15 Aug How a hotel should use Groupon effectively
So, my last post about changes in consumer behaviour due to sites such as Groupon provoked a fair amount of debate, and indeed in that post I dared to infer the hotel is to blame if a deal does not work.
Hotels agreed with me, people working for these daily deal sites agreed with me; people also disagreed, for that is the basis of opinion and debate. Hopefully this post will provoke some much needed debate over the use of daily deal sites for hotels.
Now, there are a very high proportion of hoteliers that have been tempted in by third party daily deal sites, and bitten the bullet. The end result then becoming as about as successful as actually biting a real bullet and nearly blowing your own head off!
It is human nature to look externally at the factors that led to failure of the deal. I have heard sales teams blamed, the economy (as though it were a physical entity that forced people not to buy just that one deal), incorrect wording, or even worse the deal site itself. Usually the deal site ends up with the bad wrap, being berated or even abhorred in the community. But there are success stories to the daily deals phenomenon, mainly these are retail outlets, shops etc but some are (shock horror) hotels and restaurants!
The daily deals phenomenon hit hard, and suddenly. There were a few whispers about a site called Groupon, and before you knew it, every business wanted a piece of this ‘instant revenue boost’ and every consumer wanted to get that half price deal. There was a boom in the trade and every type of business clamoured for a piece of the pie, but most did so without thinking it through!
Hotels are one of these businesses that relied on a stock industry revenue model, that does not account for these flash sales sites or the type of consumer they bring to your hotel. 5 star hotels suddenly receive guests wearing Primark and George, rather than Prada and Dolce and Gabbana. Fine dining restaurants that plodded at a steady comfortable pace, taking immense pride in all things food, suddenly became posh fast food outlets and high end bars with guest lists more selective than Mary Poppin’s babysitting list became open to all and sundry with two for one drinks and free lessons on how to be like Tom Cruise in Cocktail.
Now this is no bad thing; if business is down and you need to get people through the door, then daily deal sites are a way to do this. Now with hotels, and the revenue model used, it is generally anticipated that your guests will have an incidental spend (I.e. will spend money on extras such as room service, leisure, bar etc) and with a bit of luck, they will return. But there is a flaw here…. (*prepares self for backlash*), the basic revenue model is a bit of a ‘build it and they shall come’ philosophy. It relies on people having an incidental spend, and an incidental spend relies on getting people in, and that relies on beating your competitors to the people with money to spare, and if the people buying these deals from daily flash sale sites are doing so to save money, what makes the model work with hotels if they have no inclination to spend money?
It is important firstly to understand how these deal sites work as the premise is really simple; consumers receive a service or goods at a substantially discounted price from the standard rate that would be payable. For hotels this often eats in to the wrong revenue streams; I have seen profits in Food and Beverage drop as a result but Accommodation revenues stay high, or vice versa.
So here are my tips for actually running a daily deal, and coming out profitably from it….
- Read the small print BEFORE signing anything. It may seem obvious, but you would really be surprised how many people do not actually read the contract, and I mean really read it (small print and everything!). Pay particular attention to sections on payment terms, payment periods, sales periods and sales close outs. If you do not like what you read, walk away! This is such a vital step and this is where a lot of people fall down. Some companies have contracts that allow sales to be reopened if they sell out but it is popular, or allow deals to run more than one day if they sell well, or even impose penalties if you remove the deal. Another point to monitor is exclusivity clauses. Groupon (used to and may still) have an exclusive clause, whereby you could not sell any other offer through any other deal site for a year from the expiry of the Groupon deal. Personally I would never sign a contract that tied me in like this as it restricts your sales avenues and audiences far too much and leaves you open to compensating the company that are selling on your behalf!
