Slide 1

HAMA Sales & Marketing Efficiency Study Hospitality Asset Managers Association

Slide 2

kalibri LABS. Confidential & Proprietary Information Agenda HAMA Sales and Marketing Efficiency Study Acquisition CostsA Deeper Dive Frank Camacho, white paper author Solutions in process Industry, Brand, Hotel

Slide 3

kalibri LABS. Confidential & Proprietary Information Booking Brands and Stay Brands

Slide 4

kalibri LABS. Confidential & Proprietary Information HAMA Sample P&L Database 468 hotels from 2009-2012 Data elements Total Sales and Marketing Spend Commission Expense (retail only) Total Revenue Room Revenue Number of rooms Group/Transient split Same store340 hotels

Slide 5

kalibri LABS. Confidential & Proprietary Information Chain Scale Hotel Chain ScaleNumber of Hotels in Sample Luxury69 Upper Upscale120 Upscale209 Upper Midscale69 TOTAL468

Slide 6

kalibri LABS. Confidential & Proprietary Information Management Type Number of Hotels in Sample Franchise/Mgt Company295 Brand Managed162 Owner Operated11 TOTAL468

Slide 7

kalibri LABS. Confidential & Proprietary Information Location Type Number of Hotels in Sample Urban195 Suburban145 Resort46 Airport41 Interstate/Highway30 Small metro/town11 TOTAL468

Slide 8

kalibri LABS. Confidential & Proprietary Information Size of Property Number of Guest Rooms Number of Hotels in Sample < 150193 150-299149 300-44973 450-59923 600+30 TOTAL468

Slide 9

kalibri LABS. Confidential & Proprietary Information Segmentation Dominant Business TypeNumber of Hotels in Sample Transient408 Group60 TOTAL468

Slide 10

kalibri LABS. Confidential & Proprietary Information Partial Chain Representation ChainNumber of Hotels in Sample ChainNumber of Hotels in Sample Marriott202Fairmont19 Hilton92Independent13 Hyatt36Four Seasons12 Starwood28Kimpton11 IHG23Denihan9

Slide 11

kalibri LABS. Confidential & Proprietary Information Commissions Rise at 2x the Rate of Revenue Growth (retail commissions only)

Slide 12

kalibri LABS. Confidential & Proprietary Information Contribution to Operating Expenses and Profit RangesNYC 2012 Cost TypeLow ContributionHigh Contribution Commissions Only 80%90% Commissions + Sales/Marketing 70%80% 2013 Kalibri Labs Source: Kalibri LabsNYC Prototype test

Slide 13

13 HAMA White Paper: The Rising Costs of Customer Acquisition Upper Upscale & Luxury Segments F Camacho Consulting

Slide 14

14 Topics Background Room Revenue and Acquisitions Costs 2009-2012 Sources of Cost Growth Fee examples Growth by Category Comparison to Franchised properties Growth Varying by Brand Recommendations

Slide 15

15 Background and Approach During economic recovery costs typically rise at a slower pace than revenues concerns this wasnt happening Analyzed P&L for 6 properties in detail over a 4 year period Developed framework to examine costs of customer acquisition Started with 468 U.S. and Canadian properties in the Kalibri database representing over $7 billion in revenue Focused on 104 upper upscale and luxury, managed properties with brand affiliations

Slide 16

16 Finding 1: Flow Through Was Not Improving - Customer Acquisition Costs Rose Almost 23%

Slide 17

17 Acquisition Costs Can Be Driven Centrally or By Local Decisions Acquisition costs divided into five categories, two external and three internal: External costs: Brand allocations including those for Brand marketing, advertising, promotions, national and global sales offices, and loyalty programs. Third party commissions both transient/travel agent and group Internal/Property Costs: Local/property marketing and sales programs Local/property marketing and sales staffing and related expenses Other local expense including reservations

