Note: This is a guest article by Jennifer Mellet, senior director of new channel sales at Expedia.
The partnership between Groupon and Expedia to form Groupon Getaways with Expedia has generated a lot of buzz and a healthy interest in the logistics of the daily deal model in travel.
The news itself touches on some of the hottest topics in the travel industry today, including the role of daily deals in travel marketing, the power of social media in brand building, and the value of the online travel agency channel in distribution.
So what does this new channel really mean for travel suppliers?
It is first and foremost a low cost, low risk customer acquisition and brand introduction channel.
At launch, Expedia and Groupon will market Groupon Getaways with Expedia to our huge combined audience of more than 50 million subscribers in the U.S. It is a young and affluent audience, with over half earning more than $70,000 a year.
These consumers will turn to Groupon Getaways with Expedia to discover new travel opportunities — in their own backyards and across the country — that in most cases would not have otherwise been on their radar.
Here’s an illustration to show how it can work:
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
Total margin generated if 1000 vouchers are sold: $10,000
If you’re a hotel revenue manager, you might be thinking “You want me to give away a $200 room for $50?”
Though a room is in play for each Groupon sold, we’ve found that the model is best understood as a marketing vehicle. In the example above, those are 1,000 largely incremental room nights that would have otherwise gone unsold.
Your operating costs are covered, and you’ve attracted a set of affluent, avid travelers to your property, with the opportunity to generate even more revenue from on-site purchases, such as additional nights, room upgrades, dining and in-room entertainment.
In fact, Groupon customers have been shown to spend as much as 60 to 80 percent on top of the value of the Groupon.
Illustration continued:
Cross-sell revenue per room (70% on top of $100 voucher at 70% margin to hotel): $49
Total margin generated if 1,000 vouchers are sold: $59,000
Another question you may have: “How do I know if Groupon Getaways with Expedia isn’t just cannibalizing bookings I could have gotten at full price?”
The average hotel reaches maximum occupancy very few nights of the year. Many hotels run at max occupancy on less than 2 percent of nights. Even highly seasonal outliers that do fill all their rooms for a two- or three-month stretch will commonly have four or five months at less than 30 percent occupancy. These types of properties could utilize a Groupon Getaways with Expedia offer to attract off-season business.
Next, we know that a certain percentage of travel bookings are spontaneous and incremental, and Groupon Getaways with Expedia directly addresses this market.
The 36 million visitors to Expedia sites every month are either shopping for a trip to a specific destination, shopping for a trip to an undetermined destination, or not necessarily planning a trip at all, but still in the market for travel.
Then there is a fourth type of consumer, who may not actually be shopping for travel in any given month, but is open to having travel offers pushed to them regardless. There is at least some element of spontaneity to the booking decisions made by three out of these four types of consumers. And bookings by two of the four types are fully incremental to the travel supplier that presents the right offer.
One of the things that makes Groupon Getaways with Expedia an opportunity worth considering is that we are not trying to be all things to all travel suppliers. The sales team is working closely with participating hotels to design offers that meet the needs of the hotel while at the same time delivering a compelling deal to potential guests.
Groupon and Expedia bring a combined expertise in daily deals and travel, and an understanding of what it takes to make these offers work.
Groupon Getaways with Expedia is good for travel suppliers who want to:
- Win new guests and awareness for your property.
- Reach millions of people in one day with a direct offer that comes from you, exclusively. No comparison shopping, no website cruising. They buy your offer, or nothing.
- Be on the leading edge of the e-marketing revolution and enjoy the buzz and exposure that comes with it.
- Spend your marketing dollars on real customers rather than on other efforts that are hard to measure, and may or may not work.
Note: This is a guest article by Jennifer Mellet, senior director of new channel sales at Expedia. Mellet oversees the Expedia sales team for Groupon Getaways with Expedia.
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I think travel deals are going to open a lot of doors for Groupon and Expedia. Many people are going to want to use travel deals this summer.
Consumers can find deals to take advantage of by going to http://www.dailydealpool.com. This site will compile a list of relevant sales and deals in your area, and email them to you daily. This saves consumers from having to search and helps businesses get more advertising!
Well – this is one way to look at it – I agree that this may be good for hotels looking for ‘new guests and awareness’ but that is about it.
That said, this article reminds me a lot of my (very different) take on the issue: http://www.letitrain.com/news-and-events/flash-sales-what-revenue-managers-need-to-know/
Jennifer – can you address what Scott Durschlag said about there being “no blackout dates” in the interview at AllThingsD (http://goo.gl/KtbFu)?
