On May 6th 2010 in its press release Tripadvisor announced that over 12 000 hotels around the world had subscribed to its Business Listings service and added their urls, emails and telephone numbers. Five months after the launch Paris has taken the leader position wih 13% slice of the total listings with urls, followed by Rome, Florence and Venice.
It looks like a great business for Tripadvisor! According to cautious estimates, the above numbers can mean at least 5 million euros in revenue generated by the new feature. But is it really worth for a hotelier to pay from 400 up to 10 000 Euros per year? Since TripAdvisor launched the service we have received many enquiries from numerous hoteliers, keen to boost their direct sales by placing a link, asking whether it pays off. We decided to check it.
So what is exactly a Business Listing on TripAdvisor?
It is a service that enables a hotelier to place a simple link containing hotel’s telephone number, URL and email on a search results page (Screen 1) and on a hotel’s sub-page on TripAdvisor (Screen 2).
In order to evaluate the benefits of using the TripAdvisor’s new feature, we asked three of our clients from Madrid to share with us their data. As of June 2nd 2010, the first of the hotels was listed at the very top in TripAdvisor’s search results (Hotel #1); the second one – at the bottom of the first page (Hotel #2) and the third one – on the second page (Hotel #3).
Although the hotels studied varied in some of their characteristics, such as price and size, the factor of their location was eliminated – all 3 hotels had a superb location in the very center of Madrid.
|Hotel 1||Hotel 2||Hotel 3|
|Number of room range||51-100||51-100||26-50|
|Average price per room||134 €||105 €||86 €|
|Tripadvisor’s Fee||2,470 €||2,470 €||1,235 €|
The presented data covers data 3 months since the beginning of March 2010. We used Google Analytics for tracking, so anyone who has it in place can easily make the same analysis.
Areas of analysis
In our test we studies 3 major aspects of the new service such as:
1) Volume of traffic brought by TripAdvisor
2) Quality of that traffic
3) Return of Investment
1 Traffic volume – disappointing surprise
Expectations were high; after all it is a leading site in the travel industry and an assumption it should largely contribute to the whole traffic pie was reasonable. To our surprise it was not the case – TripAdvisor represented less than 1% of total traffic for all three hotels. So if you count on a huge boost of the site traffic, it is just not going to happen.
Although TripAdvisor ranks amongst top referral sources it cannot compete with Paid Search or Organic Search. Note that we did not see the relation between high position in TripAdvisor’s search results and traffic volume to the hotels’ websites.
2 Traffic quality – having great reviews pays off
The most appropriate way of measuring traffic quality is via the so called conversion rate (#of reservations / traffic). In other words, the highest conversion rate the better the quality of the traffic.
Only in Hotel #1 conversion rate from TripAdvisor is significantly higher than from other sources (caused by high user rating). In general, conversion rate is very much similar across all channels. That busts another myth of highly qualified traffic from TripAdvisor. The truth is that it is not any better or worse than any other source unless you rank flawlessly on user reviews.
What is worth noticing is a high conversion rate from Paid Search in case of Hotel #2, that is mainly because of long history and established position of this account, but this is a topic for another post.
3 Return of Investment – Big differences between hotels
So the traffic is not as expected, neither is conversion rate but the question remains, does it pay off to buy a Business Listing on TripAdvisor? Let’s take a closer look at the cost and benefits issue. Let’s compare Return of Investment (ROI) of TripAdvisor with other channels like Expedia, Booking, Venere or Paid Search.
Most of hoteliers are used to a commission-based system, mainly because it allows to monitor and compare cost and benefits. In this model, cost is converted into commission. Nowadays the commission level of intermediaries is between 12% to 20%, above this point profitability of using a channel is questionable
The cost of a business listing is not based on a commission model. TripAdvisor charges a paid-upfront yearly fee that may generate new bookings over the course of the year. The value of those bookings should cover the initial investment in an exactly the same way that it has place in the commission-based model.
Transforming the investment in TripAdvisor into the commission based model.
Using Google Analytics we analyzed the reservation value obtained from TripAdvisor and the cost of the service, calculated proportionally to the 3 months of our test. To enable us a like-for-like analysis with other booking channels based on a commission model, we calculated what percentage of the reservation value covers the investment in TripAdvisor’s service. This allowed us to see the profitability in a clearer way.
(TripAdvisor’s Fixed Fee) Divided into (Reservation Value) =Commission.
We benchmarked the results of our three test hotels with another significant source of reservations – Paid Search.
For the Hotel #1 its cost/benefit relation proved to be on an acceptable level, for the Hotel #2 was at the lower end of profitability. Lastly, for the Hotel #3 this investment proved to be really expensive.
In a final analysis other factors should be taken under consideration as well, such as:
- To calculate TripAdvisor’s commission we would need to add a commission of booking system on the website.
- Both investments in TripAdvisor and Paid Search are pre-paid and as a result a hotel will be charged upfront, where a potential the return on investment remains unknown.
- Typically a part of the reservations is cancelled, what normally is taken under consideration in the commission model. Yet in the case of Paid Search a hotel pays per click, not considering the cancellation level.
- There are some other issues such as “increasing brand awareness” or “getting more calls or emails from direct clients”, but since both of them are quite difficult to measure, we’ve left them out of this analysis.
Conclusion: Buy a TripAdvisor Business Listing if…
- Your strategy is to sell directly through your website
- Your site is user friendly and has a high conversion rate
- You always offer best rates and last available rooms
- You already invested in Paid Search
- You are willing to risk a bit (similary to any other fixed costs investment)
All three of our test hotels meet those requirements.
On top of that, there is another factor that makes profitability different: ranking in the first places of TripAdvisor. The higher you are the better profitability.
Buy a Business Listing if you have a high rank in users’ reviews. If you really care about your clients, you will get excellent reviews, your conversion rate in TripAdvisor will increase and your average commission will go down, making the overall investment more likely to be positive.
Please, if your conclusions are different please do not hesitate and share it with us.