Study Case: Generating Business for Shoulder Season to our Tulum located Luxury Hotel client - Wakax Hacienda - 48 Keys - Independent Brand
Wakax Hacienda is a medium size luxury hotel, located in Tulum, as we’ve recently started working with them, and we came across multiple difficulties to generate occupancy in this highly-competitive market, and we had no other choice but to take advantage of the “billboard effect” that is generated when working with third-party supplies, as numbers began to rise, another main issue floated to the surface, “customer acquisition cost” or CAC. We started to look out for possible solutions to start generating traffic through direct channels, taking into consideration that we don’t have much budget (like many hotels), to try and compete for traffic with the major OTAs. In this brief case study, we want to share what we’ve learned and possible alternatives to increase sales and reduce CAC.
The Study Case
The study was conducted during a shoulder season for the hotel, we notice a very quiet weekend coming up five weeks into the future. We sat down with our team to try and craft a special offer giving exceptional value to the customer if they stay during this low season gap. The question that came up to all of us was: Which electronic marketing technique should we use to generate traffic in the short run?
And we came up with three possible techniques that you could use, so in this exercise, we will be exploring the Pros and Cons, of each one of them, so let’s explore them.
Paid Search Engine Marketing (SEM)
Email marketing
OTA campaigns (such as Expedia or Booking.com)
1. Paid Search Engine Marketing (SEM)
Based on our experience, the most effective way to drive business at this point would be to activate campaigns in both SEM and Social Media advertisements (Such as Meta Ads), however, we were afraid that this would highly impact the CAC, and perhaps with the short budget that we had, would not be sufficient to cover for the required occupancy, so we sat down with our traffic specialist, based on previous campaigns data, he stated that with five weeks of the learning curve, for the Advertisement algorithm to optimize the campaign, it is certain that we can generate enough demand for this weekend.
So let’s calculate:
On average, during previous months we had a roughly estimated budget of $135 USD for ads per month, in average we managed to generate a total of 21,754 impressions (the number of times the ad was shown), and a conversion rate of 1.2% meaning that we generated around 261 new bookings, all of this with a fairly low Cost per Click of $0.25 USD. The results were promising! Now let’s analyze our specific scenario.
If we were to focus on a specific campaign for a small travel and booking window (one specific weekend, five weeks from now) perhaps the results will be significantly lower, but still good enough to generate enough demand to increase Hotel occupancy.
Using the data gathered and compressing it with the limited travel window, let's assume we would only be able to get as much as 10% of the results from our previous campaigns. This would mean that we will have a total of 26 Bookings, assuming that the average length of stay is of 2 nights, this means 52 Room Nights, or 54% occupancy per night.
Now let's say that the ADR for this Hotel is $150 US, let’s assume that the campaign budget was a little higher let's say $180 US, that means that the ROAS is 43:1, which is a great result, but of course, it will depend heavily on the time and effort we put to optimize the campaign.
In conclusion here are the Pros and Cons, based on what we found:
Pros
With a limited amount of budget, we can successfully generate a solid occupancy base
If managed correctly, the Cost per Click could be low, meaning more impressions and more possibilities to convert
The overall acquisition cost would be significantly lower than paying a commission to third-party supplies
Cons
If the hotel needs a traffic expert or someone that could manage the campaigns properly, in order to optimize the budget, which is very difficult to have, especially in Independent Hotels. The results could not be as expected, causing the CPC to rise and making this a no-viable option
No results are guaranteed, and any marketing campaign has its own risk, which is contemplated on the conversion rate, however, the Hotel could spend the first couple of hundred dollars before getting their first reservation, which makes a lot of Hoteliers desist from making campaigns on their own.
It is a very time-consuming task, as one has to be monitoring the campaign, make data analysis, searching for trends and keywords constantly, in order to make adjustments to achieve better results
2. Email Marketing
Let's continue the Study Case, now with Email Marketing. This in our opinion could be (under the right conditions) a perfect option for some hotels, depending mostly on the Hotel's database.
Now since the Hotel is fairly new, we don’t have a large enough database to perform a successful email campaign.
But for the sake of this exercise, and in order to provide you with a full-length exercise let's assume that it has around 3 years of operation, meaning we will have a sufficiently large database created through the collection of clients of emails at check-in, along with a subscription form on the website.
Using the example from the previous scenario, with an average yearly occupancy of 60% (most beach destinations are seasonal and have an average occupancy like this), meaning we could potentially have an email database of around 31,536 (48 keys at 60% Occupancy, for 3 years), let's round up the number to 30,000, considering that some emails no longer work and that some clients could have canceled the subscription.
Managing an email campaign this large would be an impossible task if you were to do it manually, therefore let's assume that the hotel acquired an Email Marketing Tool, let's say it's MailChimp. As of February 2023, the cost for this software for a database of 30,000 contacts is approximately $274 USD a month, meaning that the total cost of acquisition for this exercise would be the licensing for this software, after this month we can cancel the subscription.
