As many of you know, we have challenged the flash selling deal concept in numerous forums and articles.
The good, or bad news (depending usually on which side of the fence you are on – customer/merchant – or travel supplier – is that many of the deal companies are modifying their offerings in terms of inventory risk and other constraints on the supplier, to make their offerings more attractive to hoteliers.
One thing hasn’t changed however, the value of the deal – or the commission the supplier charges. Many deal companies use £99 as a price point – commissions vary from 25% (KGB) to as high as 40-50% in some cases (Groupon) – and in addition have minimum criteria for the discount on ‘rack’ e.g. 60% off as the basis for commission charging – and as we well know we can fence the deal with extras so that they can’t really rate shop effectively.
Enough said, do you remember the days of ‘free accommodation offers’ and 241 deals – hundreds of companies sprung up in the early 2000’s, often acting for privileged cards for large PLC’s such as supermarkets for their ‘audience’. Some of us dabbled in these, but most hotels poo-poo’d the ideas – how times have changed. And the similarities are all there, suddenly a breakfast became £15 and a dinner £35 in a two star hotel, to get the £50 the hotel was prepared to accept as the free accommodation ‘rate’ and so on.
As many of us hoteliers work on daily, demand, dynamic, competitive – pricing – call it what you like – this also means that the rate shopper for the deal company has a challenge – many hotels no longer show tariff or ‘rack’ pricing on their websites, preferring to say, ‘our best available rate is got by checking on line’
Together with the fact that many deals companies put the hotel pretty well completely in control of the dates for which the coupons are valid, and over longer lead times now, often 6-12 months, then this, coupled with the ability to fence rates and pricing to ‘disguise’ the true cost of the deal – gives more leverage to the hotel, but this has got to be at the expense of the flexibility of the deal to the customer as it is a two way street. So the ‘great deal’ becomese not so good when you can’t get it for the date/s you want. This often triggers the only other conceivable value to the hotel of this type of selling – the breakage – or revenue from unredeemed vouchers – this might be the only true profit you’ll ever make.
If hotels are going to stoop to this kind of selling, they really must get mighty smart at this. WE CONTENT, AND ALWAYS HAVE, THAT THESE DEALS OFFER ZERO PROFITS TO HOTELIERS, AND OFTEN LOSSES, AND IF PRACTISED OVER UNDUE PERIODS OF TIME TO BECOME THE ‘LAZY HOTELIER’S’ WAY OF FILLING ROOMS, WILL RESULT IN FINANCIAL DISASTER FOR THE HOTEL.
Not to mention customer loyalty issues – don’t be kidded, empirical evidence by the barrowload suggests that the loyalty is to the deal company, not the hotel, and that this particular category pof customer just doesn’t fit the model of most hotel loyalty schemes.
Another tip, remembe to take the VAT off the ultimate reward before you draw any false conclusions about profitability. A nett return of £50 from Groupon is in fact only £41 to you, £9 to HMRC. And while on the subject of HMRC – don’t be doing too much of this ‘dealing’ – as you may find the taxman starting to take an interest in your gross margins!!!!