Thanks for the post, although it begs a question to Kevin as to whether this is a paid sponsorship from Expedia, or a genuine “article” on the daily deal model for travel, but I digress…
Filling otherwise unused rooms at any revenue is beneficial to hotels so long as it doesn’t cheapen the brand. The big question is whether Groupon will allow Expedia and its partners to put rules and regulations on the use of the vouchers so as to “revenue manage” them. In the launch at All Things D, Groupon explicitly said they would be true Groupon-style deals, without a lengthy list of restrictions.
But what is described above (e.g. off season rooms) would require at the very least a time window of usage, if not days of week, blackout dates, etc.
Who will win that battle?
@evan – Dennis has explained. But just to reiterate, we do not publish paid-for articles on Tnooz.
Evan: I asked Expedia to write this guest post because it is a hot topic. It was absolutely not a paid sponsorship, fyi. Of course, it paints a rosy picture of what the Expedia partnership with Groupon will do for hotels. But, that is why we have a comments section. People who aren’t buying Expedia’s arguments are of course free to weigh in.
I must be looking at a different picture.
Advertisement. I am an avid reader of tnooz, and this is fluff.
My thoughts entirely
+1
Sorry “simond” – not an ad, just an article that grabs the attention because of its timeliness.
Hotels should ensure they have fully exploited/exhausted all other positive marketing and channel management opportunities and promotions before they cave in to this stuff. But they won’t, if history is anything to go by.
I don’t get it. The economics is simple. If your ADR is $200, yes you’ll get $10 + what the customer spends (there is no logic behind the proposition that Groupon customers will spend more than ‘other’ customers). So taking the room rate alone, you’ve spent $190 to get $200.
its a complete no brainer, I could virtually guarantee to double a properly targeted hotel adwords spend in terms of revenue. So my $190 would get me minimum $380 of the RIGHT customer (I can target my adwords campaigns), I have some control over my marketing budget. I suspect i’d make a lot more than $380. I could offer Laterooms 30% commission and still come out well ahead.
I want to invest in my guest experience. Come off it, how can I do that on a gross margin of $10 per $200. That type of gross is a recipe for disaster.
As I’ve always said, a room sold to Groupon is a room sale potentially lost to Booking.com, GDS or my own direct on line channel. So the opportunity cost is potentially huge. I will happily watch the Groupon customers pile into the hotel next door, while I take the more discerning, higher rate, and probably at least as high a value customer. My occupancy might be 50% less but my yield is way way more, and ultimately its the maximisation of occupancy+yield that keeps me in business, and allows me to invest in my guest experience.
The concept of lifetime customer value is going totally down the drain in the face of the onslaught of the daily deal, created by people who have never run a hotel in their lives.
Hoteliers, get a grip please. You’re in no mans land. You’ve lost your product, and the plot! On one hand you’re succumbing to ridiculous margins which could ultimately lead to disaster, whilst on the other side of the fence, avid and greedy consumers are holding you to account on travel review sites, and in most cases, indirectly asking you to invest money in your business and get your act together in some shape or form.
I hear the consumers throwing their hats up in the air, who wouldn’t if you’re on that side of the fence, especially if ‘cheap’ is your value philosophy. many of these customers are ‘quality bacnkrupt’, and they’re not my target customer!
“…avid and greedy consumers” yea – the business world would be a whole lot better if it weren’t for all these dang consumers…
Well Said, Robert. I have long held that these flash sale and group buying sites are a recipe for disaster. The hotel industry caved to the OTA’s in 2001 & 2001, and they’re doing it again now. This “partnership” of Expedia and Groupon is simply lipstick on the pig, and hoteliers are just distracted by a shiny new object.
I think that some of the reactions here do not review all potential outcomes for this model. Flash sales is a marketing channel, where pressure is put on the customer to purchase quickly, before a deal is gone. This leads to a different rational of decision making, which is not to be confused with the decision making process a customer makes when he is planning a vacation with known dates/destination.
In the right terms, this can be a great deal for the hotel as well, and Vikki demonstrated that with her example, but I have a live example to follow:
This is a deal running on Crowd Cut, a Minneapolis based daily deal site:
http://www.crowdcut.com/minneapolis-stpaul/deal/mountain-inn-at-lutsen/10005369
Its for a place called Mountain Inn, and has a price tag of $125/night. According to what Crowd Cut founder wrote on Techcrunch this week, they charge only 30% of the booking, hence the hotel is left with $87.50 for this room, theoretically, 1/3 of the ‘room value’. But is this room value real or inflated? Using the link to this hotel’s site, I made a random search for dates that match the deal terms, hence 13-15 of July, and chose 2 adults. The price I got? $69 per night, or $81 when adding the taxes (that are not included in the original deal). Out of which only $69 must be deposited now.
