Demystifying the Digital Marketplace

By Jennifer Hill, CRME, Vice President of Business Development, Kalibri Labs

There’s a reason that Kalibri Labs calls our new series of special reports for the hospitality industry Demystifying the Digital Marketplace: The traditional evaluation of hotel performance using calculations of supply and demand has evolved. Now it’s part of a digital marketplace that, frankly, can be a little mystifying — encompassing numerous distribution channels, market segments, and rate types.

Part three of Demystifying the Digital Marketplace (DDM3) — which offers case studies on how hotels can use data to approach the revenue challenges they face — has just been published. On a recent call for HSMAI’s Marketing Advisory Board, I presented an overview of some of its key findings, including:

1. One of the largest reservation cost drivers is merchant and opaque OTA commissions. In the chart below, we take what a guest is paying to stay in a hotel — whether it’s to an OTA or to the hotel directly— and strip away all the transaction-specific booking costs to arrive at COPE, a Kalibri hallmark metric that stands for Contribution to Operating Profit and Expense:

The idea is to facilitate a more thorough examination of total acquisition costs, which we estimate at between 15 and 25 percent — we’ve never really seen them lower than 15 and sometimes actually higher than 25. This analysis helps us understand that managing acquisition costs is just as important as managing labor costs. Ask yourself: What is the optimal, most profitable business mix for your hotel? What are the realistic steps you can take to achieve this mix?

2. Loyalty bookings are less costly to acquire over time. One of the case studies in DDM3 follows the lifetime of a loyal guest, tracking the high efficacy of a book-direct campaign for an individual property:

3. OTA bookings cost the same or more for recurring stays. On the other hand, OTA bookings incur more in acquisition costs because a hotel is constantly reacquiring guests, who generally are paying different rates with each booking: