Five questions before signing that hotel flash sales deal

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The right hotel revenue management strategy for flash sales

At a time when Groupon/Expedia and other flash sales are getting all the press, many hoteliers are wondering what may be the right hotel revenue management strategy towards channels that offer 50% to 90% off. Hotel revenue management is still about selling the right product to the right customer at the right price. The question is: has the right hotel channel changed and tipped to travel flash sites?

Before embarking on hotel flash sales, hoteliers should consider whether to:

• Adopt flash sales as part of the overall sales and marketing mix,
• Use flash sales as a tactical tool to be used at times of low demand, or
• Not embark on flash sales at all.

All three options seem viable, and you probably should sit down and answer the following five questions before deciding which one is right for you.

Five questions before signing that hotel flash sales deal

• Is low cost part of my hotel marketing strategy? While sites like Jetsetter drive traffic to your property of a certain segment, Groupon and LivingSocial are pure price plays. The hospitality industry is already being pressed for margins by booking.com’s rivalry to Expedia, but 50%-90% off is a dramatic departure from that. However, if low cost is part of your hotel marketing strategy having a few rooms available at very low cost may be a good way to raise visibility for your hotel.
• Are my customers local? Given that most flash sales sites (Groupon, LivingSocial) are providing mostly local deals, the first thing to consider is whether your hotel customers are local or not. Most probably the answer is not. If so, which geographies drive most of your hotel’s business? Are there specific markets or segments that you may want to target in your hotel’s marketing strategy? Ensure to have those questions answered before sitting down with that flash sales expert.
• What is the right price/discount? Groupon and other flash channels sell mostly fixed-price products: restaurant meals, spa treatments, or go-kart experiences. Discounting a service like hotel rooms, that has a variable price on a day-by-day basis is very different. Hotels already discount their prices on a daily basis to deal with seasonality and varying demand, it is called “yielding”. So, in order to price Groupon deals, use rack rate as the basis, not Best Available Rate (BAR). Make sure you display the rack rate on your booking engine,so that consumers understand the value they are getting from the hotel flash sales deal.
• Do I need to protect my hotel’s group business? One critical element of flash sales is the ability to generate large volumes of business in a short amount of time. This is in every way similar to hotel group business: deeper discounts for high occupancy during a restricted period of time. However, unlike hotel group business that is largely opaque, hotel flash sales are transparent and highly advertised (that is how they generate volume). Hence, will you see some of your hotel’s group business cannibalized by flash sales? If you have no group business, this should be of no concern, but if group business is a significant component of your hotel’s revenue strategy, you may need to think twice before advertising rock-bottom prices.
• Can I deal with voucher payments and blackout dates? Flash sales are highly successful because they generate high volumes of almost instant revenue that is then collected through vouchers. While there may be a benefit to the flash sales site from non-redemption (i.e. users that end up not using the promotion), hotels will typically only get paid for redeemed vouchers. The process to redeem those vouchers may be complex itself. Consider that some states require that vouchers be redeemable for what the consumer paid for it up to 5 years after the original purchase date. This may end up conflicting with some of the restrictions you may have set on the deal. So, get informed about all the voucher terms & conditions, including payment schedules when sitting down with that flash sales rep.

In summary, while Groupon/Expedia and other flash sales are getting a lot of press, hotel managers should think carefully through the consequences of signing up. Is it a strategic marketing tool or just a tactical way of unloading distressed inventory? Is the property and its staff prepared to deal with the complexities of revenue managing highly discounted prices?

If you want to learn more about what GuestCentric can do to improve your hotel’s revenue management strategy chat to one of our specialists online or sign up for our “Coffee with GuestCentric” webinar.