I don’t like misleading customers, but in this case the hotel earns $37 more per stay with the customers coming from Crowd Cut. And gets that in better payment terms as well, not to mention possible marketing side affects. How is this a bad deal for the hotel, and why would these customer be any worse than those booking at the hotel direct booking channel?
Groupon keeps growing by leaps and bounds. They’re perfect for the current economy.
@ Bonnie Spalding re: blackout dates – there may be limited blackout dates on some offers. The deals will be designed to get the best possible offer in front of the consumer, while setting realistic expectations as to when they will be able to redeem given the property’s occupancy.
Set aside the group (quantity) power of this partnership, does anyone think this is similar to when Priceline started? Meaning, fill your extra rooms at huge discounts, but, hey, at least they’re not vacant. I think it’s a great opportunity for hotels that have seasonality and low occupancy…assuming, of course, they still are able to maintain control over inventory and not have to cannibalize their other room rates. I know that other retailers who use Groupon have had huge successes…so why not hotels?
Big assumptions
Do you know hotels who are using it?
A number of my clients did, and the whole experience was a disaster for a whole host of reasons and they won’t be doing it again!
An empty room is not always a loss, certainly not at these margins!!
Also the incremental cost of servicing one night stays is a good bit higher than longer stays, this needs to be factored in.
I stand by my earlier position, the economics/numbers don’t make sense
I’d be interested in what people think about whether this deal is better long-term for Expedia or Groupon.
Good short-term low-hanging fruit and a good brand name partner for Groupon to point to on its roadshows, but given the squeeze on the OTA space, does Groupon’s subscriber base help Expedia more or does Expedia’s access to supply help Groupon more?
Will be interesting to see more develop in the other product lines as well – does Groupon’s buying power in the local markets help boost Expedia’s destination services more, or vice-versa?
China is really interesting, too – does the contract specify that Groupon will partner with eLong? Seems TenCent and QQ might have something to say about that…
all pretty interesting – any thoughts?
Personally I think it is a win for Expedia. My position is that not many daily deal sites will last due to complexity and impact on operations as I addressed in the link above. The Groupon partnership helps Expedia gain the broadest exposure and – most importantly – allows Expedia to leverage (and I say that in the kindest possible terms) existing supplier relationships.
I think that the comparison to Priceline is only half right: hotels opt-in to Priceline in certain dates, and can opt-out or change rates at any time, which is not the case here.
I find one thing hard to accept and that is the margin Expedia & Groupon is keeping while knowing the hotel margin might be $10 at good case scenario. If they were keeping $25, leaving the hotel with $35, it would have been a no-brainer for any hotel to opt-in, and even happily accept visitors at peek times. This choice would keep the market open for solutions with lower costs to hotels, and better hotels might opt for them despite the potentially lower turnout.
I think that other than the actual commission, what Expedia would get is a huge lift in site popularity, as deal seekers would be checking in on a daily base. It actually transforms the website experience proposition entirely and makes it worthwhile to check daily, which they should follow into offering daily content in other site sections. For instance, imagine if a visitor who does not find a potential deal on the daily list, can be triggered the question: ‘where would you like to go?’ and then offered an instant discount coupon (one of those $10/n coupons Expedia has running constantly). Since these are deal seekers, Expedia would have a higher chance of converting an otherwise lost visitor.
All in all I believe that flash sales for travel are here to stay, and while it would take some tweaking to get them working for both sides, hotel have what to gain as well, and they would play along.
I’d like to know how many of the contributors have actually owned, managed and channel managed a top quality hotel. To me the pitch of all the comments clearly takes hotels totally for granted (as I expected, especially as the original contributor was Expedia!) $25 from $10 – who’s kidding who. I wouldn’t get out of bed for a gross margin like this!
I should explain, my interest in this matter is as a hotel consultant, not a supporter or fan of Expedia or Groupon. I exist to maximise my hotel clients’ returns and bottom lines, not those of Expedia and Groupon. If I felt there was a case for using Groupon in my revenue management plan, seasonally or otherwise, I’d do it, fortunately I’ve never had to.
Someone has to stand up for the supply side in these matters!!
I took advantage of a LIving Social Escapes back in February for my small (4 bedroom) B&B in the mountains of NE Tennessee…no one knows the area! I sold both 1 and 2 night packages with very few blackout dates.
I have been very satisfied with Living Social, my guests and my revenue. My goal when I started 13 years ago was to have a full house on weekends so I could add to my revenue during the week when it suited me. With the LS package, I’ve more than met my goals.
