Flash sales, group buying and deal sites – the travel industry trend that consumers love, industry people love to hate and the media loves to talk about.
As economic woes and technological shifts have pushed consumer buying habits towards more deal-centric and value-driven purchases, many companies are being forced to adjust by taking part – and despite how they feel about the trend, it is not likely to go away soon, even as many economies move towards recovery. Despite some recent backlash on the profitability of companies such as Groupon (whose shares hit an all time low at summer’s outset), Douglas Quinby, Senior Research Director at PhocusWright reported that if Groupon and LivingSocial’s 2011 numbers continue at the same rate annually, they’ll be in the top one percent – or one of the largest 50 – of all travel agencies in the United States. These sites offer a set number of package deals during a limited time to consumers for rates advertised as 50 to 75 percent off, although research shows that most prices are closer to one third and one half off.
As review sites, promotion sites and discount travel accommodation sites morph and evolve, their marketers need to delve deeper into consumers’ behavior to understand who to target with specific promotions.
Quinby elaborates that “There has to be the right cocktail of price, proximity and spontaneity to make the deal attractive.” For example, a half day tour and a night at a local inn for a 25 percent discount might get around 1,000 purchases while an African safari (requiring additional airfare and longer vacation time) at a discount of 70 percent off might only get a small handful of takers – which might be equally fine from both operators’ perspectives depending on the price point, and their target audience.
Interviews with select ATTA Member Operators support this concept, revealing that many operators are finding measures of success mainly in discounting specific types of trips via flash and group sales: shorter-term, more locally-based and segmented experiences versus longer, international or high-end packages.
We’re not looking to be an everyday distribution channel and fill rooms during the busiest days of the year at discounted rates.
Still, the industry widely accepts that such promotions fail to attract customers consistent with the companies’ brands, insufficient revenue per product, a lack of repeat business, and often yield too much of the profits to the partnering deal aggregators, according to EyeforTravel.com.
In contrast, hotels typically sell rooms to OTAs at about a 25% discount, and they pay about 10% commissions on rooms sold through conventional travel agents. The issue is topical because travel and tourism represent the third-largest category in the flash-sales industry…In a report released last year, PhoCusWright estimated that Groupon, which does not break out revenue by the categories of goods it sells, might have generated as much as $400 million in gross travel sales in 2011. Some of Groupon’s flash-sale offers have generated as many as 4,000 room-night sales for a single hotel, PhoCusWright reported.
Filling seats on unbooked or unprofitable trips: An anonymous representative of an outbound, small-ship tour operator, who has worked several times with deal sites such as Jetsetter and Rue La La, reported that they anticipated their company to increase its use of these sites based on success in booking trips that had become a financial risk due to underbooking.
We use these opportunities on voyages where we are not expecting to make a profit. We are often trying to recoup as much fixed costs as possible and also earn more toward overhead and hope there is a little extra above that. Each traveler gained, even at a greatly reduced cost, went towards fixed costs and overhead.
Definitely. Discounting is not the brand image we want to portray. However, because of the financial need of certain trips and pressure from company stakeholders, we decided to test this sales channel. It definitely causes price undercutting in the industry and perpetuates the discounting problem that is affecting booking cycles.
The value is getting travelers that fill cabins that would otherwise remain empty. Of course getting these clients to return and tell their friends is also the goal. There is value in getting our name out there, however as I mentioned the brand promise is not there.
We wanted to reach out to a new audience, beyond those who are loyal to our brand. Adventure travel is gaining great momentum in a mainstream market and using a group buying site was a great way for us to develop new brand exposure and allow people to sample the product with less financial commitment.
The benefit of the group buying sites is the incredibly large database they have developed. We can offer a very targeted discount and reach out to people who may be a bit wary about trying the product for a first time at full price. It is not profitable in the short run, however we gain value out of the brand exposure associated with reaching the large databases the group buying sites have developed. Hopefully the flash sale customers will return and pay full price if they enjoy the trip but that is yet to be proven as it is too early. Should we see this activity we might be encouraged to participate in additional flash sales.
These are profitable when you point [customers] in the right direction of value instead of price – in our case, to help to sell more nights. But my recommendation is that you don’t work with companies that ask you to give very low price just to fill up your spaces. If you do, then all your clients will ask you for the same price, and once you reduce your prices it is very difficult to raise them again.
