Daily Digital Deals Are Exploding in Popularity
The online space once only occupied by Living Social and Groupon has gotten crowded with the arrival of Facebook Deals and Google Offers. These sites and others use collective consumer buying power to offer deep discounts to hotel guests. But given the mournful margin on these hotel flash sales, does this suggest engagement at any cost? This article looks at hotel guest expectations relative to online deals, shares forecasts for web coupon growth for 2011, and delivers digital insights from hoteliers just like you.
Hotel Flash Sales: Engagement At Any Cost?
Recently, the following message appeared on my Tweetdeck:
@HotelAdvantage Regarding Google Offers: Should hoteliers hop on, or does it affect integrity?
This led me to examine how online companies are using hotel guests’ collective buying power to lure them into a new era in online booking.
The Daily Deals Landscape
The four companies that lead in online couponing are Groupon, Living Social, Facebook Deals and Google Offers. Each started out catering mainly to small businesses, feeding consumers a heavy diet of discount massages, half-price Pilates classes and sushi on the cheap. Soon after, small inns and B&B’s jumped on board to gain instant exposure and put their property on the map.
Things continue to ramp up, and hotel guests are being influenced by marketing campaigns that tell them to bid bon voyage to full fare rates and grab hotel deals in real time. Let’s take a closer look at Living Social, Groupon, Facebook and Google:
Living Social Escapes
Living Social Escapes, a sub-brand of Living Social, boasts more than 10 million subscribers in 100 international markets. Staff handpick hotel experiences like, “Rock on Over to Chicago’s Hard Rock Hotel.” You’ll also find deals for getting a 5 star resort stay for less than $100 a night. Living Social Families, another sub-brand, markets irresistible package deals that address family’s’ travel needs.
Groupon enjoys the first mover advantage position and leads the pack. Adding to the drama, they recently completed registration for an initial public offering. Travel is now looked at as a central part of their business, and they’re using Expedia to urge hotels to get onboard. The two have joined forces to offer Groupon Getaways, which delivers online deals from worldly travel destinations.
A tnooz article titled, What Groupon Getaways with Expedia means for Hotels spelled out a typical offer:
Deal: 50% off $200 room at Amazing Hotel
Value of offer: $200
Cost to consumer: $100
Revenue to hotel: $50
Operating cost to hotel: $40
Hotel margin/room: $10
This post sparked lively debate in the comments section, led by UK marketing consultant Robert Gilmour. He vigorously questioned the value of a $10 margin and pointed out he would happily watch Groupon customers pile into the hotel next door in favor of waiting for a more discerning, higher value guest.
While Groupon and Living Social are the leaders in this space, things could change quickly. Facebook Deals, launched in 2011, could potentially gain ground based on its reach of more than 500 million people. Consider the ease with which friends can share hotel deals on Facebook.
Taking direct aim at Groupon, Google Offers is now being rolled out city-by-city. Select areas in OR, NY, and CA are offering special deals that arrive in members’ inbox and on their mobile phones. The high brand recognition of Google has the potential to catapult them into the online deal space.
Digital Coupon Use is Growing
eMarketer reported in June that nearly half of all online consumers [88.2 million US adults] would redeem digital coupons in 2011. Chances are some of your ideal guests are in that population, so what should you do? To learn more, I checked in with a hotel guest, a general manger and a revenue manager for their insights.
Hotel Guest’s Viewpoint
Meet frequent leisure traveler Ellen, who is registered with the top online coupon sites. She has a dedicated email account just to receive her boatload of daily offers. She makes a point to register in multiple cities that cover the geographic territory of her upcoming trips. Over her morning cup of Joe she scans her inbox to check on the deals of the day, and only opens those that shout compelling message lines.
When Ellen reflects on her hotel habits, she enthusiastically describes her brand loyalty to Kimpton Hotels, “they know who I am, and go out of their way to give me fun, personal upgrades – like champagne on arrival, a free pass to raid my mini bar, or spark my mood by putting a goldfish in my room!”
But Ellen admits that the lure of a $100 room night in a competing upscale property can steal her business in a click. After all she says, “It’s fun to try something new!”
Among her fellow online coupon hunters, Ellen says she sees consumers simply jumping from deal to deal, without any thought of brand loyalty or concern to patronize that business again. Ellen says that for a hotel to win her business, the hotel has to show their loyalty to her regularly. At the end of the day Ellen tells me, “most people only focus on what you’ve done for them lately.”
General Manager’s Viewpoint
Meet Hotel Veritas general manager Benson Willis who has navigated the online coupon space with finesse. Willis successfully executed an online coupon campaign that protected his property’s brand image and nourished his bottom line.
Rather than partnering with one of the top online coupon sites, Benson chose to work with Sniqueaway.com to craft his online offer. Sniqueaway, a TripAdvisor affiliate, promotes private online sales travel experiences that feature select A-List accommodations. Only hotels with highest rankings on TripAdvisor can be featured in a deal. That’s fine with Willis, since he knows that the company he keeps online is all-important to his brand image.
Benson shared with me how Sniqueaway created a highly creative coupon offer that was consistent with his hotel’s exacting standards and customized to his geographic locale of Harvard Square. The outcome was a 7-day campaign that generated many thousands of dollars of incremental revenue during a sleepy sales period for the hotel.
While coupon deals are not standard practice for Hotel Veritas, Willis is pleased to have an online partner that connects him with right-fit, discerning travelers who deserve to know about his 1-year young property.
Revenue Manager’s Viewpoint
Adam Hawthorne, Revenue Account Manager for Preferred Hotel Group, says that hotel flash sales are a prominent subject in the revenue management world right now. Recently he held a seminar for 20 Preferred hotels in the America West region, most of who had tried a flash sale. The general consensus from these hoteliers was not positive.
Hawthorne explained, “Almost unanimously the hotels reported not experiencing the return guest ratio that would support the overall expenditure of running the sale. However, in attendance at the meeting were all established properties, and I do see a place for this channel within the revenue strategy for a new property that is advancing it’s brand for the first time, or one that is re-launching it’s brand.”
Hawthorne advises his team to view coupon sites as pure marketing vehicles, and not profit generators. He cautions, “The return guest rate is the only thing that will push a positive ROI, and post stay tracking of these stays is critical in making decisions regarding further use of this type of channel.”
Grow Your Hotel Business the Right Way
Creating campaigns that percolate a frenzied booking experience akin to black Friday certainly puts heads in beds. But as one hotel asset manager pointed out to me, anybody can do that. Indeed, hotel flash sales have proven to energize guests to booking action, but if you’re just filling rooms and not making money, what good is it?
My parting advice is to avoid the herd mentality. Just because other hotels are jumping on board to Groupon Getaways, is no reason to chase those taillights. Know where your hotel is going, and firmly understand your business objectives. Perhaps a fitting conclusion is the reply I tweeted to the hotelier that reached out to me:
#Hotels I’m weary of rate erosion. @Groupon @Google offers can devalue premium brands. Stand by your value proposition confidently!