cut money
704 days ago
 

Rejoice! Daily deals in travel are dying

Did you hear? Even Groupon is moving away from the daily deal business.

That’s right, they are selling vacuum cleaners, mattresses and other overstock merchandise to their massive mailing list of bargain hunters because their services-based voucher sales have slowed.

Is it really any wonder?

I mean, how long could the craziness last before merchants just stopped wanting to sell their services at a 75% discount? Investors have also taken note of the slowdown and have hit the company’s stock price hard, driving it down by over 80% since it went public.

But the slowdown in daily deals isn’t just being felt by Groupon.  Even its leading competitor LivingSocial has suffered this past year.

Amazon, which invested $175 million into LivingSocial in 2010, had to write down almost the entire value indicating that it had paid too much for the original investment. Not a very positive sign from one of the leading ecommerce companies in the world.

In April this year, Travelzoo CEO Chris Loughlin blamed the deal industry for “unsustainable practices” that affected Travelzoo’s ability to compete in the space.

In addition to the pain being felt by the big players, daily deal startups are finding it hard to stay alive too. According to Daily Deal Media and Yipit, over 798 daily deals sites closed down in the last half of 2011 and that number will undoubtedly increase in 2012 as the segment seeks to consolidate.

What seems most telling, for me anyway, was the noticeable lack of daily deal incumbents and startups at the recent PhoCusWright Conference. It seems as if the glamour of flash sales has winked out like some proverbial candle in the wind.

So what does this mean for tourism operators who made up a good proportion of the revenues for these daily deal sites? How on earth will they market to all those deal hungry consumers out there ready to take a sightseeing tour for 50% off?

I have argued in the past that daily deals are a race to the bottom and, despite my better judgement, I have even attempted to help tourism operators to avoid some of the common pitfalls associated with marketing using daily deal sites.

But the news that daily deals are on the decline is a welcome relief.

It means, hopefully, that small businesses are waking up to the idea that being successful requires a well rounded marketing plan, a solid pricing strategy, revenue management, and (most importantly of all) a service that people really like.

Living without daily deals

With all it’s pitfalls and headaches, the daily deal phenomena has reminded us of one thing, that hype based marketing is generally short-term.

Remember that daily deals didn’t really exist five years ago and local businesses thrived and survived without them by focusing on the fundamentals.

The group buying concept when taken at it’s core is not a bad idea.  Getting a better deal by getting a group together certainly makes sense for both consumers and for the business.

Most businesses still offer these kinds of group deals and will in the future.  Small tourism businesses just need to go back to basics and invest in marketing that will grow their business in a sustainable and profitable way.

The brochure is not dead

Despite many arguments to the contrary, the brochure is not dead, in fact it is as strong as ever.  According to PhoCusWright research, 30% of travelers who booked local tours and activities used brochures during their search.

I think the daily deal sites have given brochure companies enough of a scare to have them considering how they can be more creative with their distribution, printing, and value add programs.

Until the world is one giant free wifi hotspot, however, don’t expect brochures to go anywhere.  Businesses will need to be more creative with their brochure marketing perhaps by combining brochures with mobile marketing.

Tracking using custom web addresses or promotional codes could also provide better metrics for tracking the effectiveness of brochures as a local marketing tool.

Start Collaborating with other businesses

The daily deal business really seemed to pit everyone against everyone as it forced prices down.  I think there is more power in collaborating with other local complementary businesses in order to offer a deeper more engaging experience and provide greater value for customers.

A tour operator might work with local restaurants to offer a lunch option with their tour, or with a vineyard to include a wine tasting session.

Those partner companies return the favour by helping to market the other partner’s tour to guests who visit their establishments.  A group of non-competing (or even competing) operators might create a local marketing website that showcases all their tours increasing their search engine presence by providing more relevant content.

A group of operators and hoteliers might even work with their local or regional CVB or DMO to put a local marketing plan in place.  Oh, and don’t forget the hotel concierge.

In many markets a good relationship with local concierges can be good for business.

Don’t underestimate word of mouth

Part of the power of the daily deal is the network of users that deal companies have been able to harvest over time.

Most small businesses however don’t realize that they are building their own networks of users with each and every customer they acquire.

Simple marketing strategies like asking customers to opt in to a mailing list or offering customers a friends and family discount can go a long way to bringing in new customers.

Travel is tricky though because unlike selling to locals, travelers tend not to buy from the same local supplier more than once.  This has been one of my strongest arguments against using daily deals.

But, what travelers lack in terms of providing recurring business, they more than make up in terms of potential referral business.  Past customers can serve as a great resource for reviews, testimonials, and referrals if prompted in an appropriate and respectful way.

Focus on value not price

In the end, being a successful local tourism business is just like being any other kind of business.  And believe me, I’m not against trying new marketing techniques.

I just think that businesses need to do their homework before jumping into something, especially when money is being collected and held by someone else.

All businesses need to focus on long term marketing strategies, building strong referrals and word of mouth, collaborating, sustainable pricing, and providing a great experience for customers.  Get out of the mindset that the best “deal” means the lowest price.

It doesn’t.

NB: Cut money image via Shutterstock.

A deal is something that offers great value for the amount paid. Local tourism flourished before daily deals and it will flourish without it.

 
 
Stephen Joyce

About the Writer :: Stephen Joyce

Stephen Joyce is a contributing Node to Tnooz and has been working as a travel and tourism technology consultant since 1995. Stephen is the CEO of Rezgo.com, a cloud based software as a service reservation and booking platform for tour and activity providers.

Stephen is the Past Board Chair of the OpenTravel Alliance.

Stephen is a graduate of Capilano University, is a certified commercial pilot, and holds a certificate in IT Management.

 

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  1. Janice Fitzgerald

    Wise entrepreneurs know that you “can’t get something for nothing”. If a merchant believed discount marketing via LivingSocial/Groupon, etc. was a get-rich-quick opportunity, then they probably received what they deserved from the experience. There is no other venue that delivers a business to literally millions or potential guests without costing a dime UNLESS the product is actually sold. Careful planning of the net profit potential is mandatory and many merchants just failed to understand this and take the time to build a safe offering. Local tourism businesses can benefit from the kind of mass exposure offered by LivingSocial and Groupon. Trashing the entire concept reveals a superficial understanding of the potential benefits. Consumers are tired of e-mailboxes stuffed with “deals”, but this is a very, very young marketing outreach and it is morphing, no doubt. Could it be that when the dust settles, the strong players, who have treated merchants respectfully will prevail. The latter scenario would be a win-win-win (for the consumer, the merchant & the social marketing site). It’s very possible. Time will tell.

     
  2. Travor

    Would you call HotelTonight a “deal” application?

    Since it works on the same model as other daily deals websites.

     
    • Stephen Joyce

      Stephen Joyce

      I don’t think I would since Hotel Tonight is really geared towards last minute instant use by a single purchaser. Daily deals are traditionally based on a group purchase with redemption much later on.

       
  3. Drew Meyers

    So happy if Daily Deals sites are going away entirely. When you talk about consumerism and getting people to buy stuff they really, really don’t need — GroupOn is the epitome of that.

     
  4. Heddi Cundle

    Great article! The problem with daily deals was that it was screwing with margins, revenues and not generating loyalty. Which means it wasn’t creating a solution – it was accelerating so fast that it actually was causing economical damage. Mainly because training-businesses was not a focus (until too late) and combined with poor business results from the deal, they wouldn’t provide more deals. When anything accelerates that fast, it needs extreme support on both sides – it’s not just about the customer. Also with the economy in such an erratic state, it just added to stronger fluctuations. Without plugging myTab too much (but going to do it a bit anyway), we’re being more strategic as we scale to match customer funds with suppliers deals. This way, it’s a core targeted audience, cash rich demographic for suppliers to target at a reduced price that a: helps their long lead margins/slow times and b: is promoted at a fraction of the cost of traditional advertising/marketing. We’re not in for the short sharp sell. We’re working with a long range vision to stabilize the industry, so there are no more fluctuations :)

     
    • Robert Gilmour

      Great post Heddi, agree with everything you say

       
    • Stephen Joyce

      Stephen Joyce

      Thanks Heddi. I think you are spot on. The speed at which the segment grew outpaced the understanding of how to use it effectively. I think more focus on revenue management, offering “deal” pricing at specific times, and incremental distribution is one way forward.

       
      • Heddi Cundle

        Thanks Stephen! Yep, it was the epitome of a ‘get rich quick’ scheme without the core ingredients of a slow ramp needed to stabilize it.

