Thursday, November 14, 2013

How to Avoid Being Commoditized By Empowered Consumers

Consumers’ passion for and rapid adoption of technology presents both opportunities and risks for all businesses. As the time we spend with various screens reaches new highs (over 5.3 hours per day, eMarketer July 2013), the imperative to re-evaluate your marketing strategy and resource allocation intensifies. The largest risk is a drastic uptick in commoditization, especially if you are targeting or catering to the millennial generation. The opportunities include a social and mobile led retention strategy.

Even before the millennial generation, the winds of change, disruption, and consumer empowerment were underway.  Let’s take a look at the hospitality vertical and how empowered all consumers have become over the last 20 years.  Before 1996 (the year I started business school, referred to as BBS, before business school), planning a trip could include reading magazine, travel books, using your landline phone to dial a travel agent or call a travel provider directly (if you could find the number in the phone book). We had to book by using the travel agent, calling hotel directly or calling HRN (predecessor to  Since we had no idea if the price being quoted as the lowest, we tried to negotiate (some baby boomers still try to do this). We would use paper maps and stop frequently to ask directions. Word of mouth was in person – not very viral.

Around 1995, everything changed when the Internet was born. Netscape went public. Bezos drove cross-county and founded Amazon.  In 1996, Expedia (then part of Microsoft), and Travelocity were founded. launched a website to complement their 800# service. This was the beginning of empowerment. Consumers could log on to one site and view rates from my hotels in a market, view photos and book online. E-commerce was born.

Google started the year I graduated business school, 1998 – let’s call it ABS (after business school). This period is marked by the fast adoption of search and, later, comparison-shopping. This intent based, pull marketing changed marketing forever. Businesses who adopted search marketing gained a competitive advantage. Marketing accountability was born and I started DMW (Jan 2003). Consumers loved the immediate access to information and answers to their questions. Google quickly became a verb. TripAdvisor was founded in 2000 but really hit its stride during the next phase of empowerment. Compare the ABS to the BBS period – wow, what a difference. We could make better travel decisions while saving ourselves a ton of time.

The real period of empowerment began between 2004 when Facebook was founded and 2007 when Apple released the first iPhone.  Apple delighted consumers with an unbelievable user experience and ego-expressive design. TripAdvisor user reviews started to drive the choice of hotels along with rates and location. DMW began our user review optimization practice. Consumers became passionate about their smartphone – finally, an all-in-one device that was fast and really worked. The app community continued to fuel this passion by releasing great apps. Consumers were now in the driver seat. Twitter was founded in 2006. Next came the iPad in 2010. Mobile and social where building on themselves and consumers were more empowered than ever to make great travel decisions. By themselves. With their smartphone. They can share their experiences and opinions with friends and strangers. Meta-search on Kayak and recently TripAdvisor and Google further empowered users to compare hotels with real-time rates, availability, reviews, maps, etc.

Other important changes that lead to further empowerment included the growth of auctions for consumers and media buyers (Google, etc.), best rate guarantees, rate parity (or not), etc. With one click, consumers can sort results by price. All of this technology and change tilted the hotel buying process toward price, thus fueling commoditization. Disruption was all around with OTAs stealing share from each other and suppliers. Mobile apps and an intense focus on UX increased the scope (choice) advantages of the OTAs.

An important result of all this change is that Mobile app usage has become the new loyalty paradigm. Google is terrified of this as consumers can search their iWhatever and bring up their favorite app – bypassing Google search all together. When Google is under assault, so too is the competitive advantage that many of us established with search marketing. The "open" world of Google, browsers, and most websites (including mobile web) remain very relevant. Marketing winners, however, must continue to adapt. They must learn how to navigate the "closed" digital world, too: all iOS and Google Play Apps, as well as much of the social world (including Facebook). Understanding this “closed” universe and it’s relationship to the “open” Web is key to your next marketing strategy.

