HAMA Sales & Marketing Efficiency Study
Hospitality Asset Managers Association
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Agenda
HAMA Sales and Marketing EfficiencyStudy
Acquisition Costs—A Deeper Dive
– Frank Camacho, white paper author
Solutions in process
– Industry, Brand, Hotel
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Booking Brands and Stay Brands
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HAMA Sample P&L Database
468 hotels from 2009-2012Data elements– Total Sales and Marketing Spend– Commission Expense (retail only)– Total Revenue– Room Revenue–Number of rooms–Group/Transient split
“Same store”—340 hotels
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Chain Scale
Hotel Chain Scale Number of Hotels in Sample
Luxury 69
Upper Upscale 120
Upscale 209
Upper Midscale 69
TOTAL 468
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Management Type
Management Type Number of Hotels in Sample
Franchise/Mgt Company 295
Brand Managed 162
Owner Operated 11
TOTAL 468
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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
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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
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Segmentation
Dominant Business Type Number of Hotels in Sample
Transient 408
Group 60
TOTAL 468
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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
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0%
5%
10%
15%
20%
25%
30%
35%
40%
2009 2010 2011 2012
RoomRevenueTotalRevenueTotal S&M
Commissions
Total AcqCosts
Commissions Rise at 2x the Rate of Revenue Growth(retail commissions only)
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Contribution to Operating Expenses and Profit Ranges—NYC 2012
Cost Type Low Contribution High Contribution
Commissions Only
80% 90%
Commissions + Sales/Marketing
70% 80%
© 2013 Kalibri Labs
Source: Kalibri Labs—NYC Prototype test
13
HAMA White Paper:
The Rising Costs of Customer Acquisition – Upper Upscale & Luxury
Segments
F Camacho Consulting
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
16
Finding 1: Flow Through Was Not Improving -Customer Acquisition Costs Rose Almost 23%
17
Acquisition Costs Can Be Driven Centrally or By Local Decisions
• Acquisition costs divided into five categories, two external and three 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
18
External Fees Related to Customer Acquisition Vary in Type and Amount By Brand
Charge Categories Fairmont Four Seasons
Intercontinental Marriott Ritz Carlton
Westin
ReservationsBrand/CRO x x x x x x
Outside/GDS x (included above)
x x x x
MarketingMarketing Fee x x x x x x
Performance/Online Marketing
x x x x
Ad Co-op/Cluster some x
Loyalty Program
FT/Transient x x x x x
Group/TA x x x x x
SalesGSO/NSO (in Brand) (in Brand) x x x x
Cluster/Region x x
Referral Programs x x x
CommissionsTransient TA x x x x x x
Group x x x x x x
19
Finding #2: External Costs Grew 54% Faster 37% for brand allocations and 34% for retail commissions
20
Finding #3: Local Marketing & Sales Budgets were held down
21
Franchised Properties Saw Even Greater Increases in Third Party Commissions
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Finding #4: Rising External Costs Further Tiltthe Balance of Spending
2009 Acquisition Costs: $348MM 2012 Acquisition Costs: $424MM
49%
23
Finding #5: Total Acquisition & Retention Costs Vary Widely By Brand
24
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
25
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
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
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HAMA Study Metrics*
Net RevPAR
Revenue – (Commissions + Total Sales and Marketing)/available rooms
Net Sales and Marketing EfficiencyHow 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
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$8.79
$7.94
$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
$-
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
$7.00
$8.00
$9.00
$10.00
Luxury UpperUpscale
Upscale UpperMidscale
2009
2010
2011
2012
Net Sales and Marketing Efficiency
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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
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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
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Contribution by Channel
Commissions and Transaction FeesErode the Revenue that Flows Through to Profit
COPE: 85.7%© 2013 Kalibri Labs
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HAMA Sales & Marketing Efficiency Study
Questions?