- Be aware of commissions. These will eat in to your revenue, and often quite substantially. Some sites have commission of up to a third of the selling price, and can you really afford to give away another third of the money that people are paying? Remember this is not a third of your profit, it is a third of the gross price a guest pays for the voucher, so if the guest pays £100, you can receive as little as £66
- Run your figures thoroughly. know just how much you are going to make from each voucher, once commissions are taken. So if you sell at £100 on the site and you receive £66 from each sale, you need to ensure that this is a profitable amount. Accept that your profits will be lower on these deals in general, but that you should still receive profit, and that is most important. Take in to account that busier tills means more staffing requirement in general. You may have been able to get through a quarter full restaurant with two staff, but two staff could not cope if it was full.
- Consult with and prepare your staff. Many sales teams (in my experience) do not inform the people it will affect, let alone consult with them. As a Front of House Manager I have had my fair share of ‘oh yeah, we launched this deal yesterday’ conversations when I suddenly find my team dealing with questions about deals they know nothing about and have to deal with an overworked receptionist because no-one told me so that I could get more staff in to deal with these enquiries! And yes, there is still personal resentment from the effects of those conversations! Decisions that affect teams, need to be discussed with them. Do not launch a food deal that halves the profit for the restaurant without speaking to the restaurant manager! This applies to all departments as any issues can then be ironed out before the deal starts selling and staff start being affected, or worst of all customers being affected by unhappy stressed staff or unprepared teams
- Do your research! Find similar businesses that have run deals, and find out how it worked for them, or even monitor similar deals to yours to find out how well they sell (most deal sites have a counter that tells you how man have sold). Always ensure you look at what deals work, and which don’t. Then ask yourself whether you could run the same deal and maintain a profit? If the answer is no, then the deal would not work for you so increase the price or change the offering. Speak to other businesses in the area and find out what worked for them and what didn’t, it is no great industry secret and networking is necessary nowadays. Whilst they are your competitor and vice versa, it is vital to keep up with the trends in the area in general!
- Know your limits. Be aware of any selling restrictions etc that you may have to impose, and inform the deals site, not allowing them to take the deal live until you have approved it and all the terms for the guests. If there are dates you are full or cannot take bookings, detail these in the deal terms. Remember that most people who buy hotel bedroom deals will try and use them on a saturday night (in my experience around 80% of vouchers sold will be attempted for use on a Saturday). Some hotels have played this very successfully; with most deal sites you can have several prices for the same deal, for example one price for a single duvet, another for a double and so on, and you can do exactly the same with a voucher for a stay or dinner etc by charging an additional supplement for a Friday or Saturday night. The advantage to this is that you get more revenue for those nights, and can limit how many of those premium vouchers you sell, it also means that those who buy the cheaper vouchers will come on weekday nights, boosting revenue for quieter days. The downside here (as there always is one) is that if someone buys a saturday voucher, you had better hope you have the ability to let them stay on the Saturday they want to. It is just as important to ensure you restrict the dates the vouchers can be used, otherwise you open up to a free-for-all on using them!
- Check your attitude. Okay, you probably wonder why I say this, but it is a necessary point… The people who buy these vouchers are not second class citizens, nor are they cheapskates or freeloaders, they are people who appreciate and take advantage of a good offer or deal when they see it. You have got them through the door, now don’t ruin it by giving them the worst table or worst room. Whilst you may only see £65 of their money handed to you, remember they have paid £100 for the voucher (as an example). In revenues of several million pound turnover, this is a tiny amount hardly worth noticing, but to that guest, that £100 could be 3 months of savings, or two weeks of food or similar. Everyone feels the pinch, but just because someone buys a cheaper alternative to direct purchase, does not mean they should be shoved to second best. Remember that you can convert these one-off guests to being regulars, and these are probably the best chances you will get to gain new regular clients!
So there you go, my tips for managing these deals effectively. Others may have more tips and these are just mine to throw into the hat! As always, with any new sales avenue you should think things through with your business head and think ‘how will this work for me?’ Many people offer flat deals with everything thrown in but if this is not for you, think of alternates such as selling vouchers for a stay (room only) but with a discount for leisure or food or similar, as these work just as well.
Until next time….[php function=1]