Expedia on how to grow your ADR without impacting occupancy

In working with hotels across various chain scales and markets, Expedia identified a handful of strategies that can effectively increase ADR without impacting occupancy. This article uses Manhatten as example, but the observations and recommendations can be applied to any market.

By Nick Graham, Expedia Director of Market Management for New York


As the industry recovers from historical lows in occupancy and ADR, I’ve been hearing a common question from many hotels – “How are we going to grow rate?” Occupancy growth has to come first before rate growth, but in markets that are already seeing occupancy come back, hotels have the ability to achieve ADR increases.
In working with hotels across various chain scales and markets, I’ve identified a handful of strategies that can effectively increase ADR without impacting occupancy. I use Manhattan as an example because it is in many ways leading the recovery among U.S. lodging markets, but these observations and recommendations can be applied to any market that is experiencing even modest occupancy growth.

1. Grow your yieldable channels mix
Adjusting your segmentation to reflect more yieldable business, such as OTA channels, is the best place to start because it’s where rate adjustments can have the most immediate impact. In Manhattan, Expedia ADR has been growing faster than the market’s as a whole. Expedia ADR for Manhattan in June was up nearly 25% year over year, versus market-wide ADR growth of just under 18% . Year to date, the spread is just as pronounced, as the market has grown ADR by 9%, versus Manhattan ADR growth of 14% on Expedia. That means the OTA segment is growing at 57% the pace of the market, and this is due to the fact that the OTA channel is yieldable, as opposed to other pieces of business that were contracted at lower rates prior to the recovery. Because OTA pricing floats off of a hotel’s best available rate, revenue managers can raise or lower rates in immediate response to the market, while with traditional wholesale or contract segments, hotels are locked into fixed rates. In a recovery environment such as the one we find ourselves in now, pockets of demand that allow for rate increases may not become pronounced until closer to the date. In these instances, the hotels that achieve the highest rate increases will be those that can yield up a larger percentage of their business, as opposed to hotels that may already have contracted fixed pricing.

2. Implement a need date strategy
Every market, even in a recovery, has slow periods. But with the right strategy, it is possible to grow rate over these need dates. In Manhattan a prime example is the autumn weekend on which Yom Kippur falls. Corporate travelers check out early, and the locals leave town. Year after year, the market tends to react to the gap in occupancy about three weeks prior to the actual date, and cuts pricing to drive last minute occupancy. But once the 3-week window is reached, not only has the prime booking window passed, but the business in that window is at a considerably lower ADR than in the preceding 4 months. By anticipating need dates, hotels can use advance purchase promotions to fill their rooms further ahead. As long as the dates are identified correctly, promotional rates and the occupancy advantage a hotel gains earlier on will result in a higher ADR than if the hotel waits until the last minute to pick up occupancy. And if you have rooms left last minute, having that occupancy base allows you to discount safely through an opaque channel like Hotwire, as opposed to dropping your retail pricing. To successfully implement this strategy, it is critical to know the booking windows, which for many markets may be further out than expected. For example, in Manhattan, 50% of Expedia’s international package business is already booked 90 days prior to arrival. For international standalone, the average booking window is 60 days. These patterns are examples of the information hotels can use to implement promotional strategies to target the customer during their shopping cycle.

3. Use value ads rather than rate promotions
Once you’ve identified your need periods, the next step is to create an offer that will help shift business in your direction without leaving rate on the table. One effective way to stand out that won’t affect ADR is to use value adds. For example, the best performing value adds we have seen in Manhattan are free breakfast and free upgrades. If your property doesn’t have a managed restaurant on-site or the ability to fulfill a value add at check-in, some OTAs like Expedia will manage the value add on your behalf. For example, Hotels.com’s inline merchandising program recently offered a “free” pre-paid $50 Mastercard with qualifying bookings. Participating hotels saw a lift in their bookings, without an impact on their rate.