Millennials are defined as those born between 1980 and 2000, today 13 to 33 years old.  Their behaviors and needs are very different from the prior generations due, at least partly, to the new paradigms of mobile and social. They have grown up with technology and are extremely comfortable with it. Recent studies suggest they are open to learning, experimentation and are great sources of innovation. According to The New York Times, “Social media permeate the personal, academic, political and professional lives of millennials, helping to foster the type of environment where innovation flourishes. So when compared with older generations, millennials learn quickly — and that’s the most important driver of innovation.” These consumers are more transparent in their communication with peers (social media) and businesses (user reviews). This is very different behavior than baby-boomers, many of which are uncomfortable with change. In fact, compared with GenX and Baby Boomers, Millennials are open to personalization through data analysis and targeting.  Here are the results of an interesting study:

Unfortunately, due to these factors, Millennials also tend to be less loyal. But, they are open to trial and are a great acquisition opportunity.  Just make sure your user experience is optimized - both on property and via mobile devices.

Here are the key implications for marketers.
  • Understand your target audience. Whom do you need to reach and cater to achieve your business objectives.  Does your target include Millennials?  If so, adjust your market resource allocations appropriately.
  • Actively listen to your current customers and optimize their ratings and reviews.  This is foundational and will create marketing option value.
  • Increasingly move resources from offline to online. Rapid device proliferation and the empowered consumer dictate.
  • The Open and Closed web should be central to you marketing strategy. How do you win in a Web that is increasingly divided by open sites and closed app and networks?
  • Don't underestimate Social media.  How does social media feed your retention strategy? Acquisition strategy?  Mobile strategy? 
  • Be willing to cannibalize yourself....before you're cannibalized by a competitor or distributor.
  • Understand that customer experience is key to loyalty. Break down silos and collaborate with your peers in operations.
  • Really understand your metrics.  What’s your customer acquisition cost?  What’s your cost to retain a customer?  How do you drive increased frequency?  What’s your lifetime value of different user segments?
  • Use media and device attribution to measure and/or estimate return value (versus last-click measurement).  Ironically, digital marketing has become harder to finitely measure.  Learn to be comfortable with this and follow your customers.
Gotta wrap it up.  We are happy, however, to continue this conversation with you. Please comment below or contact DMW.

By Jack Feuer -- Founder & President, Digital Marketing Works

Monday, September 16, 2013

Reviews Are the Brass Ring on Google's Carousel

Since early 2010, we have been advising our clients that improved online review scores drive demand for hotels, and that reviews can drive both visibility and demand within hotel review sites like TripAdvisor. Our own client-side research was bolstered by Chris Anderson's landmark research paper in November 2012, which demonstrated a direct relationship between review scores and the actual performance of hotels.

Until now, however, the industry has not been able to determine what effect, if any, review scores have on the visibility of hotels in Google's organic search results. With Google's release of Carousel in June, however, it seemed like a good time to try and tackle this question.

What drives the placement of hotels from left to right in Google Carousel?

A deeper dive into Carousel also helps to round out DMW's recommendation for a Holistic Google Optimization Approach. For historical reasons, most brands (including hotel brands) have silos that manage Paid, Owned, and Earned media (POEM). Google increasingly considers all three of these areas as a whole, however, and brands must follow suit if they are to be successful. It is hard to overstate the importance of this; see our June blog post for more detail.

Holistic Google Optimization requires a coordinated POEM approach across all Google assets.

The Question: What level of influence, if any, do online reviews have upon a hotel’s Carousel ranking? To answer this question, we designed our study to focus on reviews and to set aside the many other complex factors that inform Google search results (like semantic, visual, personal, and price factors). While this creates a very simplified view of Search, it has enabled us to paint a clear picture and come to conclusions that we believe to be directionally correct and relevant.

Our summary finding: In a validation of predictions made in our initial Carousel blog post, the research showed a very strong correlation between Carousel rank and average review rating and quantity. Across all market tiers and search terms, the correlational coefficient of those data sets was -0.76 (out of a best-possible -1.0). Translation: Earned media (online guest reviews) is now a major component of Google's search results for hotels.