Except for two weekends during the year, I’ve never had as much business. Yes, I’ve had to hire extra help, but one room night pays for her services. Yes, I’ve had to work a little harder, but with the extra income I’m able to do some things around the place which needed upkeeping.
I do not think it has cheapened my place – but it certainly has made it more well known. And I’ve a data base of future guests I can market to – giving them a discount perhaps.
I’ve upsold on the one nights to 2 or even 3 nights, but next time I do a deal I will NOT do one nights – for my small place, too much work.
I will have two price points – with or without dinner, maybe. Cheese platter and chocolate covered strawberries maybe. I’m still mulling how to add value without adding to my cost.
Vikki, thanks for this great example and input.
Would you mind sharing with us how the deal numbers were laid down? (if you could replicate the Expedia example, even using percentage points for each item, it would serve the purpose well enough).
Thanks!
I am a bit surprised with the example given. I am not sure of the hotel industry but I will be surprised with a 400% profit margin (40$ cost for a 200$ room).
As if the cost of the 200$ room is not 40$ but 80$ a night these 1000 rooms sold will end up at a 30,000$ lost.
Also trying to see the cost to the hotel, in the given example the hotel has a cost of 190,000$ to make 10,000$, this is a 5% margin. Can that money (150,000$ marketing cost) not be spent better to get 1000 guests?
Couldn’t agree more. Expedia are totally buttoned up the back if they think any sensible hotelier is going to buy these examples, they’re in a word, ridiculous.
What I’d give for a $190000 adwords budget to do what i like with!!!
What with the agreements that hotels already have with other OTAs? Can hotels offer rooms on Groupon Getaways, at prices lower than best available rate (BAR) offered to other OTAs? I wonder what success Expedia would have in getting suppliers on board, if they were to launch Groupon Getaways in Australia, where the incumbent OTA boasts of being number 1 player, with over 8,500 properties directly represented in Australia & NZ, and over 10% share of total Australian accommodation TTV (from establishments with 15 or more rooms).
@ Rober Gilmore: You are right on the money. I am 100% with you. All hotels are taken for granted. Hotels own the property. On a $100 sale, Expedia/Groupon gets to keep $50 and Property gets $10 after $40 expenses. Sounds Great! to who? Expedia/Groupon of Course!
What you get in return. Nothing! Groupon Customers are highly unlikely to become your loyal customers as they are only loyal to deals. That means, you are almost never going to see them, unless you keep giving your rooms at $10 and keep making Expedia/Groupon rich and get ready to file court papers eventually for bankruptcy
Only in the twilight zone would a business partner somehow suggest that a $10 net on a $200 valued room makes any sense. No return to debt service, real estate taxes etc. Remoids me of the idea “we lose money on each sale but make it up in volume” I guess there is no limit to what intermediaries will do to pump their stock price and margins and IPO!
Some time ago I saw a “great deal” on Groupon for a hotel.
Something like ÂŁ100 instead of ÂŁ200. 50% off?
So I checked on Booking.com. The same room was selling for ÂŁ95, public rate, no strings attached, yes breakfast included…
The point is: we might like it or not, but daily deals are just another way to market a product. Some consumers will fall for this technique just as much as they might fall for “exclusive rate”, “only 2 rooms left at this price”, “private sale”, “no booking fees”, “no intermediaries”, or any other creative message.
Put a “50% off” sticker on the box, and minds go blind.
The market (hotels/consumers) decides for itself if it’s worth or not.
Why – because the (smart)hotel has probably used an ‘artificial’ starting price, or a very top high season rack rate as the basis for the discounting and the arithmetic – as you say, to gain the marketing.
In other words, hotels are using top dollar rates and clever bundling and fencing tactics to try to make this channel economically viable.
Wouldn’t you? I’m glad you exposed this, its just another nail in the ‘Groupon model’ coffin
Suddenly a deal is not a (best) deal
Robert, full respect to you! At last I find people talking some sense about this issue.
Groupon will be a place where lazy, incompetent or ignorant hotel marketers will abdicate their sales responsibilities.
If you don’t agree with Robert yet, please look at the numbers and assumptions here!
The Groupon assumptions about “value of deal = $200″. Such a deal is only ever going to be made available when the hotel is quiet. Do you really sell rooms at full rate when your hotel is quiet? When was the last time someone paid full price outside of peak season? THAT’S the real price you should declare the discount on, surely? Anything else is potentially misleading.
If I had ever stood in front of any of the hotel owners I worked for and told them I was going to sell their $200 a night bedrooms and make $10 a night on each one I wouldn’t have touched the sides on the way out the door.
If it costs $190 to acquire a new customer through Groupon (yes, $190 – how else are you going to account for your discounts as a marketing cost?) – how much is it going to cost for you to get them to make a repeat purchase?
