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An Interview with Max Starkov on Three Industry Hot Topics.
By Max Starkov, HeBS Digital's President and CEO
Tuesday, 8th November 2011
 
Max Starkov, HeBS Digital's President and CEO, was interviewed recently by Hotel Online on several notable trends and best practices in hotel digital marketing.

Social Buying/Flash Sales Sites have become very popular over the past 3 years. What are the pros and cons for hoteliers utilizing this channel?

Max Starkov:

I stand firm on my assessment that social buying & flash sales sites are a recessionary phenomenon, and not some kind of new, emerging distribution channel that is here to stay. There is no doubt that as the economy improves, these sites will go away.

Social buying and flash sales sites in travel and hospitality such as Groupon, LivingSocial.com, and SniqueAway.com are an integral part of the economy and the supply-demand market equilibrium. For social buying and flash sales sites to exist, there must be market equilibrium (price-quantity) between: the demand side (quantity of members/engaged social buyers) and the supply side (quantity of fresh, intriguing deals).

In 2011, all signs are indicating that the hospitality industry is in recovery mode. STR projects that all three of the key performance measurements (occupancy rate, ADR and RevPAR) will realize steady increases for the year as a whole.

As travel demand improves, hoteliers are becoming reluctant to participate in social buying/flash sales sites because of their "open discount" business model, and provide the supply side of the equation with fresh, intriguing deals. The result? Both sides of the equation suffer & shrink. Online travel consumers, disappointed by the lack of fresh/intriguing hotel deals, are reverting back to the traditional booking channels: hotel direct, OTAs, GDS and voice.

Here are only some of the indisputable signs of this weakening and shrinkage in supply and demand:

  • Visits to social buying/flash sales sites declined by 25% since June 2011 (Hitwise) due to:
    - Too many competitors
    - Deal fatigue
    - Not enough good deals
  • Groupon and Off & Away were forced to partner with Expedia
  • Groupon: Customer acquisition costs are out of control
    - Advertising costs: $263M in 2010 vs. $4.5M in 2009. $180M in Q1 2011!
    - Revenue per subscriber has fallen by 64.2% (06/09-03/11)
    - Number of deals sold per customer have decreased by 34%
Why should hoteliers be wary of using the social buying/flash sales sites? Here are only a few of the reasons that the economics do not work for the hospitality industry should mean:
  • Flawed "Open Discount" business model:
    - Discounted rate is out in the open, which is against rate parity/BRG principles
    - Destroys rate integrity: against existing contracts(OTAs, corporate travel)
  • Lack of opaqueness establishes new lower market price: hotel cannot charge rack rate since customer has accepted the discount rate as the new market value
  • Cannibalization of existing customer base: 65% of daily deal buyers are already Frequent (38%) or Infrequent (27%) Customers (ForeSee 06/11)
  • Deal face value is artificially ballooned to show value: this puts off potential customers by positioning the hotel as "too expensive"
  • Steep discounts of 50%-67.50% are simply unacceptable
Here is a case study clearly showing the true cost of distribution via the flash sales sites:
4Hoteliers Image Library

As we see from the example, the cost of distribution via the social buying/flash sales site is 27 times higher than via the hotel own website. Why are some hoteliers still finding the social buying/flash sales sites attractive? There are two types of hoteliers in the industry:
  • Smart, sophisticated hoteliers who understand that using social buying/flash sales sites leads to price and brand erosion, and ultimately damages the hotel's price integrity and overall online revenues in the long run
  • Hoteliers who employ a "lazy man's approach" to hotel distribution and who are more interested in the immediate results ignoring or not caring about long term repercussions
Some hoteliers participate in social buying and flash sales sites merely because their competition is doing so. My advice? Don't succumb to the devil. A smart hotelier would never repeat the mistakes or dumb moves of a dumb competitor, why do it now with the flash sales sites? Stick to the fundamentals in hotel distribution and make sure you are covering all the bases in the Direct Online Channel, including website re-designs, SEO, SEM, email marketing, social media, mobile web, online media, the voice channel, and GDS Travel Agent channel.

Google Hotel Finder: A lot has been said about the Google Hotel Finder and its implications for the industry. Who are the winners and losers from this new service?

 One thing is clear: with the introduction of the Google Hotel Finder ( www.google.com/hotelfinder ), Google is not entering the OTA space and is not becoming an online travel agency. All bookings originating from the Google Hotel Finder take place on the hotel website or OTA website.

Therefore, in my view, the introduction of Google Hotel Finder is not a "revolutionary" and "game-changing" event as some industry experts claim. So what kind of an event is the Google Hotel Finder?

The Google Hotel Finder is:
  • A logical extension to the Google's Hotel Price Ads cost-per-click (CPC) advertising program, introduced in Q3 2010. This CPC lead-generation program initially started as a pilot with a number of big OTAs with the introduction of a pricing menu in the property Google Places page as well as in the Google Maps results pages.
  • A smart way for Google to generate incremental revenues from the search engine results real estate it provided for free in the past, such as Google Places, Google Maps, etc.
  • A natural progression of Google's quest to provide the a) most relevant information, and b) the best user experience. When users are searching for hotels, they care about three important pieces of information in the result pages: hotel location (proximity to where the user is going to – Google has addressed this via the insertion of a Google Map in the results pages), price, and availability. The real-time availability widget and the pricing menus in Google Places, Google Maps and Google Hotel Finder address the latter.
At the same time, the hotel pricing and availability content in Google Places and Google Maps is a natural progression in Google's strategic objective to accumulate the deepest and most relevant depository of local content ever created on this planet. Google has already achieved that.

