GLOBAL UPDATE : DISTRIBUTION
The debate about whether it makes sense to use daily coupon services like Groupon and LivingSocial has been in the headlines for two years now . Proponents say flash sales can jump-start lagging hotel sales with no marketing expenditure , and the business is driven through brand . com , not a third-party site . “ Ultimately , it is about increasing RevPAR ( potentially by base loading ), building brand awareness and helping fill hotels in periods where they are not otherwise full or not getting the rates they want ,” Goodall says .
To get the flash sale company ’ s side of the story , HOTELS interviewed Goodall at the end of 2011 to hear his take on the value for hotels in flash sales .
HOTELS : What is your response to the argument that flash sales cheapen the business ?
Simon Goodall : The incrementality is key to hotels . If they look at their current distribution channels that are driving occupancy that has averaged about 62 % over the past 20 years , there is still the opportunity to increase the number of people in the hotel each night by 50 %. Going through existing channels and selling into natural demand in a commoditized environment and dropping price is one way , but occupancy is still standing at 62 %.
What we can do is provide strong merchandising in a brand-enhancing way that is profitable . There is a guaranteed ROI on every deal hotels run with us . It is pay for performance . There is no upfront expense . They understand their cost structure , know what the marginal cost of an incremental head is going to be , know what the marginal revenue is for Groupon customers and can determine profitability . We have had hotels do that , and it has been phenomenally profitable . They look at marginal costs and marginal revenue from upselling .
These are incremental customers . We offer sales for seven to 10 days and drive huge quantities of room nights to customers not actively shopping . We send an email and volumes skyrocket as we push out to tens of millions of customers .
H : Isn ’ t the cost of distribution via flash sales high compared to a hotel ’ s own site ?
SG : Hotels have to look at the incremental net revenue . The hotel website is the best place to distribute , but you also have to be rational on customer acquisition and brand marketing , which is not always factored into the cost of acquisition . What are you paying for paid search , and what is the incrementality ? Do they enhance the brand , and what revenue are they collecting during peak versus need periods ? What is the true value they are driving in terms of incremental customers ? We are about the incremental customer and what they net , and whether they are positive to the bottom line . The cost is low in that regard , as it has a positive return .
H : Is there evidence that Groupon helps create loyalty for hotels ?
SG : Hotels have to look at all the sources of their business and decide what sources drive loyal , repeat business and what sources drive different revenue at different periods . There are different segments of customers that exist .
A lot of what we drive is local customers who otherwise might not stay at local hotels . People in the suburbs don ’ t stay at downtown properties , but they buy Groupon deals when they otherwise had no intention of staying at any hotel . It is an incremental trip . Even if they had decided to go spend the night , the chances of choosing that hotel are slim . These are incremental customers , a local consumer gaining awareness of the hotel , who will eat in its restaurants , understand more about the property for potential business meetings and maybe suggest others stay there . It can create direct loyalty and potentially indirect loyalty .
H : When the economy eventually recovers some experts say flash sales will not do well .
SG : Until a hotel is 100 % full at an infinite price point , there is always room to grow . We help with base loading inventory to give them the confidence to raise rates , and help during periods of relative softness . We are not about selling during peak periods , as it tends not to be where we are adding value . We help hotels where they have periods of need and become a part of their revenue management strategy .
We can also drive incremental demand that can help base load a particular period of time , and drive advance booking so they can go into a season and maintain rate and drive RevPAR . We are all about helping hotels drive RevPAR .
H : What is Groupon Travel ’ s current exposure globally ?
SG : European countries have significant business . Our business in Brazil has a fairly heavy concentration of travel merchandising . A variety of countries are pretty engaged .
H : What is Groupon doing to take advantage of mobile ?
SG : Our mobile app has a Getaways section on it , and it drives an amazing amount of business . From what we have seen of mobile take rate versus other travel companies we are materially ahead as far as the percentage transacted through mobile . It displays a lot of the same enhanced imagery on our website and leads to transactions .
www . hotelsmag . com March 2012 HOTELS 9