After the brutal shock to the travel industry due to the coronavirus crisis, the vast majority of hotels stopped or questioned all their investments in online marketing, mainly Ads and Metasearch. This decision made a lot of sense given the severity and exceptionality of the moment. Several weeks have already passed and now would be a good time to start reflecting on this decision, and ask ourselves these questions: how long will this stop last? Does it still make sense? When will be a good time to consider reactivating my campaigns?
Sudden investment stop
An investment of no less than -80% in the second half of March compared to the first half, and -90% when compared to last year’s same period, figures that match with these in this Cleveland Research report and show hotels’ great concern and where are new variables that did not exist before:
- Cash flow. In the current situation, one of the objectives of any company, including hotels is maintaining the highest possible amount of cash. The vast majority of investments in online marketing are paid in advance and that is a problem now.
- Uncertainty. Most hotels have no idea yet when they can open. They have tentative dates that are pushed back as the days go by. Nowadays, it is impossible to venture whether the gradual opening of hotels will start in June or September. Given this great uncertainty, how can we risk investing in a model such as CPC (cost per click) without a guarantee of conversion and, above all, that those reservations will not be cancelled?
- Profitability. Many hotels anticipated that their campaigns would not be profitable in this situation and, when facing this, the best thing is to pause it all.
Nevertheless, not all hotels stopped their campaigns. Were they unaware or was it the right call? We analyse it.
How did hotels that did not stop the campaigns do?
Let us compare the period from 15th to 31st March (updated data including April does not reflect major changes from those shown above). with last years’ same period. Looking at Google Ads’ numbers, we realize that although they worsen, their behaviour is better than expected (given the circumstances). Numbers are, however, discreet and, above all, low in volume.
- Impressions: -88%. As expected, there was a large drop in impressions, reflecting the brutal decrease in demand. This drop, which translates proportionally into paid web traffic decrease, has no impact on profitability (without impressions there are no clicks either, and therefore no cost), but it does have an impact on the volume generated.
- CTR (click through rate): +5%. This is a metric that presents a substantial improvement, which however, and given the low volume it represents in terms of visits, we do not consider of much relevance.
- CPC (cost per click): -63%. The absence of competition in keywords (mainly OTA) has led to a significant decrease in the cost per click. This is positive and could represent an opportunity.
- Conversion: -41%. This drop in the conversion ratio reflects in some way the uncertainty we are experiencing.
- Profitability: -11%. Profitability is worsening, as you would expect, but much less than we would have anticipated. With an equivalent commission of 6.5%, active campaigns are still profitable for the hotelier.
Apparently good numbers, but what about cancellations?
There is no doubt that cancellations are the factor that generates most uncertainty and the reason most hotels —which have a good cash position and can therefore afford it— are reluctant to activate campaigns. When analysed objectively, we realize that the numbers are not as they seem:
- First, we calculate the profitability-change point, from positive to negative, or breakeven point. Despite a lower return on investment, a 6.5% borne cost is still attractive, as the average cost for OTAs is 18% or even higher. What is the maximum cancellation rate we can afford to reach 18%? With a high 50% of cancellations we would be at an average cost of 14%, still lower than the cost of OTAs. To go over the 18% line, a 61% cancellation would be needed.
- Is 61% a very high level? Typically, we would say yes, but unfortunately, it is not unreasonable in recent weeks, which show 95+% cancellation in April and 65% already for May. Yet, these high figures are normal, since we are seeing the booking cancellations from previous months and that come all at once. However, are new bookings cancelled at the same rate as those made before the crisis? The answer is a resounding no, which is normal. Those who make a reservation for the future already know what to expect and, even so, have a high intention of going. Obviously two conditions must be met: that they are allowed to go and that they can pay for it, both conditions will be confirmed in the next weeks/months. In any case, we can see the difference between cancellation of previous bookings and new bookings (from 15th to 31st March, already in lockdown and in full knowledge of the crisis).
Therefore, when we check the cancellations to monitor Ads or meta campaigns, we are not taking into account the total cancellation percentage, but the new bookings. So far, this ratio is much lower, although it will probably get worse. The big question is: will it exceed 61%? It will surely do so by May, but what about June? and July? August? Time will tell.
- We are logically afraid of bookings for stays in the near future (mainly May and June), but incoming bookings, what dates are they for?
We have analysed the bookings from 1st to 10th April. We see that almost 87% of them are for stays in July and later. A priori, and always a priori, the risk of cancellation decreases the further away the date is.
- We have the information on profitability, expectations of cancellation and pickup of new bookings according to the month of stay. If we are still afraid of reactivating the campaigns, we can further fine tune by analysing the anticipation according to nationality, and even device, in search of the combination with more anticipation —and thus with less probability of cancellation.
