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PKF Study Finds Hotels Increase Marketing Budgets by 6.1 Percent in 2004
Hotels Continue to Shift Marketing Dollars from Advertising to Person-to-Person Selling
Marketing expenses at U.S. hotels increased 6.1 percent in 2004 as hotels attempt to lure guests back and take advantage of a strongly rebounding lodging climate, according to a recent study published by a leading hospitality consultant.
The study further indicates that a growing number of hotel marketing departments are shifting more of their sales budgets to activities that involve person-to-person contact, like trade shows, meals and entertainment, rather than advertising, brochures and billboards. In fact, this marks the fifth consecutive year that hotels have cut their local advertising budgets. These observations come from an analysis of the data collected for the
recently released 2005 edition of Trends in the Hotel Industry published by PKF Hospitality Research (PKF-HR), an affiliate of PKF Consulting.
On the income side of the ledger, hotels earned an additional 7.6 percent in revenue for the year. The question is how much of that revenue increase was driven by the increase in marketing expenditures. “With the lodging industry in its first full year of recovery after three long years of recession, it is tough to differentiate how much impact local sales efforts had on revenue gains, versus the influence of improving local economies,” said R. Mark Woodworth, executive managing director of Atlanta-based PKF-HR.
Woodworth pointed out that hotels spend most of their marketing dollars on labor-related expenses. “Salaries and wages comprise 43.6 percent of the average hotel’s marketing budget, while employee benefits make up another 11.5 percent. When digging down into where the additional dollars were spent, we found that labor costs within the marketing department grew 7.0 percent, while all other expenses in the department grew just 3.5 percent. For reference purposes, total hotel labor costs grew 6.3 percent from 2003 to 2004. Given the current spending trends, these ratios will most likely grow in the future,” bWoodworth observed.
According to Stephen Fertig ISHC, president of Hotel Consultants, the increase in labor costs can be attributed to the re-hiring of personnel laid-off during the recession, as well as changes in the profile of the typical hotel marketing department employee. “The additional payroll dollars are being spent on sales personnel skilled at managing distribution channels, guest loyalty programs, and yield management systems. In other words, the role of marketing in the industry has taken on a more sophisticated hue.”
For this special analysis it is important to note that franchise fees and assessments were not included in the marketing department expenses. These fees and assessments typically cover national advertising campaigns, as well as frequent guest programs. Therefore, this examination can be viewed as a study of unit-level marketing expenditures.
Labor costs, advertising, and selling expenses are just some of the 200 discrete hotel revenue and expense items captured by PKF-HR for its 2005 Trends in the Hotel Industry report. The 2005 report marks the 69th annual review of U.S. hotel operations conducted by PKF. This year’s sample draws upon year-end 2004 financial statements received from more than 5,000 hotels across the country.
Selling Not Advertising
When examining the non-labor related expenses within the marketing department, the study finds a continued shift away from advertising to selling.
From 2003 to 2004, the dollars spent on selling increased 6.6 percent, while the money allotted to advertising declined 5.1 percent. “At the unit level, hotel managers are clearly showing a preference for person-to-person contact as opposed to mass communication,” Woodworth said. “This could be an indication that the chain-affiliated hotels are relying more on the national advertising campaigns conducted by the franchise companies. In
addition, use of the Internet to advertise has tended to cost less than the historical forms of visual media.”
Differences By Property Type
Except for limited-service hotels, marketing expenses typically run between 4.5 and 5.5 percent of total revenue. In 2004, the average U.S. hotel spent $1,882 per-available-room (PAR) on their local sales efforts. This expense ranged from $416 PAR at limited-service hotels to $4,464 PAR at resort properties.
“Obviously there is a big difference in the size of the marketing budgets for resorts and limited-service hotels. However, it is interesting to note that these two property types were the only ones to show an increase in their advertising dollars during 2004. The leisure orientation of these two property types most likely influenced this spending tactic relative to the choices made by sales and marketing managers at more commercial oriented hotels,” Woodworth concluded.
Return On Investment
As a direct, or indirect, result of spending 6.1 percent more to market their properties in 2004, U.S. hotels earned an additional 7.6 percent in revenue for the year. Resort, all-suite, and convention hotels all shared similar experiences of revenue gains exceeding growth in marketing expenditures. Full-service hotels, unfortunately, were only able to convert their 7.5 percent increase in marketing dollars into a 6.8 percent gain in revenue. At the other end of the spectrum, limited-service hotels actually spent 0.5 percent fewer marketing dollars in 2004, yet enjoyed a 5.8 percent boost in revenue.
Copies of the 2005 Trends in the Hotel Industry report, which provides owners, investors, property managers, asset managers and others with detailed information on all aspects of hotel revenues, operating costs and profits, are available at PKF’s online store at www.pkfc.com, or by calling Claude Vargo toll free at (866) 842-8754.
PKF Hospitality Research (PKF-HR), headquartered in Atlanta, is the research affiliate of PKF Consulting, a consulting and real estate firm specializing in the hospitality industry. PKF Consulting has offices in New York, Philadelphia, Washington DC, Atlanta, Indianapolis, Houston, Dallas, Los Angeles, and San Francisco.
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