Hotel Referral Marketing – Hotel Guests are a key Distribution Channel of the future

Article published under the name “The million dollar hotel marketing idea that’s been staring you in the face!”

I’ve been racking my brain for the last few weeks over what to write about. The interesting thing is that it’s not lack of choice that’s been the trouble…it’s too much of it! From the excitement caused by US underdog Barack Obama’s win and the promise of a brighter political future… to CNN’s Wolf Blitzer causing a buzz with his first-ever “holographic” interviews in the newsroom, there’s been plenty going on to keep techies and armchair futurists abuzz. And while CNN’s holograms weren’t really holograms when you cut to the chase…one development is very real…the advancing global recession that we’re slowly coming to grips with.

Hospitality media has been filled with reports about dropping profits margins, especially in hard hit areas and suggestions to hoteliers on how to best tackle the market situation, i.e. tough it out, work smart and dust off your selling shoes. What surprises me, though, is that while the hotel industry continues its distribution war with online 3rd parties with super-deep advertising pockets, it still continues to ignore its most lucrative booking distribution channel…its guests!

An excerpt from an earlier article I’d written titled ‘Back to the future: Meet the hotel guest of 2020’:

Hotel Guest: I stay. I sell : I choose where to stay and what to do based on the recommendations of my personal social network. Why should I trust all the hype, marketing and advertising when I have perfectly good friends & like-minded acquaintances who’ve been there, done that? If I like what I experience, I may recommend the hotel to my network…and get paid doing it.

Hotels have realized that their guest’s virtual and physical social networks are a long ignored distribution channel and start monetizing it…with spectacular results. Not only are the distribution and commission margin costs a lot lower, but the quality of the referrals is a lot more credible and brings in exactly the kind of guests the hotel is looking for.

Most savvy hotels have already come to grips with the power of consumer voice on the Internet, via sites like Tripadvisor.com and it’s ilk. Proactive hoteliers use these channels to actively listen, respond to and troubleshoot guest concerns. Not only does the voice of the hotel guest get heard a lot faster and louder on the Internet, it also affects the volume and quality of hotel bookings. A study conducted last October by comScore and The Kelsey Group of 2,078 respondents, including 508 who used online consumer reviews, found that online, consumer-created reviews have a big impact on prospective buyers. The study showed consumers were so trusting of online reviews, they were even willing to pay at least 20 percent, and up to 99 percent, more if a company was rated excellent or five-star than if a business received a good, or four-star, rating.

So why aren’t hotels working harder to get these great referrals?

Most psychologists would agree that when it boils down to it, there are two basic routes to motivating people…one is intrinsic and complex, like achievement, recognition and other factors that draw on emotion…and the other is extrinsic, i.e. rewards, usually monetary. Values and needs dictate what form of motivation works best in particular situations, but in both approaches, personal ownership of the goal is key to getting there.

It takes a lot of hard work and guest engagement to get guests so enthusiastic about your hotel that they’d go to great lengths to recommend and actually ‘sell’ your product or service for you. However it doesn’t take a whole lot of love when there’s a clear return benefit involved. Plus there’s no reason why great hotels can’t use both! Cash is the crux of the current credit-crunch and travelers are feeling the pinch already. As they say…in a recession, Cash is King! Hotels want more of it and guests simply want to spend less of it.

A compromise is where the million dollar marketing idea lies…and the time is perfect for it: The first hotels that start recognizing and treating their guests as a viable and long-term distribution channel will come out on top – and this means going beyond just awarding loyalty points to guests.

The usual hotel revenue management approach is to sell low to the Corporate, Group and Leisure segments and then go head to head with competition based on higher retail rates. With guests gaining access to more and more information on the Web about hotel facilities, issues and channel rates, leveraging “Best Rate Guarantees” (BRG) is becoming increasingly ineffective. The BRG blow that the hotel industry delivered years ago to the 3rd party online retail industry has softened…and online travel agents are gaining bigger pieces of the web distribution pie again, with superior Search coverage and comparatively overwhelming ad budgets. Another kick in the shin has been the alarming trend over the last few years of the Leisure segment going online and leveraging lower allocated rates through packaging and even naked room-only rates, much to the dismay and exasperation of the hotel industry.

Hotels tend to pay out anywhere from 10-25% commissions on retail rates, given the level of need. If only hotels could use the same commission they pay 3rd parties and travel agents (I’d bet you’d need a lot less though) and reward guests through a well structured referral program, both sides stand to gain. Hotels would pay a lot less in commissions, cut distribution costs, retain control of the customer relationship and also gain a lot more guests they want to attract, referred by trusted sources who’ve experienced the product and service. Whether larger chains develop point based referrals to be used for future and intra-chain stays…or smaller properties pay a cash bonus / discount, the potential for any well thought-out program is immense. This strategy allows hotels to maintain price parity and market positioning without risking the negative spiral of a price war. The great news is that the web has all the right ingredients to make this strategy a reality. So the technology’s ready. The guests are certainly ready for it…and the economic atmosphere’s just right. The question is…are hotels ready?

Looking at it from another, guest-centric point of view… the case of a smart entrepreneur (David) taking on the Online Travel Agencies of the world (Goliath)…someone who can develop an intuitive web platform that allows guests to book participating hotels and earn referral points or revenue is bound to make a dent in the OTA industry. Of course there are issues to be considered, like issues of corporate travel, employee referrals, commission management, intelligent CRM, transaction tracking and perhaps even OTAs wising up to the potential of rewarding guests a little more…but where there are challenges, there are also great opportunities for innovation and out-of-the-box solutions.

This is the beginning of a brand new travel distribution race. The starting-gun’s been fired. But just who’s going to be in the running? Who’ll win? I’m sure we’re all eager to find out!

– Jitendra Jain (JJ)