WASHINGTON, DC—At this year’s Revenue Strategy Summit, held here at the Renaissance Washington, DC Downtown, Cindy Estis Green, CEO and cofounder of Kalibri Labs, gave attendees a sneak peak at the first part of Demystifying the Digital Marketplace, the follow up to 2012’s Distribution Channel Analysis. Part one will be released later this month.
“We’ve collected data from about 25,000 hotels,” said Green, noting that number will be closer to 35,000 by the end of the year. “That represents about three million rooms in the U.S. market. That’s quickly being expanded to Canada and Europe and will expand to Latin America and Asia over time.” Noting this data represents between five and 10 billion transactions, she added, “We collect the raw transactions and then we normalize them so everyone is categorized into the same channels, same segments, across the industry, so we can benchmark it accurately.”
The study also analyzes other data as well: Airbnb supply and demand for every major market, consumer review data, profiles on groups and meetings, and loyalty programs and lifetime value analysis. “There’s a tendency for people to take the cost of a particular booking and compare it to the cost of another booking, let’s say brand.com versus an OTA booking, and just compare the dollars and cents,” said Green. “The concept of repeat guests and a lifetime value analysis, and how often they come back and the cost of bringing them back is not often taken into account. We’re going to delve into that in the new study.”
The CEO noted they analyzed the value on a net basis of bookings on brand.com vs. OTAs. “There was some documentation that came out from some of the OTAs recently that claimed the bookings through the OTA are worth more because brand.com has all of these loyalty costs. They published a number that it was 8% to the advantage of an OTA booking,” she explained. “We looked at real transaction data and it turns out there’s a 9% differential, but the brand.com booking is worth more than the OTA on a net basis.” Green stressed that this number isn’t complete—the “Book Direct” campaigns were not fully in effect yet when this analysis was done—but it’s an area the company will continue to revisit and monitor in the future.
Noting in the 1990s the cost of acquisition for hotels was between 5% and 10%, Green added that it’s now between 15% and 25%. “Thinking about revenue capture, how much does the hotel end up keeping when all of the acquisition costs are paid?” asked Green. In 2015, guests paid over $145 billion for all U.S. hotel rooms booked. Green added that when you look at hotel-collected revenue—the amount that shows up on hotels’ P&L and which takes out wholesale commissions—that number is $142 billion for 2015. “We then want to take out the retail commissions, transaction fees, channel costs, loyalty costs, any of the direct costs. The industry was left with $132 billion,” said Green. “The last thing we do is take the sales and marketing expenses out. The industry is left with roughly $120 billion in net revenue. That means in 2015, the industry spent about $25 billion to get business.
“If we look at the revenue capture in 2015, the percentage the industry was able to capture of what the guest paid was 82.8%. When we compare that to 2014, we actually lost a little ground because in 2014, we were able to capture 83.2%,” reported Green, adding that this represented a significant loss to hotels of revenue that could have otherwise been reinvested in the product or guest experience. According to the company, a one point improvement in revenue net of acquisition costs in the U.S. market in 2015 would have given back an estimated $1.4 billion to hotels. “It’s something we as an industry have to focus on.”