Most classically trained luxury hoteliers, whether they are owners, working as representatives on the operator side, or if they are managers or directors for a corporate group (especially on the finance side) tend to associate marketing investments with being a cost-center or a significant reduction of profitability. Hence budget allocation for digital marketing becomes a sensitive topic which especially for smaller and medium-sized hotels often ends up in not spending anything on marketing beyond the bare minimums.

The pandemic was a prime example of this type of thinking: for most hoteliers marketing was the first thing to cut apart from excess staff. While it might be easier to switch on advertising again than to re-hire a lot of qualified people that have moved on to other jobs or careers, regaining the trust of affluent consumers and getting back to a top-of-mind awareness level is not an easy task either. Especially now that the pandemic is tapering out and travel behavior is slowly returning to normal levels it is time to revisit digital marketing budgeting. Let’s look at how hoteliers can deal with digital marketing investments in a more sophisticated, sustainable manner.

Why should you allocate an annual budget?

 

Every company in luxury travel or hospitality should spend between 5-20% of their annual revenue on marketing, with the majority of that investment going towards digital these days. It doesn’t matter if it rains or the sun shines, this level of basic investment is crucial to keeping a healthy pipeline of direct bookings, MICE leads, F&B reservations, and brand awareness coming in. While people might want to spend at the lower end of the range if revenue is tight or if there is a crisis happening in the market, spending should quickly be amped up gain once things return to normal.

There are brands out there that become quickly forgotten or properties that decline over time and lose pricing power, trade relationships, booking volume or talent due to their lack of marketing investment. Bad ratings, demographic changes in consumer behavior, financial market fluctuations, seasonality, and the threat of OTAs and meta search are often quoted as reasons for this type of decline, but in a lot of cases it is simply greed or ignorance on the side of the management or owners when it comes to investing in the luxury brand value and reputation of their property online. Especially in times like these, when technology is crucial to analyzing and understanding affluent guest behavior, there is really no excuse to not be spending on digital every year in a consistent way.

digital marketing investment

Context and size matters

 

Of course within that 5-20% investment range the size and context of the individual property or property cluster matters a lot when determining the actual investment in terms of hard numbers. While this is obviously at the discretion of the hotelier or investors, board, etc., we can probably give some general guidance based on having exposure to luxury hospitality businesses of all sizes when it comes to digital marketing. A small property of up to 25 rooms should at best be spending a five figure sum annually on their digital marketing. Maybe low six figures if the property is ultra luxurious and already highly profitable. A medium property of 25-100 rooms should start investing in the low to mid six figure range annually if occupancy is supposed to stay consistently high. Large and very large properties with 100 to 300+ rooms (this can be hotels or resorts but also luxury villa vacation rentals with a high volume of properties in their portfolio) should absolutely start spending in the high six figures or even in the low to mid seven figure range depending on the prestige and profitability of their location and also according to how much the competition in the market is investing.

When it comes to clusters of properties (dozens or hundreds) or even large groups with international luxury portfolios, we are talking eight figures easily all the way up to nine or ten figures in extreme cases (this is what the Accors, Hiltons, IHGs, etc. of the world are spending according to their annual reports). In our experience, especially at the small and medium-sized level or even at the large level when it comes to independent boutique properties, owners and operators tend to underspend on digital marketing, which creates unwanted dependencies on seasonality, organic search traffic, free media coverage, OTAs, meta search, and trade partners with high profit margin demands. Which ironically, in return, over time, lowers the overall growth and profitability of the property itself.

Marketing maturity, budget and revenue growth

 

Your digital marketing spending should increase proportionally with your available budget (hence why it is better to think in percentages rather than fixed, project based budgets). If you make smart investment decisions that are proportional to your annual revenue, and as your digital marketing maturity increases in terms of technology, channels, approaches, talent, and creative, your revenue growth will start to scale as well.  If your spending according to your annual revenue is out of sync you will most likely overextend yourself and lose potentially a lot of money. If your digital maturity doesn’t increase as your spending does you will end up being a one-trick pony or too invested in just one approach or channel to drive bookings. Last but not least, if your revenue growth doesn’t scale in sync to your maturity then you are probably hiring the wrong people, buying the wrong tech, or not investing enough into upskilling or strategic partners that can guide along the journey.

digital marketing investment

When to freeze spending

 

If there is an international crisis that affects spending on luxury items and services by high-net-worth individuals in a massive way (for example, a war, pandemic, or financial crisis) then the best way to go about it is to NOT freeze spending on digital marketing completely, but shift it to the lower end of the range (around 5% of AR) and focus all efforts on maintaining brand awareness and marketing to your existing list/database and customers. This will allow you to weather the storm and come out strong when demand inevitably picks up again. The added benefit of this tactic is that there are always people who need luxury hospitality services, even in a market that is currently on a downturn. Maintaining your marketing will allow you to soften the impact on your bottom-line if something happens that is out of your control.