Will the repeat purchase be at the suicidal discount rates again?
Do you want these “customers” back? Or is it going to be cheaper for you to stand at the front door and give them $10 to go and stay somewhere else?
Most hoteliers panic when they see they’re going to be empty. Very few apply strong marketing discipline. I fear many will have their heads turned by articles like this one. I know three who have tried it, and as Robert suggests, it wasn’t good.
I can understand Groupon working for some industries. I can understand it working from the point of view of generating raw cashflow.
…but I think hotels can do better with some proper marketing of their own.
Allan and Robert, its great to have your side of the story, but I miss a proactive statement on which price can work for hotels to make this sustainable? You say that $50, which represents $10 net is too low. Would $60 do? would $90 do? where does the turning point occur?
For me, the turning point occurs when the hotel understands cost per lead and cost per sale.
If you know how much it really costs you to make a sale, you can measure this against the true cost of selling a room on Groupon. Then each individual hotel business can make their own judgement about whether a particular route to market is working from them or not.
Robert makes the point about Google Adwords above – and he’s right. Adwords is an example of a method of reaching out to customers which returns strong, measurable data about the cost of acquiring a customer using that method.
For hotels, there are lots of ways of reaching out to potential customers and measuring the results. You can’t really make a judgement on whether Groupon is appropriate until you’ve measured it against the cost of your existing methods.
My concern is that hoteliers will rush to try Groupon, simply because they don’t know enough about the real cost of their existing marketing.
To be fair to Groupon, the cost is plain to see in this example. “Normal” selling price = $200. Profit = $10.
Cost of acquiring one customer for one night = $190.
It’s up to individual hoteliers to measure that against other methods of promotion. How much does a sale cost you?
Finding the turning point to make this a valuable proposition involves much more than simply a price point – hotels need to consider costs of commoditization, price point degredation, operational costs of handing a new channel, potentially massive displacement costs, etc. This would involve reliable information on past results for peer properties – which for Groupon Getaways doesn’t exist yet. Then they would need to a way to measure the potential returns of a flash sale program against the returns from other methods. It would be a steep uphill climb, require a lot of breakage to be able to justify such minimal ROI compared to alternative channels.
To Robert’s point about falsely inflated prices – this will only reduce consumers’ appetites to check in daily or receive emails.
If you don’t falsely inflate & bundle then the higher initial price point would translate into a higher quality product and/or higher demand for the product – it just doesn’t. make. sense. that this would be the kind of product you would accept a minimal return on.
Would love to hear more from hoteliers who have executed these sales on the results.
Look, this really is a no brainer, the ‘turning point’ is neither here nor there in the numbers Expedia are talking about, there’s no point in making it sound complicated because it isn’t, on their numbers common sense tells us that in most cases in terms of any approximate assessment of ‘break even’, they’re miles from that point.
I’m looking for a practical common sense approach. Expedia have completely shot themselves in the foot on any intelligent assessment of margins – and the problem is THESE ARE THE NUMBERS you’ll experience, no more no less, unless you can cut a reduced commission deal with Groupon or something similar.
Expedia would have been better shutting up on this to be honest. They are also talking about numbers that don’t mean a lot to many hotels, how many will sell, or are capable of selling (or should be selling!!!) 1000 vouchers to ‘win’ that magic figure of $10000 nett.
Also if we are assuming that the ‘operating cost’ of a potentially $200 room is $40, I challenge that big time. A Holiday Inn Express expects to drop say 50% to net profit (EBITDA) per $unit of revenue, and they are a high margin business – that $40 is probably nearer $100!!!!(at least)
It gets worse!!!
I think this has already been answered very well by Allan.
We are getting away from a key issue which is that Expedia has chosen completely the wrong numbers to demonstrate the ‘rosy picture’ for hotels, wherever that came from. This is just typical ignorance from a global which cares not two hoots about suppliers or customers, and clearly more about the latter than the former, only its capitalisation value.
There is no magic number here, but its a case of common sense and basic understanding of economics, not the need to write reams of theorising which no one has the time to read.
I was particularly interested in the customer who bought the room at the %95, less than the Groupon price of $100. By Expedia’s own admission this would potentially yield the hotel a nett $10, with say booking.com, it would yield %95 minus 15% i.e. $81.
Have I lost the plot, or what? No one is really squaring up here to the opportunity cost (and lost) of dealing with this Groupon lot, I’m afraid.
Dilution of brand, Commoditisation of the product, undermining of room rates – all at next to zero margin. Hotels need to stop ceeding control of their destiny. Giving inventory to regular OTA makes more sense than Groupon and other such sites.
