Professor Chekitan S Dev: in a recession, hotels should invest in "pay for performance" marketing initiatives and less on general brand advertising. Credit: Robert Baker
USA - In the last couple of years, the hotel landscape was showing buoyant sentiments. Marketing budgets were increasing, new brands such as Hilton's Tru and IHG's Avid, were being introduced at a never before seen pace, existing brands were being upgraded, new companies were getting into the travel business, and the airline industry was expanding into new markets.
The reality now is vastly different. With travel coming to a halt and airline load factors down to single digits with many facing bankruptcy, hotels are down to very low double digits and many are facing foreclosure.
M&C Asia spoke to professor Chekitan S Dev, for his insights on the landscape ahead. He is an award-winning professor of marketing and professor of management at Cornell University's SC Johnson College of Business in the School of Hotel Administration. He is internationally recognised for his teaching and course development and has received multiple awards for teaching excellence. In 2019 he received the Overall Winner (Best Case Study) Award from The Case Center at Cranfield University (UK), and a 2019 Trailblazer Award from eCornell.
Historical perspective
My study of the hotel business during the great recession of 2008 compared the financial performance of high and low performing hotels based on occupancy, average daily rate (ADR), and revenue per available room (RevPAR), gross operating profit (GOP) and net operating income (NOI), before, during and after the recession.
High performing hotels spent an average of US$11.50 per available room on total marketing expenditures compared with US$6.10 per available room for low performing hotels.
Low performing hotels reduced marketing expenses to a greater extent (17.5%) than high performers did (10.6%). Perhaps most surprising, we found that low performers reduced "other sales" expenses by 10.5 percent, while high performers increased spending for those activities by 9.5 percent.
This "other sales" category includes items related to personal sales efforts such as complimentary gifts and services, familiarisation trips, local promotions, outside sales reps, training, travel, and trade shows.
In summary, this study suggests that, in a recession, hotels should invest in "pay for performance" marketing initiatives and less on general brand advertising.
Understand travellers
Travel brands need to recognise that travelers continue to be stressed and will be for a while, either because they worry about travelling in close proximity to others, travelling to destinations previously experiencing "overtourism' like Venice and Barcelona which are now COVID‐19 hot spots, or just not being able to travel because they have lost their jobs.
Be kind
Job number one is for travel brand managers is to be kind. What this means is to be as lenient as possible in giving travellers refunds or making it convenient and lucrative (eg keeping rates the same, adding upgrades or extras) for them to rebook.
Rebuild confidence
Give clear and complete information on what the situation is in destinations where they operate, what measures they are taking to keep guest and employees safe:
• revise brand standards especially as it concerns health and safety
• a note/tab on the website letting travelers know how COVID‐19 has changed
• what they should do and can expect from the travel provider
• guest and employee temperature checks
• screening questions about recent travel on arrival
• self‐check‐in and check‐out
• electronic room keys
• extra cleaning and sanitising protocols
• social distancing protocols for guests (eg 6 feet apart, one guest per elevator ride and 6 feet apart in workspaces and in cafeterias)
• moving older employees who are more at risk from guest contact areas to the back of the house
• room service delivered outside the door
• laundering everything in the room after each check out
• doing away with buffets for now
• housekeepers to use masks and gloves
• keeping prospective travelers informed about local ordinances that inhibit or enable travel.
Give back to those in need
Travel brand managers need to give back and let their customers know what they are doing to help those in need around them:
• assisting front line first responders and medical workers fighting the crisis (housing doctors and nurses for free)
• helping those in need (housing the sick, stranded or the homeless)
• serving their local communities (handing out food).
Use down time productively
Travel brand managers can prepare for a rebound in travel by sharpening their value propositions and polishing their brands by spending their "down time" on training, and cleaning their databases and social media content.
Fire up your engines
'Start your engines' by reaching out to those companies and individuals who are making travel plans, focusing first on those that need to travel for business, followed by those that are in close proximity (staycation and drive markets).
Offer incentives (eg override commissions) to travel agents and advisors who are all hurting. This could help 'shift share' from competitors, and ensure a smooth and responsive reservation process.
Encourage guests to post on social media once it is safe for them to start travelling to encourage others to do so.
Re-introduce the value of travel
Depending on the duration and severity of the downturn in travel, and the impact on the economy and people's livelihoods, travel brand managers will most likely have "re‐introduce" travel to the world: why, travel, where to travel, how to travel. It will be as if we are all coming out of a cave after a long hiatus and need to see value in travel, for business and leisure travel alike.
There is the very real possibility that the demand curve for business travel will shift in that, now that businesses are connecting with their customers virtually for a sustained period of time, many will lower their absolute level of travel into the foreseeable future.
Businesses that have gone virtual will need to re‐learn the value of in‐person meetings, and leisure travelers who have made their home their havens, need to be convinced why they should get on a plane, train, or automobile to visit or re‐visit friends, relatives and destinations.
As business travel budgets have to be unfrozen, and individual travel budgets have to be reviewed, the value of travel - building better business relationships, getting physical rest and relaxation, increased mental well‐being, enhanced spiritual enlightenment, and re‐connecting with the world - will have to be re‐presented to the world.
In marketing terms, just as we did after 9/11, travel "category" marketing and branding will be as important as brand and property marketing and advertising.
Walk the fine line
Travel brands are having to walk a fine line between doing anything to keep the business afloat and being customer‐centered. One area where things are coming to a head is refunds. Smart travel brands are either refunding the guests' money without any hassle, or encouraging requiring them to rebook by telling them why a non‐refundable trip cannot be refunded because the employees have to be paid so that the hotel can stay open.
Once the crisis starts to diminish, and it is safe to travel, travel marketers will have to 'stage' their marketing initiatives to get business as close to normal as possible.