Now email conversion rates are significantly lower than Advertisement, with an average from 0.5 to 0.8% depending on many factors, but mostly depends if the campaign and the offer are good and if they match your customer's needs, in this case, the hotel email database. But, since our expert team will manage this campaign in email marketing, let's assume we achieve optimum results and give it 0.8%.
Let's calculate:
From a 30,000 database, we could gather a total of 240 bookings at a 0.8% conversion rate, now let's give the exact same treatment as we did with the SEM example, and compress the results by 10% taking the limited Booking and Travel Window, that's 24 bookings that equals to 48 room nights, or 50% of occupancy, per night.
At a $150 USD ADR, and with a $274 USD cost for the campaign, this would mean a ROAS of 26:1, which is a little behind the SEM campaign.
One last thing to consider is that most of the hotels that utilize this method have a very loyal customer base, and if you continue to develop and nurture this relationship, with repetitive guest offers and specials (something that is possible through email marketing), you will create solid brand recognition and even a higher base of repetitive clients, which can immensely impact your results on the long term.
Even though the results were promising, we did not have the 30,000 emails database, but it showed us promising results that we could utilize in the near future to try and redirect clients from third-party suppliers.
Pros
It is easier to manage an email campaign than to create a successful SEM campaign
With a potentially higher email database, the results will relatively increase
It creates a brand positioning and brand recognition for all your customers
Cons
It requires a software subscription to manage large email databases that could potentially increase conversion rates
If you don't utilize emailing software, this task could be done internally by a marketing executive eliminating the cost of software, but with large databases, this would mean that it may require one or two employees to handle all the work, which depending on the hotel location could be even more expensive than the software
Lower conversion rates than SEM or Social Media campaigns
3. OTAs Campaigns
Let's finish up the study with the third option, joining a campaign on OTAs such as Expedia or Booking.com.
In the past, we have utilized these resources from OTAs with fantastic results. They are an easy solution, with no intense research, very little commitment, and the absolute best value if you don’t want to risk your investment in marketing campaigns that in theory could not generate any results if not managed properly. This is why this option is the best for new hoteliers, or for those managers who don’t have the right staff to create specific marketing campaigns since the OTA business model is based on results meaning you don’t have to pay anything to them unless they bring you the client first, they are a pay per result solution, or as commonly known in the industry, a commission-based business model. However, these are the highest of all CAC, as the commission goes anywhere from 15 to 28% and we’ve seen even higher commissions.
So unless you don’t have the opportunity of generating your own traffic, this is a technique that you could utilize if you are a small independent hotel, you could always join these directly on the supplier's extranet, or you could contact your Market Manager to help you join.
Now let’s continue the exercise, based on our previous results from older campaigns in which this Hotel has participated. Previous campaigns on shoulder seasons had generated an average monthly of around 200 room nights for the hotel for a wide travel window, if we were to compress this to our specific Travel and Booking window using the same 10% factor treatment as we did with all two other options, this will be a total of 20 of bookings, 40 room nights and 50% occupancy per night.
With 40 room nights at an average 18% commission to the partner, and a $150 rate gives us a total commission balance of $1,080 US, to be paid to the partner. This by far is the highest of the costs of acquisition of any of the 3 proposals, which means less profit to the hotel at the end of the result. Yes, this might be the easiest solution, and also a good alternative if you consider that you will only pay for effective bookings brought to your property, however, this should only be utilized under specific circumstances.
The last thing to consider is that customer loyalty will be highly focused on the third-party supplier, and not on your brand, so in the long term, we should always consider generating our own traffic, increasing brand recognition and a long-term base of loyal customers.
Pros
Easier to manage, easy to activate, and deactivate as needed
With Little to no experience, expertise, or additional employees to activate, you could even contact the third-party partner for help
No risk, no investment, just results, as you will only pay on effective bookings
Cons
Customer acquisition is the highest of all techniques, meaning less profit for the Hotel
You could get the same or even better results with a well-managed Advertising strategy
The third-party owns the loyalty of the customer
In conclusion for this specific scenario, we could resolve that the best option will be to do SEM or even Email marketing, since both of them have similar results with low costs, making not only a good option if you want to generate traffic, and generate it fast, but this method will also be the most profitable of them.
One other thing to take into consideration is that it will always be better to try and generate your own traffic, making sure you do the absolute best to try and retain as many customers on your direct channels since this will create loyal, and repeat customers for your brand, which is better in the long run.
That is why Golden Collection Hotels have created strategic marketing plans and techniques to help your business grow and help maximize your profit margins. We have a vast knowledge of Marketing specialized for Hotels, Sales, and Revenue management strategies, with a combined 20 years of experience and a vast network with travel agents and commercial partners worldwide, we could help boost your reach and increase your sales, all while maximizing your profit.
So if you are uncertain of how which option would be best for your case, you can take advantage of our free consultation, by clicking the button below. In minutes you will be talking with one of our Senior Sales and Marketing associates, so you can gather market trends, resources, and tips to help you achieve your hotel’s financial goals.
