Hotel Marketing: Investing In People And Technology
The introduction of technology has influenced the duties of on-site hotel sales personnel over the years. The reach of the internet, social media, and sophisticated revenue management programs have provided marketing professionals with an array of new tools.
Investment in technology is often justified by increases in productivity and reductions in labor costs. However, at U.S. hotels, investment in technology within the Sales and Marketing Department has led to shifts in marketing strategies, with only slight increases in salaries, wages, and benefits.
To gain a better understanding of how U.S. hotels are deploying their unit-level marketing dollars, we have examined the Sales and Marketing Department expenses of a same-store sample of 825 properties during the years 2007 through 2012. The study sample consisted solely of hotels that have on-site sales and marketing personnel. Franchise related fees and assessments were excluded from our analysis so we could focus exclusively on unit-level expenditures and tactics.
Shifts in Investment
From 2007 through 2012, full-service hotels increased their investment in sales and marketing (less franchise-related costs) by a compound annual growth rate (CAGR) of 4.3 percent. Concurrently, limited-service hotels lowered their sales and marketing expenses at a CAGR pace of negative 2.1 percent. On average, the total sample experienced a CAGR increase in marketing expenditures of 0.6 percent.
Despite the growing influence of technology, hotels continue to invest in personnel. From 2007 to 2012, salaries and wages within the study sample increased at a CAGR of 0.8 percent, while employee benefits grew by 1.8 percent CAGR. While labor costs have been returned to pre-recession levels, discussions with our clients reveal that the profile and capabilities of on-site sales personnel have changed. Today's sales professionals are equipped to exploit the advantages offered by the internet and social media, and are guided by the strategic output of their revenue management systems.
Consistent with the investment in personnel is the rise in selling expenditures. Selling encompasses labor intensive and face-to-face activities such as trade shows, travel, fam trips, and guest entertainment.
The influence of technology has impacted two sales and marketing department expense categories. The monies spent on traditional advertising have declined at a CAGR pace of 5.5 percent from 2007 through 2012. However, the investment in more efficient e-commerce activities nearly doubled during the six year study period.
Variation by Property Type
As expected, full-service properties spend more than limited-service hotels at the unit-level to market themselves. It is interesting to note that resort hotels ($4,998 PAR) invest the most money in the Sales and Marketing Department on a dollar per available room basis, even more so than convention hotels ($3,175 PAR). Limited-service ($807 PAR) and extended-stay ($1,316 PAR) properties spent the fewest unit-level sales and marketing dollars. These property types are typically very dependent on their franchise affiliations in order to promote themselves.
An analysis of the breakdown of marketing dollars provides some additional insights. Measured as a percentage of total dollars, resort hotels spend the greatest share of dollars on advertising, marketing and e-commerce compared to all other property types. This is indicative of their need to attract dispersed individual leisure travelers. On the other hand, convention hotels are most reliant on selling, having to travel to trade shows, meet with event planners, and entertain perspective clients during fam [familiarization] tours. Because of their relatively low budgets, labor costs make up the greatest component of expenses within the Sales and Marketing Departments of limited-service hotels.
In 2012 labor costs represented 58.6 percent of the unit-level marketing dollars spent at all hotels in our study sample, followed by selling (27.5%) and advertising (7.0%).
In a very simplistic way, a comparison of changes in Sales and Marketing Department expenditures to changes in total hotel revenue can be used to measure the payback of the sales and marketing investment. During the depths of the recession (2008 to 2010) hotel operators were forced to cut all expenses in light of the massive declines in revenue. However, in order to maintain minimal promotional activities, the declines in marketing expenditures did not match the fall off in revenue. Since 2010, however, the changes in revenue have exceeded the annual increases in marketing dollars, thus indicating a positive return. Some degree of this payback can be attributed to the efficiencies of the e-commerce investments.
Given the increasing use (and cost) of third party resellers and intermediaries, the expanding influence of technology, and the growth of regional shared-services, on-site Sales and Marketing Departments are under scrutiny. Like they have in the past, hotel operators will need to adapt to these external and internal influences in order to define the proper role for unit-level sales and marketing personnel.
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Written by Robert Mandelbaum and Gary McDade, who work in the Atlanta office of PKF Hospitality Research, LLC (www.pkfc.com). To benchmark the expenditures of your Sales and Marketing Department, please visit www.pkfc.com/benchmarker. This article was published in the April 2014 edition of Lodging.