Its launch of flash sales for hotel stays in July 2011 has given Groupon tens of millions of dollars in business worldwide via partnerships with hotels.
However, the industry has mixed feelings about selling rooms via flash sales to say the least. Critics assert that flash sales for hotel rooms do not engender brand loyalty and that the deals are not supplier-friendly enough.
To further examine how this new channel affects hotels’ bottom lines, HOTELS talked to Simon Goodall, Groupon’s vice president and general manager of travel, to discuss their burgeoning hotel flash sales business. Further coverage of Groupon will be featured in the March issue of HOTELS Magazine.
HOTELS: The prevailing thought is that these are customers that are going to be there when you’re going to provide a great deal, 50% off the usual rate, but that you’re not really helping create any loyalty. In fact, you’re helping make customers more brand agnostic.
Simon Goodall: I think every hotel has to look at that differently. They have to look at the sources of their business and make a determination of what are the sources that drive their key business and what segments drive revenue for them. There are different segments of customers that exist and we have to work with each property to see what that looks like.
You don’t generate loyal customers without generating trial, and that’s what this is all about.
HOTELS: Some in the industry warn that no hotel should use flash sales. Are you going to evolve to be more supplier-friendly?
Goodall: I think we are very supplier-friendly. I fundamentally disagree with that. I can’t speak for what others are doing.
We help drive incremental demand. What a hotel has to look at is that a hotel is a very high fixed-cost business.
HOTELS: You’ve had the advantage of coming to the market during a recession where there are a lot of available rooms and when owners are telling their managers, “I don’t care if it’s cheap business, we need the cash flow.” When the economy eventually recovers, there are some that say that flash sales are just a recessionary phenomenon and not a distribution channel that is here to stay. How would you respond to that?
Goodall: I would also disagree. I’ve been in travel distribution for 10 years. I’ve seen great times for suppliers and more difficult times for suppliers.
Until a hotel is 100% full at an infinite price point, there’s always room to grow. There’s always room to increase occupancy and rate. We can help with base loading inventory, to give them the confidence to raise rates in the overall marketplace and to help them increase occupancy when demand is soft.
We’re not about selling during their peak period time. We’re about adding value, helping hotels when they have periods of need.
HOTELS: Back in 2003, the OTAs started implementing rate parity similar to what hotels wanted. The flash sale is against best rate guarantee principles. On a bigger scale, average rate decreases when hotels give inventory to flash sale sites. How do you deal with that, how do you respond to that?
Goodall: I disagree that we’re lowering rate. We’re increasing RevPAR.
I think there’s a way we can increase ADR, because we drive awareness of the property. Outside of the period when the Groupon deal is valid, we collect zero revenue.
I think your question was about rate parity. We don’t sell rooms. We sell a voucher and the face value of it is for a room. We’re not selling the same thing as OTAs or hotels do on their own websites. We sell experiences, complete packages that are more than a hotel room. To drive incremental demand, often just selling a room isn’t the best thing to do. You need to create experiences.
HOTELS: The cost of distribution via flash sale sites is disproportionately high compared to a hotel’s own website. What are you hearing from your suppliers about cost and how do you respond to the fact that there’s such a high cost to distribute via flash sites?
Goodall: I think hotels have to look at it a little bit differeintly. You have to look at what is the incremental net revenue. I completely agree, a hotel website is the best place to distribute. If a hotel is filling all their rooms by their own channels, that’s what they should be doing. But while they are in that, they should be rational about how much they are spending on the acquisition. People don’t always factor in the total cost of their acquisition.
What are you spending on paid search marketing, what are you paying for upfront advertising and what is the incremental value of those ads? How are they presenting your property? Are they doing it in a way that enhances the brand?
They have to look if this is benefitting their bottom line, if this is getting customers they would not already have. I think the [Groupon] cost is actually very, very low in that regard.
HOTELS: As far as the booking rate you tend to get, is that number moving higher as demand recovers? Do the booking numbers tends to go up, are the deals not quite as enticing as demand goes up?
Goodall: We’re pretty consistent in what the deals are. Our consumers know us for driving great value for them and we’re not willing to compromise on that, as that is what drives consumer interest.
Just seeing “$99 off” doesn’t inspire you. It’s a whole experience backed up by a great deal.
It’s not all about the price point, but the price point is an important part of the deal.
HOTELS: Can you share any broader numbers on your hotel business and what you’ve generated in terms of booking or revenue?
Goodall: In our first full month we did over US$10 million of hotel business. That was in August. This business is growing as a whole.
HOTELS: Is Groupon doing any hotel business outside the U.S.?
Goodall: Yes, there is a lot. Each of our local countries has their own travel business and they are working with hotel partners to offer deals. Any country around the world has different options. Each of our countries is run more or less autonomously.
HOTELS: Is there any particular area of the world that’s been notable for its strength on the hotel side other than what you’re doing in the U.S.?
Goodall: A lot of our European countries have significant business in the travel and hotel marketplace. Our Brazil business has a fairly heavy merchandising of travel.
