Hotels that drive investment in marketing will thrive as the recovery picks up, says Ines Barreiros, e-commerce and digital marketing manager at Guestcentrics Lab Division.
In an economic recession, many hoteliers may be reluctant to risk their post-crisis revenues by investing in marketing campaigns. If you belong to this crowd, we have a question: Would you like potential customers to remember you when “vengeance journeys” strike?
As our CEO Pedro Colaco says, hotel marketing is not about selling, it’s about generating demand. History teaches us that in times of low demand, hotels have an opportunity to step up marketing in order to prepare for the upturn. When looking back at the crises of the past, it is important to understand which strategies hotels have implemented that made for a faster and stronger recovery. Ultimately, this will help you make the right business decisions today for a profitable tomorrow.
In this article, we look at a study conducted during the 2008 crisis that differentiated the winners from the losers in the upswing that followed.
What does history tell us about hotel marketing during the economic recovery?
As today, hotels and the hospitality industry in general suffered badly from the 2008 crisis. Most of the developed economies (particularly North America, South America and Europe) were hardest hit and fell into a severe, prolonged recession.
But if there is anything the hospitality industry can learn from the history of the economic recession, hotels that have made strategic decisions and made marketing investments are the long-term winners. To support this claim, we analyze a study by Cornell hospitality on hotel performance during the crisis from 2008 to 2009.
The study published in the article “Winners and Losers during the Great Recession: The Positive Impact of Marketing Expenditures” shows which strategies have enabled some hotels to emerge stronger from the crisis in the long term. The study analyzed 416 U.S. hotels (a mix of independent branded, extended stay, and luxury hotels) and found a group of 100 winners to 106 losers (and 210 average performers) based on financial performance during the economic downturn.
In 2009, the worst year of the recession, both winners and losers in this study suffered a drop in occupancy and ADR [average daily rate] (like all hotels). But when analyzing key metrics like ADR, RevPAR [revenue per available room], Occupancy and NOIPAR [net operating income per available room), the winners significantly outperformed the losers and were better positioned for the upturn and pent-up demand that followed. In fact, the losers group suffered a 43% decline in NOIPAR compared with a 27% drop for the winners.
Although both groups reduced costs (in equal measures) for room expenses, administrative and general expenses, maintenance expenses, and utility expenses, the losers group made one notable cost reduction: marketing investment. The winners group, on the other hand, actually increased marketing investment during the recession.
How increased marketing investment distinguished the winners from losers in crisis
The study revealed how increased marketing investment served as a primary driver for revenue and profit during times of economic crisis. There was a strong correlation between marketing expenditures and business performance, with greater investment resulting in higher room revenues and NOI [net operating income]. The results also underscored the importance of various marketing measures, including personalized sales measures. E-commerce, advertising and loyalty programs helped hotels emerge stronger from the crisis and recover faster.
When analyzing the level of investment in the specific marketing sub-areas covered in the study, the researchers also found that hotels in the winning group increased free gifts, services and local promotions. Hotels in the losing group, however, reduced investments in these areas.
Another key finding from this study was that hotels that didn’t cut prices dramatically outperform those with heavy discounts. The discount does not always work in times of recession due to the inelasticity of demand, which leads to a decline in sales, as discounts and price promotions are not enough to stimulate demand to generate higher revenues.
graduation
While the current economic downturn is very different from 2008, it is still important that hotels come first with consumers. In times of low demand and commercial activity, hotels must use their time wisely to generate attention and reach guests directly in order to position themselves for a faster and stronger recovery in the upswing.
In 2008, all hotels also suffered massive losses in occupancy, revenue and lower ADR. What separated the winners from the losers was a willingness to stay on course with marketing spend. This ultimately paid off and resulted in better results across all KPIs [key performance indicators] analyzed in the study. Therefore, before cutting marketing costs, hotel managers should consider whether maintaining or increasing investments could generate both revenue and profit if consumer demand returns to pre-Covid levels.
Hotels that hold the price in times of low demand and invest in building a strong brand through marketing can expect higher customer satisfaction and loyalty, which ultimately leads to higher revenues and, consequently, more profitability in the upswing.
But while research shows that those who invest more in marketing will emerge stronger from an economic downturn, hotels need to invest wisely. Before embarking on new sales and marketing campaigns, hoteliers must first understand current market needs, define the hotel’s business goals, and estimate the cost of marketing efforts versus ROI.
This is an edited version of the an article that appeared on the GuestCentric blog.
