6 years ago
 

Rough guide for travel companies to working with Groupon and deal sites

I think it’s safe to say that no amount of exposing questionable numbers or pointing out pricing faults is going to eliminate daily deals from the marketing landscape.

So, now that I’ve made my opinions known regarding daily deals, I felt it was important for me to provide some tools to help small tourism businesses structure their deals in order to maximize their impact.

In a recent rebuttal to Rocky Agrawal’s guest series on Techcrunch, the owner of a BBQ restaurant wrote about his very positive experience with Groupon.

At the end of the day, bashing daily deals is fun but doesn’t really help small businesses protect themselves against making a mess of their finances.

In order to do this, tour and activity operators have to keep in mind that the business of running a scheduled fixed availability tour or attraction is quite different from the business of running a spa or restaurant.

As I outlined in my article Does the Groupon model lead tourism businesses racing for the bottom, tourism based businesses do not attract repeat customers, so they do not benefit from the argument that the daily deal is going to bring back loyal customers.

Activities generally don’t offer value-adds so the customer isn’t going to purchase more than the value of the coupon and, probably most importantly, tours and activities have limited inventory and are generally scheduled, which means they have to booked in advance.

Before considering a daily deal, make sure to read the agreement carefully.  There is an interesting analysis of the Groupon terms and conditions available here.  The advantage that tour and activity companies have over restaurants and spas is that they have the ability to manage inventory more efficiently.

Daily deals are a great opportunity to test out yield and channel management features if the reservation system supports it.

During your negotiation with the daily deal sales person, you should keep in mind that your goal should be to maximize your return on investment while reducing the impact to your administration.

Once you’ve had a chance to review the agreement and have checked your reservation system to make sure it supports channel & yield management, you will want to consider the following:

discount sale

1. Limit inventory for deal seekers

If your reservation system has the ability to allocate specific inventory to the deal, then you should do this well in advance of the deal running, and make sure that “Limited Availability” is built into your deal terms.

For example, if you offer 15 seats you may want to allocate a maximum of 5 seats to be available for daily deal customers.

This serves to limit your exposure to 33% of your inventory on any given tour and still allows enough inventory for regular paying customers.

2. Limit redemption of your deal to slow days

Most tour and activity operators have busy days and slow days.  The problem is that, like most of your customers, your deal seeker customers are probably going to want to book the tour on popular days.

Consider limiting the deal seekers to slow days or, if you want to allow deal seekers to purchase during your busy times, refer to the previous suggestion of limiting the number of seats available to deal seekers.

This is basic yield management and is a practice often done by hotels and other accommodation providers to fill rooms during slow periods.  If you add this limitation, it ensures that your busy days will be filled with your highest paying customers, therefore maximizing your revenues.

3. Force deal seekers to online bookings

Make it clear that deal seekers need to use your online booking system to redeem their vouchers or book your tours.  This allows you to control how the deal is redeemed and what restrictions will be applied.

For example, if the deal seekers do a search for availability and you specify that they must book a specific tour, then you can limit the number of seats they can book and the pricing that is displayed to the customer.

Limiting the deal seeker to online bookings also has the added effect of reducing your administration and reducing your costs for managing the booking.  Since your revenue for deal seekers is going to be much less, it is important to find ways to reduce the human costs for managing these tours.

Even though you may pay a little more for your technology to handle the booking, the cost will always be less than the cost of a human to process the same booking.

4. Create a unique offering for deal seekers

Instead of discounting your regular tours or activities, try creating something totally different for your deal based customers.  This has the effect of allowing you to determine the costs and revenues for a specific product rather cannibalizing your core products.

It also allows you to limit the bookings and availability for the specific product which guarantees that your existing products will not suffer from deal seeker overload.

The unique offering should be different enough from your regular offering to avoid confusion and to reinforce the value of the deal.  When creating a deal offering like this, consider partnering with other local services to enhance the deal without increasing your costs.

For example, consider including a discounted meal at a local restaurant, free admission to a partner attraction, or a coupon for a local retailer.  In this way, you can actually extend the benefits of the deal to your partners who may run a similar deal that includes your business in the future.

5. Cash equivalent versus discounted service

This is by far, my number one recommendation.  Let’s take the example of a sightseeing operator who offers a daily tour for 15 people.  The tour is valued at $150.

If you offer your tour at a discount of 50% off and stick with the average 43% commission to the daily deal provider, then your revenue on the tour will be $42.75.

Given that the customer purchasing this voucher is not going to be a repeat customer and is not going to purchase anything beyond the value of the coupon, your revenue on this sale will be $42.75.  If you change the voucher to be a fixed value voucher with a cash equivalent, for example $20 towards any tour for $10, then your revenue changes dramatically.

Using the same example, your tour is $150 – $20 = $130.  Subtract the additional $4.30, which is the daily deal cut and your take on the tour is actually $125.70.

This is quite a big difference compared to $42.75.  Offering the cash equivalent deal has an added benefit of not devaluing your core offering.  The tour is still $150.

Companies like the Gap, Old Navy, and others have offered these cash equivalent deals so there is precedence.

If the sales person you talk to says that this is not possible, then remind them of these high profile examples.  They work well because they don’t limit what the customer can purchase which means that the up-sell potential is higher but they are not as good for the deal provider because the deals are smaller.

Structuring your deal this way also means not having to change your existing pricing or product offerings.

6. Be confident with your numbers

Don’t let the sales person pressure you into doing a deal that doesn’t work for you.  For many businesses who have not been careful with their deals, only the deal provider and the customer benefit.

If you use the aforementioned suggestions for structuring your deal and stick to your requirements, then you will increase your chances of ensuring that your deal is 1) good for your business 2) great value for your customers 3) successful for the deal provider.

