TripAdvisor Advertising – CPC Case Study and ROI

A great guest post by Piotr Majdan from Mirai Espana, that takes a deeper look at the performance of TripAdvisor PPC (not to be confused with Business LIstings) activity. Piotr had also published a case study on the ROI of TripAdvisor Business Listings as while back. These conclusions were derived by Mirai after investing €27,000 with 58 hotels:

Your direct rates, your hotel’s website rates, can now appear on Tripadvisor dealing face to face with intermediaries such as booking.com and expedia.com. Should you join this program? What can you expect regarding the required investments and the return you will obtain? Does this return affect your hotel’s position within your city’s ranking? After a comprehensive three-month study, we have got answers.

Tripadvisor’s CPC (Cost per Click) program will generate new bookings in most of the hotels’ websites, mainly for the best rated hotels, but it is not predictable when it comes to cost and can generally be expensive “commission wise”.

In any case, “high” commission is a relative concept and should always be compared with the margin you get through intermediary sites (IDS) or classical tour operators . It still might be worth it for many hotels. Here is how we got to this conclusion.

In May 2010, Mirai pioneered the testing of the Tripadvisor Business Listing. Once again, we are the first ones to explore the new opportunity given by Tripadvisor – their CPC program. The difference between them is that the former is based on a fixed fee and the cost of the latter is variable depending on the traffic.

Other companies on the market offer this service (sometimes with a set-up fee or monthly fixed payment) directly to their clients promising new bookings. Before doing so, we at Mirai, have conducted a test to check the return you can expect by participating in this program. We invested €27,000 in 58 of our clients and analysed the results.

So what is the CPC program and how does it differ from Business Listing?

Business Listing allows you to add a link to your website, as well as the contact information (Blue).

On the other hand, the CPC Program allows you to compare the rates of many providers in real time (Green). We can see in detail how it works in the following screenshot.

The user selects a check-in date and clicks on the button to see the rates.

By default Tripadvisor opens three new windows with the first bidders. In this case, the official website montecarlobcn.com, booking.com and venere.com are the three that bid the most to be there, and therefore they get their reward.

Once the user has compared the three options, he/she will choose one of the websites to make the reservation (if this is what he/she decided to do). Let’s assume he/she has been persuaded to make the reservation through the official website. He/she could easily do so by selecting the room and concluding the process. We will not show you screenshots of the reservation process as they are not relevant for this analysis.

In the following table, we easily show the differences between both programs.

* Hoteliers can manage their business listing entry to Business Listing and pay directly to Tripadvisor.

** You can only participate in this program through “partner companies”. Apart from Mirai, other companies that offer this service are Flamingohotel, Fastbooking, AvailPro, Bookassist, WihpHotel , among others.

It is important to note that simply participating in either program does not improve your chances for getting higher rankings in your city. These two things are totally different.

The test.

Over the course of 3 months, we included 58 hotels from Spain and France of different characteristics, from the top ranked in Tripadvisor to some others placed at the bottom of the ranking, and with different features (rate, size, classification, location…) and checked their behaviour in terms of traffic volume, conversion rate, reservation value and return of investment. There are some interesting analyses already online, such as the one from wihphotel, but we are hoping to provide you with a more extensive view on the matter.

The first thing we notice is that 14 hotels (24%) did not receive any reservation.

Hotels that did not receive any reservation are those that brought little traffic, had low conversion rate and were usually lower ranked than the ones that did.

Traffic – the higher you rank, the better, but be prepared to put the money on the table.

The first thing we wanted to find out is the correlation between ranking of the hotel (per city) and traffic volume. A quite obvious assumption, but true, is that the better ranked hotels will have the bigger traffic volume.

This correlation is clearly seen especially when it comes to hotels ranked within big cities where the volume of searches and competition is big. Always in terms of traffic volume, you get more visibility if you rank high in big city (such as Barcelona, Rome, Paris, Madrid), than to rank #1 in a small town that travelers do not visit that often.

We cannot forget about the cost aspect, as the Tripadvisor system is based on the “Pay per click” model. Hotels pay from 0.6 to 0.8 euro per click. Being in the top ten in cities such as Madrid and Barcelona means thousands of clicks and euros spent every month, which is not the case in small cities that get less traffic.

Generally speaking, most of the traffic goes to those that rank on the first page in a large city searches. Apart from that, there is no difference between being on the 3rd or on the 10th page, even if you are lower in the ranking.

Traffic grows exponentially according to the position of the hotel’s search results.

Conversion – don’t expect too much.

Analysing conversions shows how many visits are needed to make a reservation. Visits to your website come from one of these sources: organic traffic (mostly from browsers such as Google, Yahoo or Bing), paid traffic (mostly Google Adwords), people typing the url directly into the browser (direct)traffic coming from links placed all over the web (referral). In order to check the effectiveness of Tripadvisor, we decided to compare the conversion rate across all the most popular traffic sources.

