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Hotel Marketing
An Investment in People
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by: Robert Mandelbaum and Steven Nicholas CHA, December 2006

Given all the discussions of distribution channels, yield management, Internet booking sites, and alternative forms of media, it is tough to deny that advances in technology have heavily influenced hotel marketing.  However, when analyzing the thousands of financial statements in PKF Consulting’s Trends in the Hotel Industry database, the majority of marketing dollars spent at the property level currently pay for labor related costs.  In 2005, the salaries, wages, and benefits paid to sales department personnel accounted for 55.6 percent of total marketing department expenditures .  For reference purposes, this ratio was 28.4 percent in 1980.
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Distribution of 2005 Hotel Marketing Expenses*
Salaries and Wages 44.2%
Selling 28.4%
Advertising 13.9%
Employee Benefits 11.4%
Other  2.1%
Note: * Exclusive of franchise fees and assessments
Source: PKF Hospitality Research
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(For this article, it is important to note that franchise fees and national marketing assessments are not included in property level marketing department expenses.)

This should not be unexpected, as the business of marketing hotels has evolved a great deal over the last 25 years.  The growth in brands and market segmentation has created the need for hotels and lodging companies to “staff up” within the marketing department.  This has made good sales people very valuable, thus raising compensation levels for qualified personnel.  Higher salaries, lucrative bonus programs, and expanded benefits continue to grow.  In many instances, after bonuses, the hotel sales team are the most highly compensated people on property, even more than the General Manager or Managing Director.

In 2005, the Trends data shows that labor and related costs increased 4.4 percent.  Of note is the fact that employee benefits grew at a 5.2 percent pace, greater than the 4.2 percent increase posted for departmental salaries and wages.  The relative surge in employee benefits was common throughout all departments in hotels.
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Change in Marketing Expenses*
2004 to 2005

Note: * Exclusive of franchise fees and assessments
Source: PKF Hospitality Research
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Hotels have not only added on more sales managers, but the qualifications of the additional personnel have become more specialized.  Specifically, the role of direct sales has grown in importance.  The continual increase of the number of hotel “brands” in the marketplace has made the fight for customers more difficult.  Brands with similar product offerings and similar messages have created an environment where the direct sales effort can be a hotel’s competitive advantage.  The expansion of market segmentation has produced a more dissected way hotels look at their customers and created the need for segment specialists within the marketing department.  Like a closer in baseball, a segment specialist can have a unique skill set that allows them to enable a hotel or hotels to attract a customer base previously unavailable to them.

Selling Up, Advertising Down

Selling expenses for the hotels in the Trends database increased a strong 7.3 percent in 2005.  Selling expenses include labor-intensive activities such as trade shows, travel, and client entertainment.  On the other hand, advertising expenditures continue to decline.  From 2004 to 2005, the amount of money spent at the property level for promotional materials and media buys declined 0.7 percent.  While the decrease is relatively low, it does mark the sixth consecutive year such a slide in advertising dollars has been observed.

Hoteliers have become very adept at making a little advertising money go along way by using the Internet.  This medium has provided a completely new way for hotels to advertise themselves.  Using e-mails and websites, the lodging industry has found a more efficient and much less costly way to connect with the customer.

The Other Internet Influence

Hotels have not always enjoyed the economic benefits of the Internet.  Concurrent to the 2001 – 2003 industry recession came the advent of Internet based third party intermediaries.  When these new marketing channels first came into play many properties threw money at them with the hope or fear that this was the key to the future.  In recent years, as hotel managers began to get a handle on this medium, and hoteliers became more versed in the appropriate use of these tools, this expense has gone down.

The rising cost of customer acquisition has not resided solely with the Internet.  Wholesalers, third-party meeting planners, and other intermediaries have raised this overall expense.  These groups are finding all new and creative ways to charge for their services including fees, commissions, and rebates.  During the recession, many hotels felt compelled to pay up in order to maintain share.  As industry performance improves, the pendulum of negotiating leverage will move back to the properties and this cost will be reduced.

Less Marketing Required?

As the industry approaches the peak of the current business cycle, occupancy levels are expected to remain high, and near-term revenue gains will be driven mostly by increases in room rates.  Once again, we will most likely see a shift in the way hotels spend their marketing dollars.

From 2001 through 2004, hotel marketing was driven by a penetration strategy.  Hotel sales departments focused on increasing the number of rooms sold.  This strategy required more sales personnel.  However, as we move forward and hotels begin to focus on a rate strategy, the need for additional staff will be reduced.

Fewer increases in personnel, combined with Internet efficiencies, will most likely result in a slowdown in property-level marketing expenditures.  Already, in 2005, we have seen marketing department costs grow at a 4.3 percent pace.  This was the lowest growth rate among all Undistributed Departments for the year, and below the overall average growth rate for all operating expenses of 6.5 percent.
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Marketing Department* vs Total Revenue Annual Change – 1988 to 2005

Note: * Exclusive of franchise fees and assessments
Source: PKF Hospitality Research

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Robert Mandelbaum is the Director of Research Information Services for PKF Hospitality Research.  He is located in the firm’s Atlanta office.  Steven Nicholas CHA is Executive Vice President, Operations for the Noble Investment Group. Steven works in the Atlanta headquarters of Noble.  This article was published in the November issue of Lodging Magazine.

Contact:

Robert Mandelbaum
Director of Research Information Services
The Hospitality Research Group
3340 Peachtree Road, Suite 580
Atlanta, GA 30326
(404) 842-1150, ext 223
robert.mandelbaum@pkfc.com
www.pkfc.com

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Also See: U.S. Hotels Staff Up - Rising Benefit Costs at Highest in 15 Years / Mark Woodworth / May 2005
Hotels Increase Marketing Budgets by 6.1 Percent in 2004; Hotels Continue to Shift Marketing Dollars from Advertising to Person-to-Person Selling / PKF Study / June 2005
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