         
        • Robert Gilmour

          Heddi, you’re so right, we’ve been preaching this philosophy for years, we just hate silly short term fads and infatuations, never properly thought thro’, and they’re found out usually before the long run, thank goodness – and the experience can be painful..

          I know hotels which have gone out of business, thanks to being stupidly bowled over by these slick talking daily deals salesmen who care about no one but themselves. They are chancers. They don’t speak to me, i fell out with them all early doors and they hated that because in their eyes they saw us as (wrongly) an easy target with a lot of especially UK hotels we could influence. Thankfully, we influenced them the right way – ZERO TOLERANC E OF DAILY DEALS. Just another daft bubble, confined to the scrap hep, i hope.

          We go a lot on a hell of a lot of practical experience, common sense and intuition at Innfinitie, we don’t have time to pontificate, we have too much to lose wasting time on other than client deliverables that make a difference.

           
  5. Russell

    Good riddance to them. We all know that travel and tour packages is mainly an experience being bought by the customer. By having this sold through a promo site, there would definitely be parts where the seller would scrimp on costs in order to have a lower price and bigger margin. The only winner here is the daily deals site.

     
  6. Chris Ford

    Good article Stephen. The flash sale sites were never really a new idea. The marketing of time sensitive deeply discounted offers has been around for years in the travel business, airlines being some of the early pioneers. I had my run of success back in the late 90′s/2000 with an online travel deal site. I found then as is stated now that discounts do not create loyalty. Customers follow the deal not the brand. The deal sites of today scaled the business to new heights. As the economy picks up and business improves value becomes more important than price.

     
    • Stephen Joyce

      Stephen Joyce

      It’s just a pity that business don’t realize that value is ALWAYS more important than price, even during slower economic times. It’s just a short term panic attack that fuels the hysteria.

       
  7. Psycho

    For me it looks like daily deals sites were dead from the birth (in terms of usefulness for the consumer and for businesses). And they had a very negative influence on online marketing sphere in general. Glad, they will be gone soon.

     
    • Stephen Joyce

      Stephen Joyce

      They did offer something to consumers… deep discounts. And we have to remember that for a time, Groupon and the like were growing at unbelievable rates. That said, I think now that there is more information out there, merchants are being more careful and they aren’t buying into the sales hype from the daily deal sales people.

       
      • Psycho

        I don’t know exactly how it was in the world in general but in Russia we had lots of cases when people were deceived by merchants using daily deals attraction mechanisms. We even have a site – http://netkuponam.ru/ (sorry, it’s in Russian, it’s name can be translated like “No to coupons”) with loads of such incidents. Many of them relate to travel, by the way.

         
  8. Robert Gilmour

    On just about any common sense commercial exit analysis these have been plain bad for most hotels’ profile and profitability (except probably the ones that are badly commercially managed anyway), and if hotels don’t make money they don’t survive in the ling run.

    Hopefully they will die very soon , and we can all move on to more productive pursuits.

    On any data assessment front, it was a very expensive way of getting very low loyalty customers, and often the wrong types too. We made jolly sure our clients didn’t fall into this spiral of despair and economic madness – and they’re thankful to us for that

     
  9. Jonathan Alford

    Good observations, Stephen. I’d like to add another perspective as well if okay. Part of what you’re seeing is a planned shift away from daily deals on the part of Groupon and LivingSocial. I’ve mentioned that probability/opportunity on a handful of occasions in other articles/comments over the past couple of years, and while it’s a somewhat painful shift still far from certainty of success, the recognition was there a while ago that it would be needed.

    Groupon hired a friend of mine to run its product strategy and development. In no small coincidence, he was an early executive that helped build Amazon, and they’ve hired other Amazon people with deep merchandising experience as well.

    So while the daily deals themselves could have been driven in large part by a recessionary environment, the key is that the scale of Groupon and LivingSocial in particular enabled them to capture a ton of “big data” on their customers’ interests and preferences that can be leveraged to transition to a much more sustainable merchandising strategy (if they had the data structure to capture it in a meaningful way, of course).

    The smaller flash in the pan travel-specific ones don’t have that scale or data advantage across multiple product verticals, so the risk of falling faster is pretty high.

    It will continue to be interesting to watch, but of course your comments on taking a longer-term approach to defining product/marketing strategy are spot-on…

     
    • Stephen Joyce

      Stephen Joyce

      They have gathered some interesting demographic data. It will be interesting to see if they can shift from high margin services to low margin goods and still compete with Ebay and Amazon.