It is hard to draw any conclusions, but we clearly see that Tripadvisor’s conversion rate does not differ that much from other sources (with the exception of Google Adwords, where we obtain high conversion by means of campaign optimisation).

Note that there are other factors that may have influence on the conversion rate such as price, hotel location, service, price parity, etc. In this analysis, we will not go into detail about those factors.

Worth mentioning is that the cost per click of Tripadvisor’s CPC Program, compared to other paid channels such as Google Adwords, is significantly different. On average, a click in Google Adwords is charged €0.3, compared to Tripadvisor’s €0.65 to be in first position in the “check rates” box. So the profitability might be an issue here. Let’s take a closer look at the “commission” aspect comparing commissions depending on their origin.

Commission: the higher you rank, the lower commission you pay.

Most of the hoteliers are used to a commission-based system, mainly because it allows monitoring and comparing cost and benefits. Nowadays, the commission level of the intermediaries is between 12% and 20%. Above this margin, the profitability of using a channel is uncertain.

The cost of a Tripadvisor’s CPC program is not based on a commission model but in a cost per click system. The value of the generated reservations should cover this variable investment in exactly the same way as takes place in the commission-based model. This is why we must transform the cost into commission.

Transforming the investment in TripAdvisor into the commission-based model.

When using Google Analytics, we analysed the reservation value obtained from TripAdvisor and the cost of the service (current CPC spent). To enable us to compare the analysis with other booking channels based on a commission model, we calculated what percentage of the reservation value covers the investment in TripAdvisor’s PPC program. This allowed us to see the profitability in a clearer way.

(TripAdvisor’s CPC Cost) Divided into (Reservation Value)*100% = % Commission.

Is it economically justified to invest in the PPC Program on Tripadvisor? Does the ranking have anything to do with it?

Apparently, being in the top results in your city gives you a better chance to pay lower commission (25%), but we need to take into consideration an important factor – the average reservation value. Basically, hotels that rank high are those with higher prices per room, so having the same conversion rate as lower ranked hotels makes the commission lower.

Commission analysis takes into consideration the average of all 58 participant hotels, but we should mention that 22% of hotels (in spite of their ranking) got better numbers in the range of commission between 13%-18%, so the program can be very interesting for them. In some long tail hotels the costs were as little as €38 but they got reservations valued up to €839. A great result, but not very ascendable.

Conclusions.

So what is the key point in the decision making processes about whether to invest in Tripadvisor’s PPC program?

1. As a prerequisite, and as for any investment that will bring traffic to your official website, make sure that it is optimized to convert, offering the potential client the best experience regarding design, reservation engine, rates and also enough room availability.
2. High cost: 25-45% (again, this is related to your position). Compare it with other channels and decide whether the same investment would offer you a better return by other means. If you totally bet on your official website (which will probably collide with intermediation), the costs will be lower. Think that Tripadvisor is enabling the user to compare the rates, so even if the rate is not the only thing to take into consideration, the fact is that Tripadvisor really focuses on it.
3. Limited expenses control: Tripadvisor’s CPC Program doesn’t currently offer any control for the hotelier regarding the amount to invest because it doesn’t manage every account separately but rather in a global way along with other hotels. If you require to budget or control your cost in advance, this could be a problem for you. We hope this changes soon, but nowadays, you will be told the amount you invested by the end of the month instead of at the beginning.
4. The better your hotel’s position is within the pages of your destination, the more chances you will have to receive reservations by this means. Without a good position, it is even possible that you spend your money without getting any reservation at all.
5. It is better if your average reservation value is high. This will soften the fixed cost that involves the “pay per click” concept.
6. If you don’t participate directly, you will be feeding your intermediaries. Check out which of them are bidding. Paying 18%-25% in intermediation means that they are using a part of the incomes to bid in Tripadvisor, which would explain the current phenomenon: “booking/venere/expedia are selling more and more”. They are not going to pull out of the race, even if they pay the same or even more than you, so having a direct presence also comprises a political dimension that you should take into consideration.
7. Satisfy your clients. Life smiles at hotels that do so, and this test confirms it. The new ways of distribution that are arising, such as, Business Listing, and the social network, etc., need happy clients to work. Without their satisfaction, you’re out. Tripadvisor’s CPC, whose return is very sensitive to your ranking position within your city, is a materialised and quantifiable example of this trend of which everyone talks about abstractedly.
8. Trial and error. If you are in doubt, you’d better try it and see the numbers you get. No matter how far we take our analysis: every hotel is different from the rest and there is no way of checking whether this works for you other than trying it.

About Piotr Majdan: Piotr is responsible for strategy and coordination of marketing products offered by Mirai (www.miraiespana.com)