4. Turn up the volume on demand during eak compression dates
Every now and then, I hear some hotels talk about “cutting distribution costs” over peak dates by closing out OTAs. But a secret that many successful hotels have realized is that they can achieve higher rates over peak periods by ensuring inventory remains available through their distribution channels, and yielding rate up in response to the significant demand that ensues. We recently looked at one of Manhattan’s highest compression years in recent history. That year, there were 50 days with over 95% occupancy (according to STR). Over those dates, the market ADR was $344 and Expedia’s net ADR was $354. The reason behind this is that Expedia brings a lot of fairly price-insensitive demand at 2-3 weeks prior to peak compression dates, driven by customers that can’t find availability at their usual hotel. By keeping inventory open and adjusting rates up, hotels not only fill rooms at higher rates on Expedia, but also on their own channel through the Billboard Effect. We recently started sharing new peak compression date data with our hotel partners, which provides advance guidance to determine when a hotel has the opportunity to increase rates, or in some cases to revisit and perhaps reduce rates for specific dates. We share a mutual desire with our hotel partners to identify the ideal rate based on what the market can bear.

5. Stop giving away room upgrades
Many hotels offer some assortment of room types, even if it’s just a choice between standards and suites. The trouble is, the lead-in room type is often overbooked, forcing the property to upgrade the guest for free at check in. By applying a promotional strategy for upgraded room types (being sure to target dates or upgraded room types that might typically go unsold), hotels can entice bookings for higher rate rooms and achieve a higher ADR overall. For example, a typical mix of bookings at one hotel I work with in Manhattan was 75% standard rooms and 25% suites. After they began applying a promotional rate just for the suites, they boosted the mix of suite bookings to 33% and grew overall ADR from $226 to $253. They started getting paid for those room upgrades, and it paid off in higher ADR.

Obviously, the hotel industry today looks much different than in years past. As hoteliers navigate today’s landscape, they need to remain flexible and open-minded to using new and different marketing channels in order to adapt and drive demand in the recovering market, and putting the above strategies into practice is a great place to start. In the final analysis, it benefits an OTA and its hotel partners to grow rate and occupancy. Reach out and engage your OTA market manager. Odds are, they’ll have insights and suggestions about your marketplace that you may not have considered before. Working together with OTA marketing experts like Expedia will accelerate the return to improved rate - but only through active collaboration.

How Sol Melia manages social media

According to Antonio Batanero, senior director distribution and digital marketing, Sol Meliá - The Americas, social media has to be seen as a mix between word of mouth, customer satisfaction, email marketing, CRM, loyalty... and that is what makes social media so difficult to manage.