DMW primary research shows a strong correlation of Google review data with Carousel rank

DMW Primary Research: Details Snapshot
The findings and conclusions in this post are driven entirely from our own primary research. Here's a quick overview of the scope of the effort.
  • DMW ran approximately 4,500 desktop Google searches for hotels in 47 markets in The United States. 
  • Each of these searches returned SERPs in the new Carousel format.
  • For the top 10 hotels of each search, we collected the hotel’s name, rating, quantity of reviews, and rank (as displayed in Carousel). We also recorded the travel time and distance from each hotel to Google's definition of the given city. 
  • The markets themselves were selected from primary, secondary, and tertiary destination tiers. The majority (60%) of the markets in our study are primary markets.
  • We used in equal measure the following popular hotel search terms: 
    • hotels in [city]
    • best hotels in [city]
    • downtown [city] hotels
    • cheap hotels in [city]
  • Our research yielded approximately 42,000 data points, including data on approximately 1,900 distinct hotels.

How We Used the Data
Our study looks for correlations between a hotel’s rank in a search result with each of the following: 1) Google review rating (out of five stars), 2) quantity of Google reviews, 3) travel time from the hotel to the searched city, and 4) driving distance from the hotel to the searched city. We can look for these correlations within all combinations of query type (like "best hotels in...") and market tier. For example, we were not surprised to see a strong correlation between rank and travel time/distance: closer hotels ranked higher. 

Time and distance from a specific hotel to Atlanta, as defined by Google

Finding #1: Carousel rank correlates highly with Google review ratings. Our most important finding is encapsulated in the chart below. The relationship is impossible to miss. Our study also showed an equally strong correlation for a hotel's quantity of Google reviews. In both cases, these scores are on par with the correlation of time/distance and Carousel rank, suggesting that Google places a very high value on reviews indeed.

Google Carousel search results correlate very strongly with the quantity of online reviews and average rating.

  • Recommendation: Improve your hotel’s visibility via a Review Optimization Program focused on more Google reviews. While most hotel brands remain focused on TripAdvisor, seize a new advantage by optimizing for Google reviews. In addition to improved visibility, online ratings also improve demand (via increased click through rates that lead back to brand-owned booking pages). The best way to measure your progress is with compset indices of review quality, quantity, and recency. 
  • Extra Note: In our research,  90% of all hotels had 150 or fewer Google reviews. If you're looking for an arbitrary measure of success, breaking through the 150 threshold would be a great start.

Finding #2: 50% of all 1,900 hotels in our study are within two miles of the searched destination. 75% are within 13 minutes of travel time. When we couple this discovery with the fact that Google is ranking hotels in increments of (at most) 0.1 miles, it suggests that a hotel that is literally down the block could conceivably get a small boost in Carousel ranking (because it is slightly closer to Google's abstract concept of that city).

    50% of all hotels are within two miles of the searched city

  • Recommendation: Promote what you're near. Attempt to educate guests into searching for specific landmarks and neighborhoods instead of the whole city. Hotels that are not lucky enough to be right next to Google's specific latitude / longitude for a city must educate their market. Attempt to influence guests to search for the specific landmarks and neighborhoods that you are close to. Use paid, owned, and earned media to get the message out.

Finding #3: Google is improving its ability to understand the nuance of our searches. Google appears to alter the weight of hotel factors depending on the nature of the search. Here is what the data revealed...

