From time to time, we publish content on leading websites in the industry, to share our knowledge with as many people as possible. This article originally appeared on the Hotel Business Review.
Daily deal websites like Groupon burst into popularity towards the end of the 00s. Since then, they have generated much controversy. Despite being valued at over $6 billion in 2010, Groupon’s value has degraded significantly. It’s stock value has crashed 43%, heralding many to proclaim the death of flash deals.
Not so fast. Groupon’s stock woes are due to Groupon’s aggressive marketing, and it’s stock allocation decisions. Despite it’s troubles, Groupon still sits on $868 billion in cash reserves. In 2011, a BIA/Kelsey report predicted that consumers would spend $4.2 billion on daily deals by 2015; by 2016, they predict the number will rise to $5.5 billion.
Current data is hard to come by. In the first 6 months of 2014, consumers spent $1.6 billion with Groupon alone, according to The Motley Fool. This places the industry right on track to realizing BIA/Kelsey’s predictions.
Clearly, consumers are still using daily deals. Before we discuss which daily deal websites are best for hotels, let’s explore data about how profitable they are.
How Profitable are Daily Deals for Hotels?
In June of 2012, Rice University published the results of a 1-year study tracking activity with daily deal websites. They found that between 54.9% and 61.5% of businesses make a profit. Profitability varies by industry, with health and beauty businesses coming out on top. Travel and tourism still did well, with 68% of participating businesses turning a profit using daily deals. At the bottom were restaurants and bars. Only 44.2% of them reported success.
The Goal of Daily Deals
Many criticize daily deals for bringing properties an influx of low-quality business that cashes in on the daily deal, and then never visits the business again. This is particularly pronounced with restaurants, bars, and cafes. However, data is more promising for other businesses like hotels.
80% is the number to remember–it pops up everywhere. About 80% of business generated by daily deals is from new customers. Business owners have been concerned that only their repeat customers would use the daily deals, thereby eating away at revenue they would have made anyway. The data shows this not so. Additionally, 80% of customers who used a daily deal ended up spending more money at the business than the value of the deal. This can include hospitality upgrades, additional night stays, restaurant purchases, and more.
Of customers that purchased a daily deal, 1/3rd of them became repeat customers. This shows that daily deals provide sticky customers, making daily deals a legitimate strategy for growing a business, rather than momentarily injecting it with new customers.
Another metric to consider is how many customers who buy the deal, use the deal. When a customer buys a deal, the property splits the revenue with the daily deal websites. It’s then up to the consumer to turn in the deal before it expires. However, Rice reports that most consumers who purchase deals never redeem them. For hotels, this is great news. It means that using daily deals, you can generate excess revenue on vacant inventory that you can still monetize using your traditional marketing channels. You’re making free money on inventory that would have gone vacant anyway (which is why you set it aside for daily deal websites).
Daily Deals are Not Right for Every Property
The Rice study clearly showed that some businesses can turn a handsome profit using daily deals, while others can’t. The big winners are smaller properties and huge properties.
60.1% of smaller properties making less than $100,000 in revenue a year were able to turn a profit using daily deals. This number explodes for truly lucrative properties. 76.7% of large properties making over $5 million in annual revenue turned a profit using daily deals.
The losers here are properties making between $500,000 to $5 million annually, who performed poorly compared to large and small properties. That said, even some of them made a profit, meaning that the strategy used with daily deals is key to the property’s success. Even mid-level properties making half a million in revenue can turn a profit using daily deals, if done correctly.
When to Use Daily Deals
Rice reports that the majority of businesses that use daily deals are new. Hoteliers have discovered that daily deals are a great way to bring customers to new properties that have not yet established themselves on search engines or OTAs.
Daily deals are a great way to get real user reviews about your property. This is a potential hazard as well. If your deal is perceived as being “tricky”, or if your service is sub-par, then you may get mediocre or negative reviews. However, if your review is honest and compelling, and if you lavish these guests with the same great service you give your other guests, then daily deals are a great way for new properties to gain positive market exposure.
Additionally, consider travel seasons. I worked with a property that was fully booked during the summer, but had a hard time selling inventory in the fall and winter. The marketing manager at this property used Groupon during the fall to completely fill his property with guests who were coming to town to attend local conventions and a football game. Daily deals may not be a good decision if your property naturally has max occupancy during busy seasons, but during the off-season, they can be a great tool to move unused inventory.
How to Find Success with Daily Deals
Whether or not your property finds success using daily deals rests mainly on the strategy you use. If you give too much away, then you won’t turn a profit. If you are too stingy, then no one will buy your deal. Here are 7 tips you should bear in mind when crafting your deals.
1) Know when to say “No”
The “next big thing” can be alluring, but as we discussed previously, many properties turn a profit, while others do not. If your profit margin is already small, then daily deals may not be right for you. Consumers expect a deep discount when purchasing a deal, and if you can’t offer them one, then they won’t buy your deal. If you sacrifice profit to use daily deals for exposure, this may work for you–but bear in mind that 1/3rd of customers generated using daily deals become recurring guests. Do the math. If it makes sense to essentially give your product away to gain repeat business slowly, then do the deal. If not, then choose a different marketing strategy.
