A Deeper Look at Expedia’s Partner Recovery Plan
In response to devastation incurred by the hospitality industry because of COVID-19 and following suit after Airbnb’s $260 Million relief package, Expedia last week announced its partner recovery plan worth $275 Million. Albeit more details are still to come, our analysis will be based on the information available as of 28th May. The focus of this piece will cover the biggest slice of the package, the $250 Million worth of Marketing Credits. These credits can be used for the full suite of Expedia products including Travel Ads, Accelerator, Campaigns & Promotions or VIP Access.
According to Phocuswire, for each property that participates in the program, Expedia Group will reinvest 25% of the compensation earned in 2019 from the property into marketing credits. Properties will receive the marketing credits which range from a minimum of $200 to as much as $100,000. The program will be based on recovery signals (such as demand trends) and will be available for use over a three-month period of their choice, during which time Expedia Group will also reduce its compensation by 10% on all new bookings made, regardless of the actual stay dates.
The plan seems very plausible and it is great to see a distribution partner such as Expedia attempting to assist hotels during this crisis.That said, the model will inevitably be skewed towards large-scale Expedia partners hotels. Consider this example, your hotel accomplished $5 Million of total revenue in 2019 with 15% revenue coming from Expedia with an average commission of 18%. This relief plan will provide you with $33,750 worth of marketing credits as opposed to a hotel doing $1.5 Million which will receive $10,125. If all of the money is required to be spent within a specific amount of time and assuming the competition also joins the program, smaller hotels will need to be very mindful of how and when they are spending the credits. Additionally, they need to be careful not to overspend to compete with the hotels in the market.
But that is only one piece of the puzzle, as we know hotels will receive marketing credits based on recovery signals and that they will only be valid over a three-month period of hotel’s choice. If the majority of the industry looks at demand as the recovery signal, we can assume that a market's demand will prop up at around the same time, which creates a dilemma for hotels as to when to use them without competing with the whole market place. Since this will be an industry wide phenomenon, all hotels will have thousands worth of credits and it will surely inflate let us say the PPC cost until every dollar worth of marketing credit is expired. This will need an overhaul of marketing budgets for many hotels which have campaigns setup on Expedia and spend regularly, because the conversion vs spend ratio might change dramatically due to the influx of more PPC competition. Something similar might happen on other options of marketing on Expedia as well such as the Accelerator program (based on places where they allow you to spend such credits).
From a distribution perspective, there were a few other items that weren’t as widely mentioned but certainly worth note! Building upon the success from the Marriott-Expedia distribution agreement, now all hotels can participate by giving wholesale inventory to Expedia Partner Central. This will allow them to receive access to Expedia’s vast network of distribution partners including but not limited to airlines, banks, wholesalers, and loyalty partners. This is an extremely interesting rollout as it further interferes with the chain's value proposition, as this is one of their major sellings points. This now begs the question if Expedia can offer Expedia, Egencia and a wholesale solution - seriously what’s left?
One other item that was particularly interesting was Expedia’s requirement on receiving “lowest retail rates, as well as competitive pricing on things like holiday packages and member only deals.” Clearly, this is targeted to the industry growing trend of driving direct bookings as member rates is a substantial value proposition that brands and independent hotels can use as a way to grow direct share. As of August 2019, Cleveland Research Company, an independent investment research firm had represented Marriott and Hilton around 31-32% for digital direct/brand.com. Additionally, Kalibri Labs stated in their Book Direct Campaigns 2.0 report (published Jan 2019) that 1) Loyalty members represent the largest customer base for branded hotels in the U.S. and 2) Brand.com has grown at the same rate or faster than the OTA channel.
With the current climate, we know that potential guests will likely visits hotel or brand site to review the cleanliness measures taking place on property. Therefore, the move for member only rates was clearly strategic. Give us the best and lowest rates in order to receive the benefits of the marketing… The question is how will the chains react to Expedia’s generous offer? If hotels are desperate for additional occupancy and can receive a benefit of a 10 point reduction, does the member only pricing get devalued if Expedia receives the same for their own members? Only time will tell. What do you think?
Sources: Skift, Phocuswire, Expedia.