The overwhelming response to any daily deal cautionary post has been that businesses need to do their due diligence and plan their deals properly.  Just take a look at the comments on my previous Groupon post for example.

I would argue that the hordes of daily deal sales people are not doing small business any favours by being so aggressive with their sales tactics and, therefore, it makes sense to empower small businesses to protect themselves.

Conclusion

If you are a tourism based small business or you work with small tour and activity operators, please encourage them to prepare themselves.

There is no doubt that Groupon, Living Social, and the rest of the daily deal horde will be knocking on the doors of more and more small tourism businesses.

If we help them prepare, hopefully we can reduce the number of daily deal victims we so often read about online.

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Stephen Joyce

About the Writer :: Stephen Joyce

Stephen Joyce has been a contributor to tnooz since 2009 and has been working in travel and tourism technology 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 and currently sits on the Education Advisory Group for the National Tour Association (NTA).

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

 

Comments

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  1. What’s wrong with Groupon? | Donald's Archive 2.0

    […] of this is rocket science. But it requires thought, planning, and a strategy, of which Groupon forms just one part. If your total strategy is “Let’s do a […]

     
  2. Hotelguy

    I can see why it might be a wrong move for small business but all it takes is a little wit or a nice spin to it.

    E.G.:
    Groupon checks you highest RACK rates published during the promotion validity, so basically what you can do is set your rack rate to the level where their 50% margin and 25% commission will not ‘hurt’ you. These guys are not like Travelzoo and are not really double checking the rates on your site daily, to see if what they’re presenting is true.

    2nd thing is you need to know when and for which period you are promoting it.. You shouldn’t do it anywhere in your high/shoulder season… not worth it!
    If you’re not doing that, then Stephen’s logic falls 100% in place, then all you’re doing is basically cheating your loyal / higher paying clientele, and in many cases doing more damage than good.
    If you combine these 2 than this might have some effect.

    Let’s be fair and let’s not pretend that this is what every trade is doing, before your high discounts you increase the rate, and then it hurts less – AND PEOPLE LOVE DISCOUNTS!

    I did a promotion for a periods where my occupancies are less than 15% a day (very seasonal destination) and i got what i wanted, some room nights / revenues when needed and a great PR for periods where my occupancies are 75 – 95% and there is where i profited, as i was selling RACK to guys who saw me on Groupon.

    Having said that, it is not the most correct way towards the customers, but they actually got a very good deal and i was happy too.

    I do not prefer these business model like group deals, but you do what you have to do to get your business moving.

    P.S. my comment might not be to everyone’s liking but this is not my invention, but a usual way it works.

     
  3. Andrea McCracken

    Isn’t the bottom line here that a coupon is a coupon. Whether you are clipping out of a newspaper or getting it on your Smartphone, people love discounts and merchants love customers.
    I see and hear what everyone is saying but I have it simplified in my head.
    Will all daily deal sites survive? No, of course not. Again, simplifiying the concept, not all businesses survive any industry 100% of the time.

     
  4. Bonnie Spalding

    Agree 100% with your points Steven – I posted this on another Groupon article but I believe it complements what you have written here – I highlight some of the key elements for revenue managers when considering or executing daily deals: http://www.letitrain.com/gaming-and-hospitality/news-and-events/show/flash-sales-what-revenue-managers-need-to-know

     
  5. Crowd Seats

    These are great points that can be applied to almost any industry working with a Groupon-like model. It really comes down to the specific industry and whether or not it is a match for this model. Just because Groupon is popular doesn’t mean it is for every business. If you don’t anticipate return customers, you can’t make a profit, and you don’t value the added exposure, then by all means, stay away.

    I completely agree with creating a unique offering for deal seekers. If a flight package is $150, combine it with smaller add-ons that raise the overall value of the package. This allows you to maintain some price integrity for the core item (in this case, flight package).

    Cash equivalents work well for Gap and Amazon because they have a wide variety of products to offer. If you’re offering a $10 off $20 on a $150 product, that just isn’t a good enough deal. Even if a deal provider will offer it, the conversion will be much lower.

    Again, its important to realize that each industry looks at the advantages/disadvantages specific to their space. For example, daily deals for sports tickets (CrowdSeats.com) operates on two main foundations of the ticket buying space: a) ticket inventory is perishable, if you don’t sell it, you lose it! b) Overage Revenue/Upsells – when you go to a sporting event, the ticket is only the first purchase. There is parking, drinks, food, souvenirs, etc. Not to mention the ability for teams to sell to these new customers. For sports tickets, it makes sense.

     
  6. Ferdi

    Daily deal emails is the worst spam ever. One never get red of the constant emails that fill your inbox daily with unrelated, non- user specific discount newsletters.

    Don’t ever sign-up or register to these sites -if it is not relevant to what you or your business want or is interrested in. You’ll search hard to find a user-specific daily deal site- as most try to sell everything to everyone… Simply filling up inboxes with junkmail.

     
  7. Nora

    I think that people do need to look at the pros and cons of daily deals. They shouldn’t rush into anything.

    A great site to use to find deals and sales in your area to save is http://www.dailydealpool.com. They’ll send you a daily email with the best buys around, ensuring you can save every day!

     
  8. Brittany Laughlin

    Hacker News has a great story about a Skydiving facility that had success with Groupon by selling more add-on experiences once the customer was in the door.

    Read it here: http://news.ycombinator.com/item?id=2654788

     
    • Bob

      @Brittany You mean, like the parachute? 🙂 Sorry, couldnt resist!

       
    • Stephen Joyce

      Add ons are key if you want to make the original deal worthwhile. The problem with that model is that there is no guarantee of upsell and it’s hard to measure until after the deal is done. By that time, it may be too late.

       
 
 

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