The Complex and Confusing Economics of Customer Acquisition

    The following is a contribution from Julian Castelli, CEO of LeisureLink.

    Customer acquisition is one of the most critical elements of any successful lodging operation. In fact, the most successful vacation property management companies know that attracting a steady pool of new customers is the only way to generate a healthy base of repeat guests, establish a strong brand reputation, and ultimately deliver optimal REVPAR to their owners. Acquiring new customers, however, seems to get more complicated and more difficult each year. With all of the changing dynamics online and with third-party distribution channels the rules of the game appear to keep moving. The following exploration of the most accessible opportunities for PMC bookings will shed light on the real cost of bookings in the current online climate with the goal of helping vacation rental managers balance customer acquisition options for optimal profit.
    Google Organic
    Achieving above-the-fold organic visibility in Google has become a herculean task for big brands, and even more so for the average mid-size property management company (PMC). It is even more difficult to gain organic visibility on mobile when competing with three paid search ads for some mobile queries (Search Engine Land). With organic search visibility becoming harder to achieve and unpaid social media visibility on the decline (see: Social Media Today), it appears the days of easy, free online visibility are over. Maintaining strong organic search results these days requires a well-managed, content-driven SEO strategy led by an SEO expert. Tracking the cost of acquisition for such an effort is no easy task, as the costs could include technical ones such as new websites, mobile-optimized or responsive-design websites, as well as publishing costs for content generation and maintenance. All of these costs need to be compared with incremental increases in organically generated bookings. How do you know which bookings are organically generated? Well, let’s add another cost:  detailed analytics and reporting! While there are no generally accepted benchmarks for how much organic bookings cost since they are theoretically free, it is clear that increasing organic bookings has several real costs.
    HomeAway Listings
    After free organic traffic from Google, inexpensive HomeAway listings have been the best deal out there for property managers looking to drive bookings.  Like with Google organic, early “homesteaders” – those who published good listings early in a market – were able to enjoy very attractive traffic flow and bookings from a relatively minor investment for several years. HomeAway remains a good channel for property managers, but its growing popularity has created diminishing returns for suppliers as listing costs have increased, the sheer amount of listings has made getting onto one of the top pages of search results more challenging, and the Company is moving customers toward their 10% pay-per-booking offering.  
    Google Pay-Per-Click
    There was a time, not all that long ago when Google pay-per-click (PPC) was the solution for organic visibility declines. In fact, in many cases, PPC campaigns seemed to help drive up organic results, due directly to increased, relevant (paid) traffic. With OTAs and major metasearch engines bidding heftily on lodging terms, the cost of PPC traffic has increased substantially—some say as much as 35 percent for the cost of brand-name PPC traffic for hotels or properties in the last few years (Tnooz). According to Hochman Consulting’s review of 50 Google Adwords advertisers, the average cost of a PPC conversion grew by 130 percent from $13.14 in 2010 to $30.25 in 2014. At $30.25, you are paying a 15 percent customer acquisition cost for a $200 booking.
    Book on Google & the Future of SERPs
    Google’s VP of Travel Oliver Heckmann admits that the traditional Search Engine Results Page (SERP) is on its way out saying, “If someone is searching for hotels, much text is not the answer” (Skift). Instead, he suggests that Book on Google, which brings together location, images, and pricing information in a visual format, will offer a better user experience. While vacation rentals do not yet have the same access to Google’s travel tools as hotels, it is clear that Google intends to make a move toward owning a greater share of the travel market, one that will affect the ability of all accommodation providers to achieve rankings. When, and if, Google does integrate vacation rentals, commissions will likely be in the 15 percent range. (Hospitalitynet.org)
