Number of Hotels in
Sample
Urban 195
Suburban 145
Resort 46
Airport 41
Interstate/Highway 30
Small metro/town 11
TOTAL 468

Size of Property
Number of Guest
Rooms
Number of Hotels in
Sample
< 150 193
150-299 149
300-449 73
450-599 23
600+ 30
TOTAL 468

Segmentation
Dominant Business Type Number of
Hotels in
Sample
Transient 408
Group 60
TOTAL 468

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

Commissions Rise at 2x the Rate of Revenue Growth
(retail commissions only)
40%
35%
30%
25%
20%
15%
10%
5%
0%
2009 2010 2011 2012
Room
Revenue
Total
Revenue
Total S&M
Commissions
Total Acq
Costs

Contribution to Operating Expenses
and Profit Ranges—NYC 2012
Cost Type Low Contribution High Contribution
Commissions
80% 90%
Only
Commissions +
Sales/Marketing
70% 80%
Source: Kalibri Labs—NYC Prototype test
© 2013 Kalibri Labs

HAMA White Paper:
The Rising Costs of
Customer Acquisition
– Upper Upscale & Luxury
Segments
F Camacho Consulting
13

14
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

15
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

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
17
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

External Fees Related to Customer Acquisition
Vary in Type and Amount By Brand
18
Charge Categories Fairmont Four
Seasons
Intercontinental Marriott Ritz
Carlton
Westin
Reservations
Brand/CRO x x x x x x
Outside/GDS x (included
above)
x x x x
Marketing
Marketing Fee x x x x x x
Performance/Online
x x x x
Marketing
Ad Co-op/Cluster some x
Loyalty Program
FT/Transient x x x x x
Group/TA x x x x x
Sales
GSO/NSO (in Brand) (in Brand) x x x x
Cluster/Region x x
Referral Programs x x x
Commissions
Transient TA x x x x x x
Group x x x x x x

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
22
49%

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

26
Conclusions
1. Customer acquisition costs should be a major discussion item between
Owners and Brands.
2. If Brands become less able to deliver “uncommissioned” revenue, they
have a lower economic value
3. While costs have been offset by reductions in local spending, owners
shouldn’t allow local Sales and Marketing to be crippled
4. In new management agreements, customer acquisition costs must be
clearly stated and ownership has the right to approve incremental fees
5. Tracking the costs of customer acquisition should be an ongoing focus
for every property
6. Luxury and Upper Upscale segments were studied, but all segments
should be concerned

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

$8.79
$7.94
$10.00
$9.00
$8.00
$7.00
$6.00
$5.00
$4.00
$3.00
$2.00
$1.00
$8.31
$6.92
$8.83
$8.09 $8.08
$6.92
$8.85
$7.95
$7.80
$6.90
$8.87
$7.79
$7.64
$5.96
$-
Luxury Upper
Upscale
Upscale Upper
Midscale
2009
2010
2011
2012
Net Sales and Marketing Efficiency

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.

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

Contribution by Channel
Commissions and Transaction Fees
Erode the Revenue that Flows Through to Profit
COPE: 85.7%
© 2013 Kalibri Labs

HAMA Sales & Marketing
Efficiency Study
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Hotel Marketing Acquisition Costs Keep Rising

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