Should social media be entirely classified as word of mouth strategy?
Word of mouth advertising can be a huge benefit or detriment to a brand, and it is said that social media is literally word of mouth on steroids.
According to Antonio Batanero, senior director distribution and digital marketing, Sol Meliá - The Americas, social media has to be seen as a mix between word of mouth, customer satisfaction, email marketing, CRM, loyalty… and precisely that is what makes social media so difficult to manage for most of the companies.
“It is not clear who should be the responsible (should it be just one?), whom the accountability should fall on and –even more important- deciding upon the right messages,” says Batanero:
Batanero says it is also important to consider each step in the consumer decision path and the moments that most influence their decisions or their touch points; people now go to Facebook or Twitter before booking a hotel the same way they used to go to TripAdvisor. So they will take a look at the photos, videos, comments, etc. but more importantly, they will see if the “language” use by the brand/product is close to the way they communicate with friends and families.
“And at this point, it becomes not just generational but psychographic. Bottom line: word of mouth is friends talking to friends (same language) but in social media word of mouth means people talking to people, brands talking to people, etc. That is what makes channel management and message the two main columns for the social media strategy,” Batanero said.
Batanero spoke to EyeforTravel’s Ritesh Gupta about organisational issues related to social media strategy:
Using social media in a tactical way, as part of an integrated marketing campaign, is an excellent way to test the waters and begin to see how engagement through social media affects your bottom line. Do you agree with this?
Antonio Batanero: I could not agree more. In fact, it is not just about testing the waters but knowing how your company has been seen in the past and in the present plus taking decisions in order to correct wrong directions. The main benefit of using social media in a tactical way is what would have taken ages to change years ago can now be done in a question of months. For years we have been told to be dynamic as companies but using mostly static tools; now thanks to social media we have access to those dynamic tools. But this may be a double-edged sword.
Most companies are used to tying every aspect of business to an ROI, and currently there are no meaningful financial metrics with social media efforts and that is one of the major challenges with this medium. How do you assess the situation?
Antonio Batanero: We have created our own metrics in order to measure the social media ROI. There are many options that companies can develop to see if the investment (not just in terms of money, but in hours, resources, etc.) is worth it. I always say that not every single company needs to be on Facebook or Twitter. So ROI should be the first step before even thinking on opening an account. Besides those metrics we also have a monthly report property by property where we see what is the volume of comments, which are the most active sites, if there are more positive or negatives comments, which area within the hotel is the most commented, nationalities of the people talking about our hotels, value of the comments depending on where they were posted, if they come from previous clients, no clients, travel agents… we could spend weeks talking about these reports. I really think companies still do not really realise how big this is.
On the other hand, ROI must also be measured by the actions that you take based on customers’ feedback. In other words, if all your fans/followers are giving you tons of feedback on a specific subject of your hotel but you do not do anything to change that in the property, then ROI is extremely negative. If you show people that you care about their suggestions and you are willing to implement them, then… ROI is incalculable.
In many companies, there might not be any social media experts but how can companies nurture internal champion(s) who monitor social media and make it a priority?
Antonio Batanero: Well, I love the companies that have created a position called “Head of Social Media” or similar. That is a big step! In fact, I wish I could start from scratch my career and became one of those “head of social”. Every company should have one (again, just those companies that need social media) since this is no longer about companies reaching customers and has become more customers reaching companies; it is pretty obvious that someone in the marketing departments must be taking a look at what is going on in the social media. These people will be the future social media experts so if you work in a marketing department do not hesitate to claim for that position.
Do you think brands that invested and experimented in this space in 2009, especially during the downturn, are as of now ahead of the curve?
Antonio Batanero: Like in every aspect of marketing, the early bird catches the worm. But more important is how the decision making process has changed since Internet appeared in our lives. For example, it is not the same trying to reach people who are at the beginning of the buying process than reaching those who have already made the decision of buying a product but have not decided yet which brand. Or even those who have decided the brand but have not purchased yet. In a recent report from McKinsey –where they examined the purchase decisions of 20,000 consumers- they analysed the changes from the traditional funnel to the new kind of “circle” process. Turns out that two-thirds of the touch points during the evaluation phase involved customer-driven marketing activities like Internet reviews and friends and family recommendations. That means it is not a matter of being the first but a question of being as dynamic as possible to integrate those touch points within your strategy.
Would it be right to say that traditional online campaigns that are either CPM or CPC based, though familiar, are not necessarily the optimal marketing tactics to use in the social media world?
Antonio Batanero: Social media opens a huge range of metrics that no one used to use before. Creativity is the limit i. e. the ratio of interactions to posts in Facebook (A higher interaction / post ratio indicates that content is more interesting to fans.) or the ratio of views per interaction in Youtube. (A lower ratio is good as it takes fewer views to generate a response.). But those are just a few examples…
What proof or conviction can a marketer bring in front of the senior management to get a buy-in for social media marketing? Is there any tangible way of explaining the utility of social media marketing?
Antonio Batanero: Probably a little bit of different proofs, although there is a clear connection between negative reviews and what the competition is doing out there; you can never go wrong with those two. However, I would say that the way some of the OTA’s have started to consider travellers reviews as part of how they would rank your hotel plus how important reviews are for the rest of the travellers should be enough to consider social media as part of any marketing plan. Also, from a revenue perspective, I read in a recent report that visitors who read hotel reviews on OTA’s websites are twice as likely to book as the ones who don’t.
The best social media outreach usually engages multiple departments within an organisation, ranging from marketing to product to engineering to editorial. How do you assess this approach towards nurturing a team and a culture?
Antonio Batanero: One solution would be creating the “social media committee” that should be a team made up of –ideally- six people: one from the marketing department, one from sales, one from communication & PR department, one from digital marketing/e-commerce, one from operations and one from human resources. And very important: do not build up this team with your junior members or interns. High level positions are a must. If the objective is to align all elements of marketing and present them in the right way to the customer you need first to make sure all those elements are integrated across your organisation. That is when social media becomes so powerful.
Antonio Batanero is scheduled to speak at the Online Marketing Strategies for Travel USA conference, which will take place in Miami (2-3 June).
Related Link: EyeForTravel Online Marketing Strategies for Travel USA 2010

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