“What is a cynic? A man who knows the price of everything and the value of nothing.” This is often quoted to distinguish the concepts of value and price. However there is a new wave of travel shopper behaviour permeating the whole distribution landscape, the daily/voucher/flash/group selling deal (lets for the purpose of this post call it the ‘daily deal’)
The ongoing decades old debate of the definition of value, and also loyalty, are rendered meaningless and pointless, even irrelevant in te current hurly burly and pace of technological change. Why – because conversely or perversely, price is a component of, rather than a measure of, value in today’s frenetic impulse purchase, immediate pleasure culture. Take Sky. A new customer gets a much better deal, and is likely to therefore become a lower lifetime value customer, all other things being equal, than a current existing customer. Even setting aside this perverse view of value, very commonplace these days, where is the loyalty logic in this?
The concept of loyalty is a challenging one in the daily deals environment, but it is being addressed both by suppliers and deals sites alike as the deal culture spreads. Suppliers develop aggressive loyalty strategies whilst deals sites, as you’ll see below, are partnering with brands and key suppliers to use voucher activity to enhance segmentation, trust and loyalty, and to swing the balance away from being regarded as ‘cheap’
Travel suppliers such as hotels have to react to things as they experience them, there is no room or time for debate about concepts &c. Lets focus therefore on the way it is (rather than why it is the way it is) – – – – =- –
Daily deals sites
There are far more deals sites than most people know/imagine
Groupon and Living Social control 90% of the US daily deals market (and the UK is probably not much different)
The day of the deal is with us until at least the end of 2012, and the culture is growing
Deal/group selling/flash selling/voucher sites, call them what you like, are becoming more sophisticated by – – – – – –
Despite currently being essentially mass market products, they are now embracing market and customer group segmentation
Forming partnerships with major brands to generate low cost high volumes sales for them – and as brands seek out trusted voucher site partners to push their vouchers to the right audiences/segments
Daily deals sites have huge local sales potential, complemented by geo targeting and mobile/smartphone
The immediacy of benefit of contactless and mobile payment has still to, and will come through, sooner rather than later. As an impulse purchase concept voucher sites are a perfect partner for these systems
The pace of growth of the voucher sales market has paralysed the supply side’s ability or even desire to understand it, far less counteract it.
Customers just love the daily deals concept.
Daily deals sites are amassing massive customer databases – scale is king in this market.
Unless deals sites create new demand, they depress the current yield expectation landscape of the market overall, i.e. they are displacing higher margin sales, so the supplier loses, and the voucher side has potentially high static marketing costs as a % of revenue
As/if the marketing costs of these sites do go down, they will recoup these and increase profitability rather than pass savings on to consumers and suppliers.
Voucher sites bring with them their own version of market failure as the big brands aggressively price out the small independents, with bigger supply and investment potential to offer.
The day these flash/v daily sites create more demand than supply, the more brands are potentially at risk unless they invest/partner in this market.
The obsession with price and volume on the supply side
To us as consultants, we are naturally disturbed by this – remember the recession (probably still with us) when the hotel industry caved into pricing pressure and not only slashed prices across the distribution landscape, but in many cases increased incentives and rewards to OTA’s and third parties, thereby squeezing margins even further.
How many times have I heard hoteliers say, if we had all been brave and held our rates, we’d have been a lot better off for it. Too late.
And lo and behold, along comes the daily deal – just a further extension of this obsession. And elsewhere we have posted that hotels should resist the temptation to cave in to this market, or to be lured into it as a ‘lazy man’s fix. Where is market segmentation. Where is channel management?
Because there is no organised supply management association for hotels in the UK, hotels follow each other like sheep in the fear that they may lose out to the competition. Hotels have in fact created the conditions for these price led concepts to prosper, and almost dominate the market. The bad news is if the daily deals go mainstream and become the norm rather than the exception. And as one respected commentator said, the price lever is too easy to pull.
Remember this – revenue managers seem to still follow too easily the principle of dropping price to generate more demand. Otherwise it is hard to explain why discounts of more than 30% are launched even in traditional peak periods. Most people seem to forget, especially when revenue plans are at risk, that this eventually would require an additional volume uplift of more than 100% to recoup price loss and maintain profitability, And the higher the discount, the more the volume increase required.
Whatever you think about them, daily deals growth rages on. There are now 20 companies in London alone. And it is not just the pastime of the ‘cheap and cheerful’, luxury brands like Malmaison/Hotel du Vin are embracing them and have partnered with VoucherCloud to develop their own daily deals offering. But increasingly, brands want to know what and how many vouchers will be sold, where and to whom, so as to keep this volume game under control, whilst small suppliers simply don’t have the scale conditions to enter this hotly competitive, dangerous and continually evolving volme game