Nowhere is this customer outreach more essential than in the hotel and hospitality industries. Which is why Hospitality Insider is here to help you to a) get the best out of your marketing budget and b) just as important, effectively measure its return on investment (ROI).
Over the coming year, we will examine how small-to-medium (SME) properties can get a grip on cost-effective marketing—marketing that is affordable and actually works—and how to best measure its ROI. In short, how, and by how much, does marketing add to your bottom line?
We will take an in-depth look at how the main online marketing tools, including Facebook, Instagram and YouTube, can be used to connect and engage with customers; how to maximise your hotel occupancy rates and restaurant takings, and thus drive up revenue.
Most small-to-medium hotels and hospitality businesses cannot justify the expense of a dedicated marketing team. They might have the basics in place—website, Facebook page, Instagram, (maybe) YouTube account, and possibly a blog—but they will likely be either outsourced or managed (mismanaged?) in-house by someone who has many other things to worry about.
However you go about it, the bottom line is that the right marketing strategy—one that reaches the right customers in the right place at the right time—is now so vital that if you haven’t got one you are in trouble. But how do you know if you’ve got it right? Or, more to the point, got it wrong?
The answer is three-fold. First, you hire the right people—people who demonstrably know what they’re doing—and pay them the right amount to create the right marketing strategy. Then you implement it, and then you measure its success (or failure).
Google ‘marketing return on investment’ (MROI) and you get 250,000,000 results. So, advice on how to get the best out of your business is itself big business. And it all comes down to money—how much you invest in marketing a hotel in which you have already invested millions, often expensive borrowed millions on which investors want the expected return.
Which is where a medium-to-long-term business proposition runs head-on into the kind of short-term thinking that underpins many an enterprise: buy it for $X today and sell it for $X plus 35% tomorrow. Little or no marketing cost, and an immediate and easily measured ROI.
But that ‘shopkeeper’ mindset does not work in the tourist-facing hospitality industry. Here, you are selling a dream, an experience where customers need to be wooed and won over time, not hit over the head with a boilerplate sales pitch followed by “thank you and goodnight”.
For a hotel, that dream, that once-in-lifetime guest experience, often comes down to two things: value and customer service, both of which depend on right-minded—or, at the very least, not wrong-minded—management, which itself is in short supply.
But while ROI is an essential component of any business, it can be difficult to exactly quantify. This is particularly the case with marketing—which is why it has its own acronym: MROI, or marketing return on investment.
Managers are under tremendous pressure to deliver, and may not be patient for the longer-term effects of marketing to take hold
In a recent interview, Jill Avery, a senior lecturer at Harvard Business School, says: “One of the downsides of marketing ROI is that it is easy to only recognize the incremental profits in short-term sales and underestimate the long-term benefits that marketing brings to brand value.”
“This can be particularly challenging for executives who might be impatient to see a return. A CFO might just see marketing expenses walking out the door and not a corresponding build-up of cash flows and assets.”
Crucially, she says, “measuring the lag time associated with most marketing spending is another common challenge. If you spend $1 today, it might take three years for the marketing to ‘work’ and for the consumer to make a purchase.”
Which is hotel marketing in a nutshell, she says, where managers “are under tremendous pressure to deliver quarterly earnings, and may not be patient for the longer-term effects of marketing to take hold”.
Her takeaway? “Every marketing dollar you spend today is building your brand as an asset for the future. So ideally, your marketing program is not only affecting sales and profits this year, but also strengthening your brand equity and customer relationships over time.”
Accepted metrics in the hospitality industry state the following: 60-65% of bookings are made online; bookers spend an average of 53 days visiting 28 different sites over a period of 76 online sessions; more than 50% of bookers/travelers use social media for travel tips and information.
Meanwhile, over 69% of travelers use a search engine to plan their trip, and travelers conduct hundreds of Google searches, visit hundreds of websites, and view thousands of images and videos in the course of deciding where to go and what to book.
On top of those raw statistics is the accepted fact that the aforementioned social media and ‘key influencer’ bloggers now play a make-or-break part in the success—or failure—of a hospitality business. You can read more on our guide to working with influencers, here.
Which brings us back to the “sharp focus on minimising costs” and managers who “may not be patient for the longer-term effects of marketing to take hold”. Too often, when a hotel’s occupancy rate and restaurant takings fall at or below breakeven, the temptation is to cut the cost of anything that does not return an immediate ROI.
The result is often to reduce marketing spend when it is most needed, followed by a corresponding failure to connect and engage with potential customers. The outcome? A downward spiral of falling occupancy rates and restaurant returns followed by cuts across the board, including essential service personnel, followed by … you get the picture.
The bottom line, according to marketing experts Nuphoriq, which is reflected across the marketing industry, is that a business should spend 2–5 per cent of sales revenue on marketing. The US Small Business Administration recommends 7 to 8 per cent of gross revenue for marketing and advertising on up to $5 million-a-year in sales and a net profit margin of 10–12 per cent.
It says: “Whether you run a small business or a multi-million dollar corporation, marketing is essential to your profitability and growth. Yet many small businesses don’t allocate enough money to marketing or, worse, spend it haphazardly.”
And it adds: “If your margins are lower than this [10–12 per cent], then you might consider eating more of the costs of doing business by lowering your overall margins and allocating additional spending to marketing.
“It’s a tough call, but your marketing budget should never be based on just what’s left over once all your other business expenses are covered.”