Hotels needs to focus on direct own websites strategies.
There are a few of us around Robert. It looks like we need to keep raising the, “do the sums” issue.
I’ve been blogging about this subject for a few months now. Kamikaze discounting might be very sexy on the interweb, but it’s just silly in the real world.
Rocky Agrawal has blogged with an interesting take on the risks associated with Groupon.
So does this mean that hotels whose adr is $100 or less should not participate. They would get $25 which is below the cost to clean a room.
The model is flawed. You can’t take 75% off the total price and expect a hotel to thrive.
You’d think people would spot this wouldn’t you John?
The standard Groupon model works like this:
Your business needs to provide an offer that reflects a minimum 50% discount.
Of the revenue collected, Groupon will keep half. So you, as a hotelier, end up with 25% of the number you first thought of.
I’ve seen some vendors try to “game” the system by artificially inflating the top line offer value – one such case was investigated by the Advertising Standards Authority in the UK recently and a complaint upheld when nobody could prove that anyone had actually bought the vendors product at the top line price.
But in short, you’re right. You get 25% of your selling price, out of which you need to pay all the costs of providing your service.
You would never do a Groupon Getaway in isolation of course, it would be part of your mix. But I don’t know many businesses that could sustain that level of discount for long.
This is one of the stupidest articles ever written. Unfortunately, there are some people who may be taken in.
Really, $10 in profit. No mention of displacement, brand degradation, price dilution, cannibalization of existing customers.
Anyway you look at this it is a loser.
I understand that there is some fear from the above Expedia breakdown of becoming some sort of norm, but I think that the discussion is missing a chance to reach a constructive solution to the question: “in which terms should you be selling your property on flash sales sites?”.
I used Priceline to stay in hotels at ~$50 rates where the quoted room price for that night was $150 at the time of booking. I know for fact that Priceline at least $8 of that fare in direct fees, and has likely kept $2-5 due to the gap between the hotel bid and the customer bid. That leaves a hotel with a net of ~$40 for an otherwise a >$127.50 net revenue. Yet the hotel chose to get into this transaction, and we can’t blame lack of data on that decision. The hotel is clearly making some profit from the combination of this net kept and the revenue generated from my activities in the hotel as an average Priceline customer.
I’m using this example to illustrate that at times, this is a potential deal for the hotel. I’m sure that if a hotel sold all their rooms using this discount method, they would be out of business. But if they can channel these to some otherwise unsold rooms, this can work.
This is where Expedia’s assumptions are derived from. The problem is that their deal lacks control for the hotelier and demands that very low rate which the Priceline channel only seldom requires.
I am confident that at better terms to the hotel this is a sustainable deal that some hotels could benefit from. Don’t you?
“In which terms should you be selling your property on flash sales sites?”
I’m tempted to respond, “as a last resort”.
We should really be talking about using flash sales to sell distress inventory in that case?
What worries me is this: Years ago, selling “distress inventory” was the basic premise of websites such as Laterooms and Lastminute. They could promote the rooms hotels couldn’t otherwise sell, in exchange for both a discounted price and a commission (sounds familiar doesn’t it?).
The websites worked, hotels sold rooms on them, customers got good deals. Everybody was happy.
Then hotels started to use online travel agents to shift more, and more inventory, until the OTA websites controlled the route to market. It has taken the industry a decade to try to wrest control back and deal directly with customers. The hotel industry as whole abdicated its responsibility for selling over to the OTAs.
You’d think they’d know better. You’d think that experience and the cost of commission would make them realise that they must build an effective marketing capability.
But no.
Groupon comes along with Expedia and a snake oil proposition for selling distress inventory all over again.
You can do flash sales all by yourself. It’s not difficult. There are some fabulous viral platforms on the web you can use without having to pay silly money in commission.
Just don’t give away your route to market by throwing it all towards a third party.
Through my experience with using them, Groupon delivers sub-par customers. Sadly, the folks that have come through my door since using the product have not been long-term customers and certainly did not spend 60-80% above the value of the deal offered. Seems like the argument for using this product from a revenue perspective relies a little too heavily on cross sell opportunities and the promise of customers returning later for a full price stay/purchase/etc.
Groupon is essentially financially insolvent and has a list of billions of teenagers who don’t want to/can’t afford products at full price. Beware.
Interesting that Expedia is talking the high praises of Groupon, especially when there are those publishing articles on Groupon’s eventual collapse:
http://techcrunch.com/2011/06/13/why-groupon-is-poised-for-collapse/
This reason, reasons that echo what others have mentioned, and the reality that a number of brands have “best rate guarantees” for their home websites (and Groupon would be considered a “publicly available rate” lower than the home website – so the hotel would be in violation), we do not participate in the 1/2 off deals.