Why does Google need local content? First, over 30% of all searches are local in character. Second, local content equals mobile content. Google is preparing for the dramatic entrance of the next digital medium that is already changing the way people access information and interact online – the mobile web.

Who are the winners from the new Google Hotel Finder?
  • The OTAs are winners: Now the OTAs are dominating the pricing menus in each hotel's Google Places page – in the past the only way an OTA could seep onto a Google Places page was via an AdWords paid search ad.
  • The major hotel brands will be winners once they implement the Google API and start pushing real time availability and pricing information to Google, it becomes another direct online channel to pursue.
Who are the losers from the new Google Hotel Finder?
  • The OTAs are also losers: Over the years the OTAs have become a type of meta search engines themselves. Expedia claims that 40% of their traffic researches hotels on Expedia but then visits and books on hotel branded websites. The OTAs will lose at least a portion of these "meta search" and "shopping around" users to Google Hotel Finder.
  • All meta search sites, including Kayak.com, are definite losers. Now Internet users have a similar meta search environment to find the hotel, its location, pricing and availability and transact with the hotel or an OTA.
  • Independent hotels so far are the losers since their pricing does not appear in the Google's Hotel Price Ads (the drop down pricing menus in Google Places and Google Maps)
Currently all major OTAs participate in the program. All major hotel brands are working hard to implement the

Google API (interface) between the brand CRS (Central Reservation Systems) and the Google back-end. Very soon we will start seeing real-time availability and pricing provided by the major brands in the pricing drop-down menus in Google Places, Google Maps and Google Hotel Finder.

As for the independent hotels, they have to push their GDS connectivity providers (such as Utell, SynXis, iHotelier, Genares, etc.) to implement the Google API and start serving real-time availability and pricing to the Google Hotel Finder and the drop-down pricing menus in Google Places and Google Maps.

Social Media: There has been a lot of buzz about social media and its role in hospitality. Is it or is it not social media a distribution channel? What is the correct use of social media in hospitality and what should hoteliers do about it?

Max Starkov:

Let's put the record straight: Social media is not a distribution channel in hospitality. Social media is a customer engagement channel, and an extremely important one at that.

There is no doubt that social media has changed how travel consumers research and plan travel, access travel information, and perceive credibility of information. Internet users are increasingly influenced by social media sites, location-based services (LBS) and location-based social networks (LBSN), near-field communication services (NFC) and peer reviews. By utilizing a comprehensive social media strategy, hoteliers can create social media "buzz" around the hotel, target receptive audiences, and ultimately stimulate hotel website visits, interactions, and bookings.

Social marketing should become an important component of any hotel's marketing mix and part of the comprehensive direct online channel strategy for any hotel company. Naturally, it is important to use the right ROI metrics to measure the success of social marketing efforts of the hotel. Social media and social marketing initiatives should be reviewed with "sober eyes" and within the context of the impact of the multi-channel marketing strategy of the hotel.

Instead of focusing on bookings and revenue when measuring results from social media marketing, remember that currently the best uses of social media are as:
  • An important component of a hotel's multi-channel marketing
  • An important customer service channel
  • A brand-building and buzz-building channel
  • A medium to interact with and engage customers
  • A source of engaged and relevant traffic to the hotel website
  • A way to make the hotel look current, cool, and up-to-date
Action steps to better utilize social media:
  • Partner with a social media strategy company to launch/enhance your social media presence and provide ongoing quarterly reviews and trainings, as well as social media technology and creative services (e.g. custom tabs and interactive contests and sweepstakes on Facebook, etc)
  • Establish a brand consistent Facebook and Twitter presence
  • Locate/designate your on-property Social Media "Champion"
  • Spend  minimum 1-3 hours daily to manage social media presence
  • Post 3-5 times/week each on both Facebook and Twitter
  • Use engaging posts (ask questions, use trivia, hold contests)
About the Author and HeBS Digital

Max Starkov is President & CEO of HeBS Digital (Hospitality eBusiness Strategies), the hospitality industry's leading full-service digital marketing and direct online channel strategy firm based in New York City ( www.HeBSdigital.com ).

HeBS has pioneered many of the best practices in hotel Internet marketing, social and mobile marketing, and direct online channel distribution. The firm has won over 140 prestigious industry awards for its digital marketing and website design services, including numerous Adrian Awards, Davey Awards, W3 Awards, WebAwards, Magellan Awards, Summit International Awards, Interactive Media Awards, IAC Awards, etc.

A diverse client portfolio of over 500 top tier major hotel brands, luxury and boutique hotel brands, resorts and casinos, hotel management companies, franchisees and independents, and CVBs has sought and successfully taken advantage of the firm hospitality Internet marketing expertise offered at HeBS. Contact HeBS consultants at (212) 752-8186 or success@hebsdigital.com.
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