The correlation of review and distance data with rank varies by search term, suggesting that Google applies different weights to best respond to the nuances of our searches

    • The generic “hotels in [city]” query is relatively balanced between Reviews (at about -0.55) and time/distance (at about +0.62). Both of these scores are significant, but not exceptionally strong.
    • When searching with the query “best hotels in [city]”, Google understands the user’s emphasis on quality and responds accordingly: it dials up review rating and quantity and dials down time/distance.
    • If searching for “downtown [city] hotels”, however, Google determines that the user’s intent is more focused on location and provides different results. The correlation with time/distance goes up to a strong value and review data diminishes (but still remains significant).
    • When searching for “cheap hotels in [city]”, we see no strong correlation with review data or time/distance. We assume this is because substantial weight is being given to what Google knows about the prices of hotels instead (not measured in this study). 
  • Recommendation: Pursue a coordinated Holistic Google Optimization effort across POEM because the sum is greater than the parts. Examples: We clearly see that SERPs for "best hotels in..." rely on reviews, but we know that good content factors in as well. The results of "Hotels in..." and "Hotels near..." searches are completely dependent on what the user has been educated to search for (landmarks instead of whole cities, we hope). "Cheap" searches will benefit from an optimized Google HPA program, of course, but should perform best with good review scores.

Finding #4: Our findings hold true across primary, secondary, and tertiary markets. While we see some variance per market tier, our overall findings hold true regardless of the size of the city. 

    The findings of our research hold true across all three market tiers.

  • Recommendation: No hotel is too small to consider online reviews. Because we see a strong correlation of search rank and reviews for all three market tiers, even the smallest hotels should now consider a review optimization program. “We’re a small roadside motel” is no longer an excuse – especially in an era where those truck drivers have mobile phones and are asking Google for “the nearest motel”.
Final Thoughts -- For Now
Many of us have learned that “correlation is not causation”. In this case, however, we should assume a degree of causation because all findings are the results of Google’s explicitly engineered algorithms. In June, DMW predicted that the new Carousel SERP page would further drive a Google-centric POEM environment, and this research has empirically demonstrated just that: earned media (online guest reviews) is now a major component of Google's search results (via Carousel) for hotels.

The new Google Maps app for Android highlights an optimized hotel search experience (with rates) and the benefits of "reviews from trusted friends and experts"

We also predicted that rates, informed by Google HPA, would begin to show up in Carousel. As of Sunday, this is now an official feature in the Google Maps app for Android. We are sure that Carousel will be soon to follow. When it does, we will provide findings on the correlation between price and rank -- especially for the popular "cheap hotels in..." search query. We also predict, however, that any brand that views HPA as a siloed exercise in Paid media will see suboptimal results. Google HPA must be considered in the context of Review optimization --and of all POEM media-- as well.

When taken all together, our findings are a good-news story for hotels. Suppliers have a big opportunity to win share back from the OTAs by grabbing the brass ring on Google's Carousel -- no OTAs are allowed on this ride!

What's Next? 
We believe this research to be an industry first, and we will re-run our research on a periodic basis to track changes that may result from future Google updates. We are happy to respond to questions. Please ask in Comments, below.

By Aaron Zwas -- Director of Emerging Technologies at Digital Marketing Works

Tuesday, August 27, 2013

A Gnome is Not a Core Competency - Intermediary Consolidation Continues

The Expedia and Travelocity partnership announced last week has many implications for the hotel industry. This blog will explore the many questions about this deal.  Why would two arch rivals and founders of the OTA merchant and packaging models hook up?  DMW has a unique perspective on this due to our diverse client base of hotel owners, brands and managers including branded, independent, economy, limited service, full service and luxury hotels.

The bottom line is that market forces brought this deal to fruition.  OTA margins are under increased pressure, technology capital requirements are increasing, the meta-search channel continues to grow, a proliferation of tech startups is trying to disrupt the channel, money is cheap and equity is fully valued. The consolidation wave has already begun with PCLN buying and Kayak and EXPE buying Trivago.

