Hotels are slowing down their growth by refusing to adopt market research
Companies worldwide use market research to test the viability of new products or services by communicating directly with target customers. In the past, market research was mainly conducted via phone interviews, or by distributing surveys to an existing audience via SurveyMonkey or similar tools.
With the newest generation of market research tools, anyone can survey people beyond their existing audience, with targeting options similar to Facebook Ads, getting opinions publicly from consumers in real-time.
Global market research spend vs. advertising spend
Market research spending was 73.4 billion U.S. dollars in 2019, doubled since 2008. In 2021, global market research spending exceeded 110 billion USD. North American corporations spend the most on research, representing 54 percent of the total, followed by Europe with 26 percent.
In comparison, search engine ad spending in 2021 stood at 144.8 billion U.S. dollars worldwide. Display advertising, which reached 238 billion U.S. dollars, accounted for the largest ad spend share in 2021.
This means that the global market research spend is around 28 to 30 percent of global search and display advertising combined, nearly identical to global search engine advertising spend.
This raises a question: how much your hotel spends on research? Are you missing out on essential business intelligence that your competitors might have?
How much do hotels spend on marketing and market research?
While the average marketing budget for small businesses is around 11% of revenue, hospitality businesses often run a much tighter profit margin than other sectors. This explains why the ballpark average for marketing budgets for independent hotels is around 7% of annual revenue. This mostly applies to international chain hotel brands.
Independent hotels with good digital marketing setups typically aim to generate a 10x return on ad spend, scaling Google and Facebook Ads spend as much as the positive ROAS can be maintained while spending little to nothing on research.
Independently managed hotels took nearly a decade to develop a willingness to pay for direct marketing. Even today, some hotels spend less on marketing compared to a beauty salon or a restaurant. The situation is even worse with market research. Not all hotel marketing decision-makers understand the importance or function of market research.
It is especially true for hotel managers who are decidedly resistant to modern business procedures. Younger, more dynamic hotel managers with recent education use research very well to improve not only sales and revenue but also guest satisfaction metrics.
Market research for hotels is an excellent investment
In business, everything comes down to bottom-line impact. Before spending on market research, one might ask: how will this help us to make more money? What sort of tangible results will we get for our money?
Here are the top reasons why hotels do market research:
To test markets
Market testing is the most common market research goal. Briefly, the hotel measures demand in various countries and demographics where they expect business from. Test results help to improve the targeting and the messaging of marketing campaigns, resulting in a considerably higher ROI and profitability.
A few hundred dollars invested in market testing can save thousands of dollars of poor ad spending while helping to start profitable hotel marketing campaigns from day one.
To test brand and product presentation concepts
During pre-opening or re-branding, the professional method of choosing design concepts is through market research. Concept testing is one of the most common reasons for companies to collect feedback from target customers. The process involves a series of complex A-B tests to assess which concept or design is the most attractive for target customers.
Hotels engaging in concept testing launch successfully, while concepts finalized without collecting adequate market feedback can take years to take off — if they ever take off.
To measure brand awareness and benchmark against competitors
Brand awareness measurement is likely not on your hotel marketing to-do list, but wait until you read further. Companies that purposefully manage their brand awareness enjoy increased demand, less pricing sensitivity, and less exposure to volatile market trends.
Brand awareness research can get you customer feedback-based insights regarding which segments know your hotel brand, and how it compares to the brand awareness of your competitors.
These insights are essential to managing brand awareness and long-term brand popularity.
To measure brand acceptance and benchmark against competitors
Similar to brand awareness, brand acceptance research gets data about what people like and dislike about product presentation, brand, and perceived values of your hotel. This is entirely different from guest reviews.
Brand acceptance reports will tell you what made people not book your hotel, what looks good about it, and what is off. This information is vital to improve brand acceptance, product presentation, conversion rate, sales, and revenue at the end of the day.
Conclusion: market research is still a tool for a few forward-thinking hoteliers only.
As mentioned at the beginning of this article, most hotels are still hesitant to invest in basic marketing, let alone market research. Spending all the marketing budget on advertising seems like the safest bet to generate a positive ROI, while spending on research will not automatically do that.
Market research only generates positive results if the management team can take appropriate actions on the insights. Arguably, most hotel marketing management teams are just not capable of that.
There is a reason why global companies spend nearly 20%-30% of their marketing budget on research. Data and information acquired through primary survey research are essential in today’s fast and unforgiving market environment.
Modern research tools give forward-thinking hotel marketers and hotel management teams an edge to beat others that rely on assumptions and are still hesitant to use today’s standard business tools.