Download Lodging November 06 - Marketing

HOTEL MARKETING
An Investment In People
by: Robert Mandelbaum and Steven Nicholas CHA
Given all the discussions of distribution channels, yield management, Internet booking
sites, and alternative forms of media, it is tough to deny that advances in technology have
heavily influenced hotel marketing. However, when analyzing the thousands of financial
statements in PKF Consulting’s Trends in the Hotel Industry database, the majority of
marketing dollars spent at the property level currently pay for labor related costs. In
2005, the salaries, wages, and benefits paid to sales department personnel accounted for
55.6 percent of total marketing department expenditures1. For reference purposes, this
ratio was 28.4 percent in 1980.
This should not be unexpected, as the business of marketing hotels has evolved a great
deal over the last 25 years. The growth in brands and market segmentation has created
the need for hotels and lodging companies to “staff up” within the marketing department.
This has made good sales people very valuable, thus raising compensation levels for
qualified personnel. Higher salaries, lucrative bonus programs, and expanded benefits
continue to grow. In many instances, after bonuses, the hotel sales team are the most
highly compensated people on property, even more than the General Manager or
Managing Director.
In 2005, the Trends data shows that labor and related costs increased 4.4 percent. Of note
is the fact that employee benefits grew at a 5.2 percent pace, greater than the 4.2 percent
increase posted for departmental salaries and wages. The relative surge in employee
benefits was common throughout all departments in hotels.
Hotels have not only added on more sales managers, but the qualifications of the
additional personnel have become more specialized. Specifically, the role of direct sales
has grown in importance. The continual increase of the number of hotel “brands” in the
marketplace has made the fight for customers more difficult. Brands with similar product
offerings and similar messages have created an environment where the direct sales effort
can be a hotel’s competitive advantage. The expansion of market segmentation has
produced a more dissected way hotels look at their customers and created the need for
segment specialists within the marketing department. Like a closer in baseball, a
segment specialist can have a unique skill set that allows them to enable a hotel or hotels
to attract a customer base previously unavailable to them.
Selling Up, Advertising Down
Selling expenses for the hotels in the Trends database increased a strong 7.3 percent in
2005. Selling expenses include labor-intensive activities such as trade shows, travel, and
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For this article, it is important to note that franchise fees and national marketing assessments are not
included in property level marketing department expenses.
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client entertainment. On the other hand, advertising expenditures continue to decline.
From 2004 to 2005, the amount of money spent at the property level for promotional
materials and media buys declined 0.7 percent. While the decrease is relatively low, it
does mark the sixth consecutive year such a slide in advertising dollars has been
observed.
Hoteliers have become very adept at making a little advertising money go along way by
using the Internet. This medium has provided a completely new way for hotels to
advertise themselves. Using e-mails and websites, the lodging industry has found a more
efficient and much less costly way to connect with the customer.
The Other Internet Influence
Hotels have not always enjoyed the economic benefits of the Internet. Concurrent to the
2001 – 2003 industry recession came the advent of Internet based third party
intermediaries. When these new marketing channels first came into play many properties
threw money at them with the hope or fear that this was the key to the future. In recent
years, as hotel managers began to get a handle on this medium, and hoteliers became
more versed in the appropriate use of these tools, this expense has gone down.
The rising cost of customer acquisition has not resided solely with the Internet.
Wholesalers, third-party meeting planners, and other intermediaries have raised this
overall expense. These groups are finding all new and creative ways to charge for their
services including fees, commissions, and rebates. During the recession, many hotels felt
compelled to pay up in order to maintain share. As industry performance improves, the
pendulum of negotiating leverage will move back to the properties and this cost will be
reduced.
Less Marketing Required?
As the industry approaches the peak of the current business cycle, occupancy levels are
expected to remain high, and near-term revenue gains will be driven mostly by increases
in room rates. Once again, we will most likely see a shift in the way hotels spend their
marketing dollars.
From 2001 through 2004, hotel marketing was driven by a penetration strategy. Hotel
sales departments focused on increasing the number of rooms sold. This strategy
required more sales personnel. However, as we move forward and hotels begin to focus
on a rate strategy, the need for additional staff will be reduced.
Fewer increases in personnel, combined with Internet efficiencies, will most likely result
in a slowdown in property-level marketing expenditures. Already, in 2005, we have seen
marketing department costs grow at a 4.3 percent pace. This was the lowest growth rate
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among all Undistributed Departments for the year, and below the overall average growth
rate for all operating expenses of 6.5 percent.
***
Robert Mandelbaum is the Director of Research Information Services for PKF
Hospitality Research. He is located in the firm’s Atlanta office. Steven Nicholas CHA is
Executive Vice President, Operations for the Noble Investment Group. Steven works in
the Atlanta headquarters of Noble. This article was published in the November issue of
Lodging Magazine.
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