2) Rope guests into your marketing funnel
Use daily deals to pad your existing marketing strategies. Hoteliers should use an “all of the above” marketing strategy to gain new guests. Use search engine ads, retargeting, online ads, OTAs, and email. When you get a guest from a daily deal, add their email address to your regular email marketing campaigns. Find ways to get them to follow you on social media, and to visit your website. Capture them when they stay, so that you can market directly to them again in the future.
3) Craft your deal with care
The details of your deal make the difference between deals that are profitable, and deals that are not. Add contingencies to your deal. For example, only offer a steep discount of the guest stays for 2 or more nights. Make the value in the experience, instead of the discount. Give away two tickets to a local sporting event, or free tickets to a local tour with the purchase of a night’s stay. Other examples can include offering free meals, free upgrades, and free entertainment. Write deals that increase perceived value without eating into your costs. The most profitable deals offer guests things that cost you little, encouraging them to pay for the services that cost you more.
4) Understand your local pricing
As a hotelier, you are likely intimately aware of the pricing of your competitors, and what guests will see when they hop onto OTAs to research. Your deal must be more appealing than what they can get on an OTA. Know what it costs you to serve a guest, and use this as a baseline for your deal prices–they must not go lower than this number. Next, see what perks your competitors advertise on OTAs. What makes your area special? The view? How close it is to a venue or downtown? Add these perks to your deal to increase perceived value, then market your deal below what a guest can get on an OTA. Always bear in mind rate parity agreements, where applicable.
5) Understand daily deal customers
Some customers use daily deals to get the most rock-bottom price they can possibly get. These may not be your desired guests. They tend to focus more on price than value, and may be more contentious, leading to poor reviews if the deal did not meet their financial expectations.
Many other guests who use daily deals, however, are shopping for additional perks they otherwise wouldn’t find. These are the guests that will get the most from your deal, and will prove more valuable. For example, some guests will book if they feel like the deal gives them above and beyond what they could get outside the deal. Spa treatments, massages, romance packages–you get the idea. If you focus too much on offering the lowest price, you will attract guests who are only concerned with price. If you instead focus on increasing perceived value, you will attract guests who are looking for a good experience–and if you can provide them that, you have a greater chance at turning them into repeat visitors.
6) Be Ready
Daily deal websites (especially Groupon) are famous for driving more business than a shop can handle. Typically, once you publish a daily deal, the deal is live on the site any anyone can purchase (and redeem) the deal, instantly.
Make sure that your deal is crafted to mitigate disruption. Have the offer valid for specific weekends, for example, and make sure each deal has an expiration date. Place occupancy restrictions on your deals. Be realistic with the number of deals you can handle, and give the daily deal website a hard cut-off number.
Also, be sure your staff is ready. Have extra front-desk representatives on hand to handle a busy weekend when you expect many deals to be redeemed. Make sure your housekeeping is prepared to turn around rooms as quickly as possible, to get them ready for the next daily deal visitor.
7) Practice makes perfect
Rice reports that the most profitable businesses who use daily deals have used them before. Businesses who use daily deals for the first time have a lower percentage of profitability. Since every property and location is different, it is impossible to predict how profitable your deal will be until you try it.
For your first deal, place hard limits on the number of deals you sell, so that you can mitigate any lost revenue. Once it ends, reevaluate your deals and choose a new strategy if the first one didn’t work. With repeat use, you can craft a daily deal that will be profitable, even if the first one isn’t.
Flash Deal Websites for Hotels
Groupon
Groupon is the world’s leading daily deal website with over 48 million members. They organize travel experiences as “getaways”, encouraging property owners to offer package deals to their users for up to 70% off. You can list deals for properties nearly anywhere in the world.
Visit Groupon
LivingSocial
LivingSocial is the world’s second largest daily deal website, boasting over 40 million worldwide users. They are dedicated to travel as one of their three major focuses. Many properties around the world use LivingSocial offering discounts up to 80% off.
Visit Living Social
TravelZoo
TravelZoo is a daily deal website boasting 27 million members worldwide. It has many areas of interest, with an entire section dedicated to hotels and travel around the world. Deals on here tend to go quickly. Hoteliers are encouraged to actively monitor their deal sales and update the deals with new availabilities as the deals become sold out.
Visit TravelZoo
RedBalloon
Red Balloon is a daily deal website that focuses on on travel experiences in Australia. This is a good one for properties in Australia that can add a travel experience to the stay, such as a boat tour, or an airplane tour.
Visit Red Balloon
Cudo
Cudo is a daily deal and package website from Australia that includes exotic travel getaways. These are good for properties in exotic locales that can create a package deal that includes adventure and sightseeing.
Visit Cudo
Scoopon
Scoopon is another Australian daily deal site that focuses on exotic travel packages. They include properties from many places around the world.
Visit Scoopon
The post How to Use Daily Deals to Promote Your Hotel appeared first on Cloudbeds.