When to scale up your investment

 

There are three scenarios where going from the low (5%) or mid range (10%) to the high end (20% or more) in terms of annual digital marketing investment can make sense. The first one is if you have realized that a particular advertising channel or digital marketing tactic is delivering a very high ROAS (return on advertising spend), in this scenario the more you spend (for example, on influencers or Google Ads) the more bookings or MICE leads, F&B reservations, etc. you can generate until you hit capacity.

The second one is if you want to expand into a new market or segment of your customer base and need to use an approach that differs from what you have done before to effectively market to these people. The third and last one is market dominance. If you have a working digital marketing engine that produces high quality creative, enhances your luxury brand value, and drives direct bookings and overall positive ROI for your luxury property, AND if you want to grow and scale so fast that your competition is outpaced, getting external investment (credit lines, loans, investors) to capture all the potential bookings your property or clusters is able to fulfill can be a risky but worthwhile endeavor if executed carefully.

The role of forecasting

 

An old saying says “Measure twice, cut once”. The same goes for investing in your digital marketing. The better and more detailed your planning is, the more predictable your results will be on average. A big part of that is using benchmark data (sales metrics in different scenarios, industry standard digital marketing KPIs, etc.) and forecasting tools to design your sales funnels and digital buyers journey from awareness to booking in advance. This is what we usually do as part of our diagnostics or strategy projects before committing to large projects with clients so we can at least come up with relatively reliable low, medium, and high success scenarios. We also use forecasting to evaluate different business opportunities for market or segment expansion. Another part of your planning efforts is having a clear grasp of your ideal guest profile in terms of demographics, psychographics, wealth tier, as well as media and technology consumption behavior. If you want to learn more about how you can improve your marketing forecasting in the future, check out this guide we wrote about it.

digital marketing investment

The danger of “low-cost” investments

 

We have spoken on our blog a lot about the dangers of relying too heavily in luxury hospitality on things like SEO, meta-search, OTAs, and free PR as means of getting your occupancy rate up. These tactics hold some inherent dangers if you are dealing with a luxury brand or prestigious luxury property that needs to maintain pricing power and a certain level of reputation to stay profitable. If you want to read our opinion on those check out this article on why OTAs are a threat to luxury hospitality.

How large hotel groups or brands should invest

 

Last but not least, how should you look (in an ideal world) at your digital marketing investments if you are managing a cluster of properties at the brand or group level. Well, first of all, all the things we wrote earlier about personas and forecasting still apply. So do the considerations about 7-9 or even 10 figure budgets depending on the amount of rooms and suites you need to fill (you should arrive at this scale anyway based on your annual revenue percentage). But apart from that you should probably look into having a solid mix of in-house talent and external partners (tactical and strategic), as well as a sophisticated marketing technology stack. Your content, creative, copy, and advertising should be multi-media, multi-channel, multi-touchpoint and take principles from neuromarketing, luxury brand marketing, and consumer psychology into account. At this point having a solid middle and upper management layer of experienced (luxury) hospitality marketers becomes crucial to manage the decision making and approval process up and downstream for individual properties, clusters, and regions.

Using marketing planning and project management tools, budget allocation, and business intelligence dashboards as well as dynamic reporting becomes crucial too if you want to maintain transparency and oversight. We recommend organizing large scale projects in units of 10 people max to maintain flat hierarchies, agile decision making, and quick iterations. That means that, for example, creative becomes a team of 10, advertising becomes a team of 10, etc. with team leaders being themselves organized in even smaller units of 3-5. The topic of organizing large digital marketing organizations is a complex one that we can only dip into here, but is worthwhile exploring if you are dealing with international luxury business at the corporate level. We hope that this excursion in budgeting theory will also be helpful if you are a luxury hotelier with decision making authority at any stage in your career. If you need help organizing your digital marketing around these professional principles feel free to book an initial discovery call with us. We are happy to help you navigate these challenges if we turn out to be a good fit for your luxury property or brand.

 

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