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Why are Hotels throwing away money?

Author: Carl Heaton
He is our senior instructor and originally from Manchester UK. Carl teaches our Web Design and Online Marketing Courses.
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This article is dedicated to all the hotels’ owners or managers who wish to increase the number of bookings via pay-per-click advertising. Actually you will see a real example how if you don’t leverage the paid advertising you are losing every month significant amount of money.

Written by Borislav Tatarov

This article is dedicated to all the hotels’ owners or managers who wish to increase the number of bookings via pay-per-click advertising. Actually you will see a real example how if you don’t leverage the paid advertising you are losing every month significant amount of money.

superman likes adwords

Why are you still putting money into other peoples pockets?

When asked “From where do you get the most of your bookings”, 82% of the hotels managers respond the same way: agoda.com, booking.com, tripadvisor, expeida or some other Online Travel Agencies (OTA’s)

It doesn’t come as a surprise, having in mind that those are truly the biggest website in the travel sector.

But less known fact is if that the hotels actually losing money that way!

Let’s have a real example with a hotel that is losing $10,500 every month from the online travel agencies.

how hotels feel about online travel agents

Indigo Pearl is a luxury 5 star hotel in Phuket. The 5 star resort is internationally famous with its amazing industrial designed interior, perfect beach location and award winning SPA department.

The hotel has strong brand recognition and loyal customers. It has been featured regularly on authoritative online and print magazines, ranked as one of the best designed hotel in Asia, it remains one of the top luxury properties in the Kingdom of Thailand and the rest of  South East Asia.

I am not saying that just to praise the hotel, but to illustrate how famous and well known its brand is. As a proof of the strong brand recognition come the results in Google Keyword Planner. The tool shows that approximately 16,000 people are searching for the hotel in Google with branded terms (Indigo pearl, indigo pearl phuket)

However if you initiate a search in Google with those branded terms you will notice that surprisingly the first place doesn’t belong to Indigo’s website. In the top of the results there is a paid placement of the hotel’s listing in booking.com.

Usually the first place in the paid search gets 25% of the clicks and, as you can see from the chart below,  if it is a branded search (which is in our case) those figures are almost double.

distribution of clicks in an google adwords

Let’s take more conservative approach and say that booking’s listing gets 35% of all the clicks

We said earlier that according to Google Planner there are 16,000 searches (impressions) for those terms every month.

Here are some calculations:

35% out of 16,000 is equal to 5,600 clicks
In that case Indigo’s listing in booking.com receives 5,600 clicks every month.

Usually 3.5% of the clicks convert to actual bookings. Indigo’s is luxury and expensive hotels so let’s make again conservative assumption and say it would be 2.5%.

2.5% of 5,600 clicks would be 140 bookings.

The average room price is $300 and OTA’s typically charge 25% fee, which is $75 for every booking
We have 160 bookings so that equals to $10,500 every month paid as a commission to OTA’s

This was just one example but it is valid for all the hotels, especially for the expensive ones.

Wouldn’t be great if those hotels could save that amount by attracting more bookings to your website

Well all of that is possible if you take your hotel’s faith into your hands and take advantage of all the benefits that the modern PPC has to offer.

The solution

the solution to your advertisement needs is ppc


The solution is simple: implementing effective online advertising (PPC) to capture all those potential clients which otherwise will go to some of the OTA’s.

I am aware that most of you will probably say: “Ok, since it’s so easy, why is nobody doing that?”

I don’t have a straightforward answer, but I guess most of the hotels are afraid to use paid search advertising.

The irony here is that the hotels, especially the luxury ones, spend so much money on offline activities and pr campaigns just to increase their brand awareness but once that happen they are not monetizing it.

What kind of online advertising is the best option in that case?

The best solution for that particular case is a mix between Search and Remarketing advertising.

Using such combination will not only capture all the visitors who are searching via branded terms but will also retarget those, who visit the website but didn’t make a booking.

Search advertising

a picture of what search advertisement looks like

Search advertising represents text ads that appear above, below or the right side of the organic search results

They used to have a light yellow background before so the users can distinguish the ads from the organic results. However in January’14, Google introduced new ads layout where they appear without the background and actually blend with the organic results.

Such advertising is paid per click, from where it comes the abbreviation PPC.

Which ads will be shown on the top positions depends on two main factors:
1. The maximum bid you set for your ads
2. The quality score of your ads. This is determine on click-through ration and how relevant is the ad with the website you are advertising.

Before getting into some numbers you should read this article which goes through the most commonly asked questions on hotels and online advertisement with google.

And the formula goes like this:
The Max. Bid (CPC) X Quality Score = Ad Rank

This quality score is exactly where  hotels could easily outbid big websites like booking and expedia.

Take a look at the example from WordStream:
example how a small business can beat big business in adwords


That means if your ad have a higher quality score you can ranked higher than them and pay less!
Let’s get back to the Indigo’s case:

If they start with the PPC, the ads will send the users to Indigo’s website which is surely the most relevant website for somebody searching with branded terms like indigo pearl, indigo pearl hotel.
That relevancy combined with the high CTR will lead top quality score of 10

That’s how the hotels could easily outbid OTA’s and get lower cost per click.

Let’s make some calculations again

According to AdWords keyword planner tool the first page bid for those branded terms must be $1.00. Please note that this is exclusive the Quality score which will be assigned once the campaign is created. Indigo’s will get top score so in that case actual CPC could be reduced to $0.20

We will take more conservative approach and assume that the cost per click will be $0.50
We said earlier that those searches get 6400 clicks monthly

5,600 clicks X $0.50 = $2,800

$2,800 is the amount (again its very conservative it could be up to 45% less) Indigo Pearl will pay for the advertising

Not bad huh? Instead of paying $10,500 as commission they can have all those bookings for only $2,800

Display and Remarketing

useful remarketing banner

The potential of PPC advertising for hotels could go even further.

Sometimes the users can’t decide immediately whether they will book or not. Wouldn’t be great if you reach those users with targeted advertising while they are in the middle of that “thinking” process?

You can do that with remarketing ads!

Remarketing are those ads which target user who has previously visited your website and interact somehow with it.

Let’s say Anna visits Indigo’s website. She checks if there are free rooms in the chosen dates and fill the booking form. Anna need more time to decide that’s why she leaves the website without actually making the booking.

In that case Anna has expressed interest in Indigo’s hotel and she is a potential customer that needs a little effort to become a real one.

Here comes the remarketing!

You can target all those visitors similar to Anna who expressed some interest but didn’t make the actual booking.

If they see a good ad copy with Indigo’s beautiful beaches, pampering spa treatments, unique design, and Best Price Guarantee logo, she will be more likely to click on the ad and make the booking right?

how to remarket using ads

If still unclear about remarketing, you should check out this video on Moz blog which explains some of the most important aspects of the practice.

In Summary

My intention wasn’t to criticise the Online Travel agencies. In fact those are awesome websites with a lot of bargains and easy to use interfaces. They offer great features like price alert, multiply bookings (hotel, flights, rent a cars etc), all the offers in the same place etc.

However I believe that there is a piece of the pie that fairly belongs to the hotels. Its up to the hotel’s management whether they will leverage PPC or will just sit back and look how the money that belongs to them goes to somebody else’s pocket.

For now, interested companies can check out our Google Adwords course here at WebcoursesBangkok where we’ll teach bow to best take advantage of google advertisement tools.

Read more on the author  Borislav Tatarov.

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