As we approach the 10th anniversary of 9/11 it is a good time to stop and consider all the changes that have occurred over the last decade. In the hotel business we went through a complete economic cycle from the deepest of lows after the impact of 9/11 back up to new highs before falling back again. Looking back there have been significant improvements in hotel revenue generation particularly in the areas of hotel marketing and revenue management. The entire online capabilities that hoteliers have at their disposal to reach a global audience developed in the last decade.
Which is why I shake my head when I look at the what the Flash Sales sites are doing to our business. In 2001 it was the OTA that were allowed into the market as they quickly took a dominant position with our inventory; the net result at that time was lower profitability. We worked hard to regain control and continue to today; so why are we letting the Flash Sales Sites gain momentum?
Flash sales otherwise know as Daily Deals or Group Buying sites already have a strong position in the market; a March 2011 Harris poll finding that 22% of consumers use these sites looking for deals. In fact Groupon has grown from $30.47M in revenue in 2009 to $644.7M in Q1 2011 as it prepares for IPO.
My issue with Flash Sales comes down to two things:
- Profitability: the expectation of these marketers is that your product be heavily discounted to as much as 50% off market value; then they take a revenue share on average of 30%. Think about that on a room that is selling in market at $200 per night you are now selling for $100 of which you receive $70. Cut through the sales pitch of we only sell packages and look at the profitability.
- Dilution of Demand: 22% of consumers are using flash sales sites and growing; what this says is that consumers more so than ever before are now trained to look for discount deals. When a deal hits for a 4 Star Hotel in Vancouver for a 2 Star price of course it is going to sell like gang busters. The challenge is that the natural demand in the market is being altered; consumers are buying in advance knowing they will be traveling removing them from the demand that is open to compete for.
I concede that these sites offer a tremendous opportunity to expose your product to a mass market that will buy; so then the question comes down to is it good for your business to run a campaign with one of these sites. Put together the offer you would sell along with the costs of each of the items and to understand if the campaign makes sense.
Subscribe to Rethink Hotels here and we’ll email you a copy of a simple calculator to determine the profitability of a Flash Sales offer.
Better yet focus on other revenue strategies to drive high margin revenue that will ensure profitability. We’ll discuss these in more detail in future posts.
Follow this link to here about Daily Deals from a different perspective http://www.cbc.ca/thecurrent/episode/2011/06/06/coupon-deal-websites/