       
  10. Robert Gilmour

    MUSIC TO MY EARS, I NEVER MADE ANY SECRET OF THE FACT THAT AS A COMPANY WE HAD A ZERO TOLERANCE OF CLIENTS USING THEM, AND IT DIDN’T DO THEM ONE BIT OF HARM NOT TO

    Look, here’s an admittedly fairly raw exercise we can perform to illustrate – take the known occupancy and ADR’s of an Innfinite client hotel over the year to date, take a sensible view on how many deals they might have sold had they done them, conforming to deal price specifications &c – and replace the ADR business with these. THE END RESU;LT, A HUGE DROP ON REVENUE, AND PROBABLY AN EVEN BIGGER ONE ON THE BOTTOM LINE

    THEN, take the total unsold rooms TO DATE and apply a factor to eliminate nights the hotel was full, (when deals could not have been used) and ADD the nett flash sale rate times an incremental business % you consider the hotel could have achieved.

    THE OVERALL RESULT = STILL A MAJOR DROP IN $$$ REVENUE, AND AN EVEN BIGGER ONE ON THE BOTTOM LINE

     
  11. David Cunningham

    I’ve interviewed accommodation owners who have had decent experiences with daily deal sites, but they have gone into it with their eyes open, looking to raise their profiles rather than make money…

    http://www.thebandber.com/2012/05/to-groupon-or-not-to-groupon-part-1/

    http://www.thebandber.com/2012/07/the-power-of-groupon/

    http://www.thebandber.com/2012/08/kgb-secrets/

     
    • Stephen Joyce

      Stephen Joyce

      Thanks David. You’ve hit the nail on the head. You have to know what you’re getting into. If you’re okay with total cost, then that’s fine. Going in with eyes open is key.

       
    • Stephen Joyce

      Stephen Joyce

      BTW, the Power of Groupon is an excellent example of how to use the daily deals for a specific purpose. I particularly like the comment made by the owner when they say that if they had to do another daily deal, they would have failed in what they needed to accomplish the first time around.

      As the business owner said, it’s a useful way to fill beds in the shoulder season and to get the brand out during slow times.

      Thanks for sharing!

       
  12. Max Starkov - HeBS Digital

    Stephen, an excellent article and a very right-on-the-money conclusion: The Flash Sales /Daily Deal business is dead or dying. Back in early 2011, in an interview article “Another look at flash sales sites,” for HOTELS Magazine’s successful eMarketing Blog, I argued social buying and flash sales sites such as Groupon Getaways with Expedia, Living Social, SniqueAway.com, BloomSpot, etc. were a recessionary phenomenon, and not a new, emerging distribution channel that was here to stay. There is no doubt that as the economy improves, some of these flash sales sites will go away, and the remaining players will have severely diminished roles in hospitality.

    You can also read my follow up article from January 2012 “I Told You So: How The Flash Sale Bubble Popped”

    http://www.hebsdigital.com/blog/i-told-you-so-how-the-flash-sale-bubble-popped/

     
    • Stephen Joyce

      Stephen Joyce

      Thanks for sharing Max. Good follow-up article. Sometimes it does feel like we have to wait for things to hit rock bottom before the market pays attention.

       
  13. Matt Barrett

    What a relief!

    I can see how a good salesperson could convince a new or struggling local business that a “deal” would be a great way to get people through the door and convert them to long-term customers.

    How did this ever translate to travel, where experiences are often once in a lifetime events and customers are more than likely passing through?

    I have been amazed to see websites spring up that help you to find local flash deals while you travel. Surely this is going to point people to local chain restaurants and businesses that are most struggling, rather than the best experiences.

    Local tour operators can often feel that marketing to tourists is a bit like shooting at a moving target, so I can see why they liked the idea of being associated with a globally recognised brand.

    Like you mention in your article Stephen, I think that a great strategy in tourism is to harness the positive energy of past customers so that those who are looking for that once-in-a-lifetime, unmissable experience are not worried that they are going to shell out for second best.

     
    • Stephen Joyce

      Stephen Joyce

      Thanks Matt. I think it’s easy to fall for the hype without realizing the full costs. I think there is real opportunity to foster word of mouth that is being missed or overlooked by small businesses.

       
 
 

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