Yes – my favorite part of this article is the ‘hacking groupon’ section – helps answer the question of when using Groupon is a good idea:
“the slam dunk case is to sign up with Groupon if you’re going bankrupt. I strongly encourage every business that is about to go under to call Groupon.”
I agree with Robert (except the artificial starting point) and like Bonnie, would love to hear from other Hoteliers who use Groupon, Jetsetter, SniqueAway, etc. It has been my experience that by participating in this type of “deal”, the consumer it attracts is not our demographic and then complain about the costs of transfers, the cost of food & beverage, etc. The market is being flooded with these types of “deals” and by participating the hotel is undermining their product. Hoteliers need to gain control of their pricing again.
Groupon customers spend 60 to 80 percent on top of the value of the Groupon. ARE YOU KIDDING ME? This certainly doesnt happen how I have experienced Groupon sales model for hotels. Groupon customers are bargain hunters and you will be extremely lucky if you get any spent on incidentals, upgrades and so on out of these people.
In your calculation…. you have not factored in 25% commission expedia charges.???
Thirdly…. when your regular customer sees a heavily discounted deal, how would you justify them coming back to your hotel and pay the full price!
In my opinion,…. Groupon deals are all about short term gains for a long term pains.
DISCOUNTING DOESNT WORK PEOPLE!
What an interesting discussion! We at HotelMarketingClub.com get this question about deal sites too often nowadays. We have been suggesting deal sites to hotels only…
a. If they’re launching or rebranding – and want customers to come and notice you, deal sites are a good deal.
b. If they’re on the verge on dying, as discussed here, it makes sense to try a deal site as effort to get some oxygen.
c. If you’re a hotel which has good/ok occupancy, put your spa/restaurant/health club on deal sites to attract new client visits, and try an upsell.
Now, also note that hotels should look at alternatives to Groupon’s model of 50% cut. Try Google Offers or Facebook Deals – negotiate for lower % cuts, and make sure they don’t hold your money too long – 2 weeks should be just fine!
@Norma – I think this is the most rational comment yet (and I’m including my own in the irrational set
Thanks Jim! Every year brings on newer business models which claim to help hotels put more ‘heads-to-beds’.
Unless hotels learn to grow their DIRECT booking channels, they would have to depend on ‘other’ channels to stay afloat.
I think you hit it right on the head about low incremental costs. This is a special condition that benefits niche daily deals for hotels and sports tickets. At the point when marginal costs is low (i.e. operating costs are covered), each ticket sold is adding to the bottom line. It is beneficial for these hotels to get them sold – if you don’t sell it, you lose it. Same goes for sports tickets and that’s what we’re doing at Crowd Seats. For both industries, inventory is perishable so it needs to get sold to maximize revenue.
You make another good point with overage revenue. It’s what makes sports tickets the ideal match for daily deals, even greater than hotels in my opinion. In sports, you’ve got parking, concessions, beer, souvenirs, etc. Hotels will have similar. That revenue adds up and is significant. This process can be repeated and even used in a last-minute type situation.
What maybe most valuable is unlike the big Daily Deals sites, niche sites offer merchant partners more targeted customers. People who sign up for Crowd Seats (or Groupon Expedia combo) is doing so with a specific purchase (tickets or hotel rooms). Other sites, customers could have signed up for anything from massages to sky diving.
I’ve just wasted 5 minutes of my life reading an ad for Expedia directed at hoteliers. Anyone silly enough to give these guys free rooms to plug Expedia to their own guests…..well I give up on you????? I mean SERIOUSLY?? There is nothing in this for the hotel? It just directs more traffic to Expedia’s site (from your own) and gives away inventory they would have sold at a better price. This isn’t unsold rooms. This is the room a savvy Expedia customer would have searched for and bought at your normal best price. You’ve just given them a new best price which is half what you wanted and the guest has already forgotto you and made out like a bandit. Spend your money marketing your own hotel in other areas and get Expedia to fund their own campaign people!
Gareth, I had to reply to this excellent observation, my thoughts entirely.
Expedia are a total law unto themselves, they are the biggest and greediest parasites in the hotel business, ask any hotel I know of, brand or independent. And they try to pass themselves off as being ‘considerate’ to the hotel supply chain, have you seen some of their nonsense trade emails to hotel suppliers over the years, its a total joke.
C’est la vie, they, like banks, are ‘too big to fail’.
Really you need to have a lot of empirical evidence at the receiving end to really analyse this properly. Too many comments on all the posts simply bear no common sense relation to reality. If my clients had the time, I’d get them to post, but good quality hoteliers have better things to do.