If we analyse the pickup by nationality in that period (from 1st to 10th April), we observe that the monthly distribution of stay varies by nationality. Thus, some European markets such as France and Spain are still timidly betting to go on holiday this summer, expecting to see what happens in the coming weeks. Other markets such as the United Kingdom and Ireland are clearly thinking on 2021, as is Germany, although to a lesser extent. The US figure with peak sales for July and August is surprising, although the delay in the impact of the pandemic with respect to Europe could be responsible for this circumstance.
Does it make sense to consider restarting investments in Google Ads?
If your need, more than logical, is to care for the cash flow, the answer is “now is not the time”. The profitability of your campaigns can wait several more weeks or months. On the other hand, if your case is different and you have a good cash position (it may surprise many, but there are quite a few hotels in this situation), we encourage you to reconsider your investments, but:
- Deciding the moment according to your foreseeable opening date. If the uncertainty is high, it may be best to wait a little. In any case, we have seen that the pickup for May-June is almost residual.
- Always checking that the return is the desired one.
- Focusing on the most strategic markets and those that book in advance (usually the international ones).
To conclude, we would like to point out that at Mirai we do not have any incentive for hotels to invest in Ads since we neither charge for it nor apply any mark-up to this investment.
What if the OTAs aren’t bidding on my name? Is it worth it anyway?
Most OTAs, including Booking.com and Expedia, have stopped doing adwords on the hotels’ names. They made the same decision as many hotels and are in standby mode until they see events unfold. It would not be surprising for them to be the first to return when things calm down… so we think their absence will not last for long.
Still, we believe that your decision should not be affected since:
- Just because they are not doing Ads in your market (the one you see), it does not mean they are not doing Ads in other markets (by market or by device). In this case we see how Hotel 1898 in Barcelona recovers its position in google USA against an OTA that was doing Ads.
- Very likely your website is not positioned as the first in all Google point of sale. OTAs are very strong in all markets where official websites suffer. In this example we see how Hard Rock Cancun recovers the first position in the point of sale google.co.uk, which had previously lost against Tripadvisor.
- In mobile searches —which mean more than 50% for most hotels—, your “first guaranteed entry” is relegated under the whole Hotel Ads module, where there are many OTAs bidding, something that would be recovered with Ads.
- On desktop, your “guaranteed first place” in organic competes with Hotel Ads’ recently introduced “Price Graph”. Behind that “view prices” there are a lot of OTAs bidding and you could also consider connecting your direct sale (especially under the Commission Program or GHACP).
What about metas?
The investment in Metasearch follows the same pattern and many hotels have decided to pause their CPC campaigns directly, so there is no before and after to compare the breakeven point on.
However, and unlike Ads, Google offers a haven that allows to keep Google Hotel Ads active. This is the Commission Program (if this possibility existed in Ads, practically all hotels would have kept their activity). In this mode, the hotel pays a commission only on net bookings (after cancellations), payment too is made after the date of stay, which is very beneficial in terms of cash flow.
In Mirai we have migrated 100% of hotels in Hotel Ads from CPC and CPA models to the Commission Program GHACP, succeeding in maintaining visibility and ensuring the profitability of the investment.
Other advantages of reactivating the campaigns
In addition to pure profitability, there are other advantages to having active Ads campaigns, probably unknown to many, and perhaps important to some hotels. Mirai’s Digital Marketing team would like to share those advantages, as well as the reasons why we believe it is worthwhile to keep Ads campaigns active:
- It directly captures the client, which makes it easier for us to retain them afterwards, whether it be to manage date modifications, etc. By getting this direct client, we will have the possibility of having a direct conversation for future times.
- It gives visibility to the rate flexibility they have implemented. An effort on the part of the hotel and a strategy that is very important to communicate at this time.
- It is an opportunity to strengthen the brand in these difficult times, especially if the brand is playing an active role in this crisis.
- Maintaining active investment will keep us connected to the market, perceiving better the exact moment when it recovers. Being the first to start up or start up again at the right time can be a competitive advantage over other hotels in the race. Dormant, but not sleeping.
- The recovery time or bounce back will be faster if we do not pause or if we reactivate the ads as soon as possible. For those advertisers with automatic bids (Smart Bidding), a constant flow of data is key to further and better fine-tune the bidding. This translates into a higher opportunity cost, since if the investment is stopped completely and indefinitely recovery gets penalized, for the algorithm has no data to work on when it starts up again and needs some time to readjust. It is advisable to keep the investment active, even if it is minimal.
Calm always comes after the storm. The vast majority of hotels in many countries around the world are closed and many of the most difficult decisions are being made. After the logical dry spell of investment, it may be time to question and rethink this decision. We do not know when this pandemic will end or when the hotels will finally open, but we do know that there are always customers willing to book even now. If you are in the cash position to do so, start drawing up a return plan by gradually activating your online marketing strategy. The sooner we are ready, the more we will capture this now-depressed-but-growing demand. If we do not, the OTAs will be the ones to start.
Thank you to the entire Mirai Online Marketing team for their support in researching and extracting data to make this post possible.