Slide 18

18 External Fees Related to Customer Acquisition Vary in Type and Amount By Brand Charge CategoriesFairmontFour Seasons IntercontinentalMarriottRitz Carlton Westin Reservations Brand/CROxxxxxx Outside/GDSx(included above) xxxx Marketing Marketing Feexxxxxx Performance/Online Marketing xxxx Ad Co-op/Clustersomex Loyalty Program FT/Transientxxxxx Group/TAxxxxx Sales GSO/NSO(in Brand) xxxx Cluster/Regionxx Referral Programsxxx Commissions Transient TAxxxxxx Groupxxxxxx

Slide 19

19 Finding #2: External Costs Grew 54% Faster 37% for brand allocations and 34% for retail commissions

Slide 20

20 Finding #3: Local Marketing & Sales Budgets were held down

Slide 21

21 Franchised Properties Saw Even Greater Increases in Third Party Commissions

Slide 22

22 Finding #4: Rising External Costs Further Tilt the Balance of Spending 2009 Acquisition Costs: $348MM2012 Acquisition Costs: $424MM 49%

Slide 23

23 Finding #5: Total Acquisition & Retention Costs Vary Widely By Brand

Slide 24

24 Third Party Commissions Account For Much of the Variance in Acquisition Costs Third parties can contribute to revenue growth However, dont drive revenue increase as fast as costs growth Different brands approach them quite differently Three brands grew revenue faster than commission expense

Slide 25

25 Finding #6: For the top 10 Brands included in this study, Commission Growth ranged from 10% to 72% 3 Brands Grew Revenue Faster than Commissions

Slide 26

26 Conclusions 1.Customer acquisition costs should be a major discussion item between Owners and Brands. 2.If Brands become less able to deliver uncommissioned revenue, they have a lower economic value 3.While costs have been offset by reductions in local spending, owners shouldnt allow local Sales and Marketing to be crippled 4.In new management agreements, customer acquisition costs must be clearly stated and ownership has the right to approve incremental fees 5.Tracking the costs of customer acquisition should be an ongoing focus for every property 6.Luxury and Upper Upscale segments were studied, but all segments should be concerned

Slide 27

Sales and Marketing Spend Declining in Efficiency

Slide 28

kalibri LABS. Confidential & Proprietary Information HAMA Study Metrics* Net RevPAR Revenue (Commissions + Total Sales and Marketing)/available rooms Net Sales and Marketing Efficiency How much net revenue is generated for every $1 spent in sales and marketing? Revenue - Commissions Total Sales and Marketing * ~500 hotels; P&L data only; retail commissions only

Slide 29

kalibri LABS. Confidential & Proprietary Information Net Sales and Marketing Efficiency

Slide 30

kalibri LABS. Confidential & Proprietary Information Notable Highlights Branded luxury hotels were more efficient in sales and marketing spend than the branded upper upscale However, independent and small chains outperformed branded luxury hotels in sales/marketing efficiency Luxury hotels were 11% better in S&M Efficiency than the Upper Upscale, but with a 100% premium in ADR and revPAR that was a surprisingly narrow margin; they were 18% more efficient in sales and marketing efficiency when total revenue was considered Commissions in upscale hotels grew more quickly than other chain scales between 2009 and 2012 but it was a close contest Group hotels held steady in S&M efficiency from 2009-12 and were 9% more efficient than transient hotels (based on total rev); transient were more 19% more efficient on rm rev; transient declined over time largely due to the steep rise in commissions.

Slide 31

Solutions: Industry, Brand and Hotel Hospitality Asset Managers Association

Slide 32

kalibri LABS. Confidential & Proprietary Information Measure and Manage Major brands have agreed to share data to create these metrics for brand, hotel and industry use Change the metrics to evaluate hotel performance each month; if you want Net Revenue, then reward on Net Revenue Contribution to profit Net RevPAR Net Sales and Marketing Efficiency

Slide 33

kalibri LABS. Confidential & Proprietary Information Contribution by Channel Commissions and Transaction Fees Erode the Revenue that Flows Through to Profit COPE: 85.7% 2013 Kalibri Labs

Slide 34

kalibri LABS. Confidential & Proprietary Information

Slide 35

HAMA Sales & Marketing Efficiency Study Questions?