The rationale for Expedia is easy to grasp:

  • Market share and reach growth.  According to Brian Nowak at Susquehanna International Group, LLP (SIG), "Travelocity is the 5th most visited OTA in the U.S., with ~7.2mn unique visitors (See Fig 1). Travelocity and Expedia's user bases do not have much overlap, as 45% of people that go to don't visit"

  • SIG further estimates that Expedia's total traveler reach will increase by 19% through the deal (See Fig 2). They believe that over the long-term, traffic trends and reaching travelers will matter in market share battles (such as Expedia and Travelocity's battle against in the U.S.) and this will be a positive for Expedia's reach.  DMW agrees.
  • While gaining this reach and market share, EXPE is severely weakening a competitor.  How does TVLY compete with no sustainable competitive advantage?  How do you spin "marketing" as core competency when you are shedding the technology side where much of the UX innovation lies.
  • EXPE will gain increased technology scale which can fuel greater tech investment and help EXPE compete with PCLN.
  • EXPE should gain leverage with suppliers by aggregating more demand and offering a single direct connect option.
  • Meta-search road block?  One can envision a future where EXPE coordinates meta and PPC bids between Expedia, and Travelocity and occupy the top 3-4 positions for a overall higher ROI (or lower initial loss depending on how you look at it).  You can see a scenario where user is offered the same rate from, and Travelocity - all powered by the same database of inventory and prices.

The rationale for Travelocity, however, is harder to see despite the spin you read in the press.
  • Cost and capital savings - yes, this deal will reduce TVLY operating expenses and capital requirements.  There are rumors of an impending Sabre IPO so this may have forced this move. As a purely financial maneuver, this deal may work for TVLY shareholders.
  • The "merchant-model" is dead.  Perhaps TVLY wasn't prepared to make the investment to move to a guest pay at check-out model versus pay upfront model.  Certainly, this has higher conversion but lower cash flow for the OTA.  Expedia is currently rolling this out as the "Expedia Traveler Preference" or ETP program.
  • TVLY margins on each hotel booking will be 30-50% less due to revenue share with EXPE. Perhaps TVLY keeps 65% of 19% commission (example) = 12% - not a lot to work with to find ROAS through online advertising.  Perhaps EXPE will help out with more sophisticated, algorithmic bidding strategies between TVLY and EXPE brands.
  • With rate parity under attack, in the near future we expect hoteliers and OTAs to begin leveraging their closed database of users and off special hotel deals below BAR.  The OTAs, however, will need to fund this discount via their commission, which is a problem here since the commission is 30-50% less than it is today.
  • Longer term, I see only risk from a lack of sustainable competitive advantage.  I can't see how you separate technology from marketing for an e-commerce business.  Who will handle the front end UX (TVLY websites, apps, etc.)?  Where will the handoff to EXPE's backend tech occur? Aren't we seeing great innovation in this area right now where the back-end data such as rates, personalization signals, etc are fueling the front end content and engagement?
  • Sorry, but a Gnome is not a core competency.  

What are the implications for hoteliers? Overall, this deal is not great news for suppliers.  
  • Beyond 2014, negotiations may become a bit harder with Expedia. 
  • Our costs to direct connect, however, with OTAs may decrease giving us more funds to connect with Google HPA, TripAdvisor, Kayak, etc.
  • As the battle for market share between PCLN and EXPE heats up, expect ROAS from Paid Search and Meta Search to decrease.  
  • Expect more consolidation.  What's the future for Orbitz?  They could be more valuable in someone else's hand than as a public company ($1B Mkt Cap today).
  • Consider Review Aggregation on your direct website.  Kayak just announced this (as we predicted in Nov) and we may see it from EXPE/TVLY deal in future.
  • Get ready for a world in which hoteliers can break rate parity to our closed guest lists and start working on your new promotion calendar.  
  • Continue to take a holistic view to online distribution and marketing.  Understand that users will visit many travel websites before making a booking.  We need to be on all shelves, measure attribution and innovate on our direct web channel so guests choose to book directly with us. This innovation can only work when marketing and technology work together.
We would love to hear your comments on this blog.   Please share.

By Jack Feuer -- Founder & President, Digital Marketing Works