In a day trips market, if we can fill one out of every five boats with discounted customers and push discounted clients to off-peak trips (mid-week and Sunday mornings), our fixed costs have already been covered and we gain better cost efficiencies, provide employment for our guides and introduce more people to the joy of whitewater rafting. That being said, I would also add that after 3 years of experimenting with various group purchasing sites, we’re anxious to pull the plug and get back to a policy of no discounting. In general, we think it’s bad for business and it’s unlikely we’ll continue working with any group purchasing or flash sale companies in the future.
The big thing is programming during the off season so [discounted customers] in no way take full paying seats. We use them when we are typically underutilized, have plenty of guides looking for work, and primarily target them towards locals who are intimidated by winter. They want to experience winter but afraid of avalanches, putting chains on their cars, etc. – these are customers who are not already doing adventure activities so we can appeal to them by providing a skillset or experience they want and see as a tangible, good deal.
Moore explains while flash sales are hurting the industry on a macro level, Evergreen Escapes is only using them with customers outside their normal market who would never pay full price: “We’ll open 50 trips and only open up more once they fill – so we only are running trips at break even or higher. We don’t do the deals for the marketing – the marketing isn’t worth that much.” He adds that this local market often opens the the doors to full price business in Evergreen’s other product lines, such as corporate team building and international trips.
For us the value is cash flow at tight times of year and providing employment for guides in low seasons to reduce turnover. Our advice is to really know your goals. We only choose tours where it is possible to break even despite the discount and where it doesn’t compete with our normal business.
We can’t generalize and say that all passengers that book on discount or through group buying sites fit into one category or another – it really is a mix. That being said, the only risk with reaching out to external channels is that customers may not be as familiar with our product and may book mainly based on the discount.
Everyone likes a deal. But we don’t believe that it is the right medium for our type of business. We believe that it truly devalues a product and the types of buyers who frequent the sites are not dedicated clients, but rather those looking for a deal. We feel that it is unfair to those who booked at full price early on, and then the last minute folks get the deals. For us, we need early bookings to get trips off the ground. If people all wait until the last minute, trips don’t take off. Everyone wants to fill seats, but again to discount to some, but not all is a slippery slope in our opinion.
The high percentage of discounts that has to be offered, makes the customer acquisition costs relatively high.
The high discount will definitely have a negative effect on our main sales channels partners with the possibility that we will have to undercut them.
The highly discounted product can negatively affect the products in its regular markets and consequently establish unconsciously a new market value for the products.
When you put a high quality multi-day guided trip next to a heavily discounted beachfront resort package, the value of the guided adventure is completely lost. For the most part, repeat business is what sustains tour companies. So I encourage any tour operators who are considering a flash sale promotion to think about the type of people who traffic the site that’s running the promotion. If you don’t attract the right customer, there is no way you’ll be able to see a good ROI.
Finally, deal sites aren’t going anywhere, so I think all tour operators should strategize about how to craft effective promotions and find partners who respect their brand and understand their business.
While travel deal sites will likely have to evolve into more specialized brands to survive the glut of sale websites and a rebounding economy, it’s true that their popularity is growing and they will continue to affect the travel industry. Suppliers considering using them must make a hard analysis of their goals, available outlets and channels, and weigh the potential rewards to the risks.
We have not gone into the discount realm using these kind of sites for much of the same reasons identified in this thorough article.
As well as many of the points raised another aspect for us not using them is the perception it provides to our front line staff. In a service based product it is the quality of the personnel delivering the service that make up a big part of the product. We highly value what they contribute to the customer’s experience, and they take pride in delivering a quality experience to the level of pricing we, as a company, have set based on 10 years of trading. To sell our product at a vastly discounted rate creates a risk that front-line staff feel devalued themselves and so would drop their service, or that the staff would provide a lower service to those receiving vast discount prices.
And, in this day of tripadvisor, twitter, facebook etc, if you drop your standard for one person that bought a discount offer who then decides to become “networkingly active” with negative comments – and they will never admit to having purchased a discount product – they will tarnish your brand to a much greater detrimental affect than the gain of a few dollars to keep operating. Or they might still be positive about the experience – but highlight that there is no need to pay full price, just wait for the deals to come out – resulting in a very different negative outcome for your company/brand.
Certainly, there are many dynamics at play in operating a tourism business, and reaching a level of fare-paying revenue so to break-even on a trip is very important on a constant basis, beware the mid/long-term impacts of such decisions.