    Airbnb has taken the market by storm and is the fastest growing vacation rental distribution channel in the marketplace. With a strong brand following and seemingly endless resources to grow demand, this is a channel that needs to be considered as a major part of every property manager’s distribution strategy.   While new and exciting, Airbnb does not come without its share of challenges.  Let’s start with cost. While the cost to the supplier is often a low stated charge (3-5 percent), this assumes that Airbnb can mark up the price, sometimes as much as an additional 10 percent to the customer. If the supplier is publishing a lower price on their website, this can create customer frustration and demands for the lowest price available. Furthermore, Airbnb’s system is optimized for the individual host who is renting out a room or his apartment. While property managers began to be welcomed into the Airbnb orbit in 2015, there remain limitations as to how they can work with the channel, including the need to have individual listings for each key-level unit, and the inability to merchandise representative units with a depth of inventory. Overall, Airbnb is an attractive and evolving option for property managers with a cost expectation of 5-15 percent depending on how customer mark-up evolves, and when considering the internal sales costs required to complete bookings from Airbnb leads.
    According to PhocusWright, 36 percent of leisure travelers use metasearch sites for travel planning, and the vacation rental metasearch business is growing, with sites such as Tripping receiving substantial investments in the past year. However, while hotels report 12-15 percent as their average commission on indirect metasearch channels, vacation rentals must rely on distribution sites (FlipKey, Booking.com, HomeAway, and so forth) to supply their inventory to the metasearch engines (Tnooz). The cost of visibility on metasearch engines for vacation rentals is estimated to be less than the cost of OTA commissions, which range from 15-25 percent, as some amount of traffic will book directly.
    Traditional OTAs
    Finally, the heavyweights of travel are starting to stampede towards the vacation rental industry, and as the recently announced Expedia-HomeAway merger demonstrates, they are making significant moves to assert their positions in this attractive category. While their business models have been built around hotels, they are quickly modifying systems to take vacation rental inventory.  Their relatively strict policies and high commissions (typically 15-25 percent) have been historical impediments to adoption from the vacation rental community. However, their enormous customer reach and traffic levels make them very attractive sources of new customers. Early adopters are discovering that the relatively high initial cost of acquisition is offset by the value of building repeat guests and the billboard effect that these mega-brands provide. As Chris Anderson of the Cornell School of Hotel Administration says regarding the billboard effect, the “website bookings that result from being displayed on OTAs convert a 30 percent commission paid to an OTA to single digits” (Tnooz).
    The Options and Costs of Customer Acquisition Are Changing Rapidly
     PMCs have declining opportunities in direct online marketing as the presence of large travel brands and Google itself crowds them out. Fortunately, the opportunity for exposure in front of a vast network of travelers is greater than ever, with the emergence of new vacation rental channels and traditional OTAs rapidly integrating vacation rentals and/or consolidating alternative accommodation providers. If it was not before, distribution is essential today.
    The costs of third-party distribution have been much maligned, but when they are considered in light of the totality of their effect—which includes widespread visibility among travelers, metasearch engine exposure, billboard effect direct bookings on brand.com, and the ability to turn new customers into repeat customers—the economics of distribution become much more reasonable.  Additional consideration should be given to the fact that a distribution channel delivers a sold booking, eliminating the internal sales costs associated with direct bookings from web leads or phone.
    What is also becoming clearer is that there is no single silver bullet. The days of relying on one source for customer acquisition are behind us. To maximize exposure, bookings, and REVPAR, property managers need to promote their rentals on as many channels as possible. Doing so, however, is no easy task. Fortunately, channel management and distribution solutions allow vacation rental suppliers to easily access all of these channels and simplify the complexity of working with them.  When all is said and done, a technology that embraces the online opportunities and empowers PMCs to use them to their advantage is the most effective online marketing strategy available.

    LeisureLink offers vacation properties the opportunity to distribute to top online travel agencies like Expedia, Booking.com, Airbnb and HomeAway, all the major GDS players and top travel sites. LeisureLink also offers a booking engine and reservation services that maximize conversions on property managers’ direct sites. LeisureLink’s industry leading distribution platform has delivered over $1 billion in bookings to property managers. Learn more about LeisureLink at .http://www.leisurelink.com/. 
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