That’s definitely my last post on the subject, I too have much better things to do.
Cracking up over these “Groupon users are only deal hunters and not good customer” comments. Fess up people, how many of you have used a daily deals voucher and then ask yourself if you’re not a good customer.
Regarding the upsell this has absolutely not been my personal experience in using these vouchers. In the half-dozen or so that we’ve used for restaurants in every case we’ve spent well over the voucher amount and tip at the full retail price. In the end the discount ends up being around 20%.
Between Groupon and Living Social they’re probably approaching 50-60 million customers. None of these are your customers?
Jim, the discount to you may be 20% but I’m interested in what the supplier ultimately gets, and across a basket of consumers, not an individual case! I take your point re the extra spend but there is no evidence whatsoever that Groupon deal users spend more than the average customer, and in cases where I know my clients have used it (and will never do so again) let me say with respect that the contrary is the case i.e. the customer has either or both of, lower demographic or customer profile than the business is targeting- and is indeed more likely to be a cheapskate than an added value spender.
The point re a Groupon ‘customer’ being your customer is a red herring.
I am away on vacation to relieve my stress, or fess up (new word to me)
I am opting out of public discussion on this particular channel (how many of you will be glad to hear this(!) – but I’m far from finished on this subject, anyone interested in continuing a dialogue with me, do email me at robert@innfinite.co.uk
Enjoyed the chat!!
“deal” based sites do serve to “drag” new business to peripheral accommodation providers who otherwise wouldn’t get that business. It’s good for a pull strategy.
Seriously, did Expedia’s Marketing Communications team approve this before it was released? If they did, it proves that partnering with Groupon was maybe a good idea because Expedia has no clue how to market this product. They need to let Groupon handle the marketing.
If it was not approved (which is my guess – understanding how smart most of the Expedia team are,) The obvious issue is that this is perhaps the worst possible way to promote a group buying site to hotels.
The only dumber thing that could have been added would be something like: “Because Expedia and Groupon split the revenue, for each room sold, we make well over $20 in margin compared to the hotel’s $10.”
I doubt Expedia will be repeating this broad-based math-oriented approach to merchandising the Groupon product.
I agree with Robert Gilmour, “this daily deal, is created by people who have never run a hotel in their lives”.
“Hotels must invest in their direct on line channel”
@expedia, when you say “opportunity to generate even more revenue from on-site purchases”, in fact all channels can do this, it’s not an argument
My 2cts: Hotel have already much more smart channels to market Offline and Offline their hotel than this unviable channel
typo >> to market Offline and Online
I just browsed through these comments and it seems like everyone is missing the fact that Groupon / Expedia channel is far more more costly to the hotel than channels such as Rue La La / Voyage Prive / Travel Zoo and Jetsetter. I am aware that not every hotel is able to participate in these higher end channels (although how selective they really are is a conversation for another day), but it is a pretty massive difference in profitability to the hotel.
I am also aware that the other channels typically save customers 25-35% off the BAR rather than the 50% Groupon will save, but I think hotels are very different than the typical business that Groupon uses and they are making a big mistake by not changing how they structure their sales for this Expedia partnership. My hotels have used Jetsetter and Rue La La in the past and with Jetsetter we received 50% of the BAR and with Rue La La we received about 60% of the BAR that the sales used as the base price. If anyone wants me to walk them through the math of either sale let me know and I will be happy to do so.
Again, I am just surprised that Groupon is simply applying their standard deal structure to hotels and think this will be something that all of their competitors already participating in the space will take full advantage of.
I think Expedia is going by below what-if analysis
What if
1. Hotelier opens the Inventory for such Flash Sale 12 hours ahead of Check in after deliberate calculation of next days occupancy and making sure none channel can deliver a booking now
and
2. A Guest like me who loves to bet on last minute deal find the $200 Hotel going at just 100$ and can not resist to take up offer without second thought
and
3. The nett revenue earned by the Hotelier is good enough to keep him happy about the fact that “Room Night” is a perishable unit and good god I made some money on that.
http://www.hrabaconsulting.com/blog/2011/04/26/yes-groupon-coupon-publisher-sites-are-destroying-your-business/
Any hotel that does a Groupon will get what’s coming to them.
this is horrid advice, and bad logic.
Affluent travelers? This person has obviously never worked at a hotel, or dealt with this in any way. I respect journalism, but when there is such a significant disconnect between simplistic numbers, and real operating & associated costs with the concept of an occupied room – it just shows someone who is reporting on the biz, and doesn’t have a real, deep understanding about it.
These things are a disaster. Stay far away from them. It’s the start of a bubble, beyond trouble for your property.