NEW YORK—Out of the 40% of hoteliers who have tried flash sale websites, 38% have found them less successful than they had hoped and do not plan to them use again, according to TravelClick. But the platforms, which offer deeply discounted stays to price conscious customers, might still prove a valuable tool in hoteliers’ distribution repertoires.
“It’s a viable strategy for hotels, and hotels should consider this part of the distribution mix,” said John Hach, TravelClick’s senior VP of global product management.
Sites such as Groupon and Living Social allow hoteliers to target previously untapped consumer segments and drive demand during periods of low demand, he said.
John Hach, senior VP of global product management at TravelClick
However, hoteliers must remain smart and ensure the economics stack up in their favor. “Am I receiving an incremental contribution against my variable costs? To me that’s the determining factor,” Hach said.
If a hotel has $40 fixed costs per room, for example, hoteliers should only use flash sale sites if they can guarantee a return in the range of $50 and above.
A TravelClick survey of 900 global hoteliers found few saw the economic advantages when they used the distribution channel.
Hoteliers believed the sales gave up too much revenue to the site operator (25%), did not attract the right caliber of customer reflective of the brand (21.7%) and did not see enough return business from the promotion (21.7%).
Nearly 40% of those surveyed have not tried a flash sale promotion and have no interest in executing one in 2012, while 23% said they will try a flash sale site for the first time this year. When asked which flash sale website hotels chose to use, the majority (53.3%) of hoteliers polled partnered with Groupon.
Rent to own
Hach wasn’t as quick to dismiss the distribution channel as some of the hoteliers surveyed. For one, he reiterated they can help drive demand during soft shoulder periods.
For another, sites such as Groupon allow hoteliers to target guests they might never have reached otherwise.
Admittedly, the majority of guests who book via flash sales are cost-conscious bargain hunters, but each new traveler who enters a hotel represents a potential lifelong customer.
“It’s good to transition that guest into a direct relationship so the hotel has a better opportunity not to rent the customer but to own the guest,” Hach said.
The same is true for any guest who comes through an intermediary channel, he said.
“When you acquire a customer through an intermediary channel, whether it be flash site, (online travel agency)—any intermediary—you basically have rented that consumer. We try to encourage hoteliers to look at those as rent-to-own clients.”
Yes a hotelier might pay a hefty cost of acquisition, but if he can collect the guest’s email or contact information, that guest’s next stay might come via a direct, more profitable booking on the hotel’s own website, Hach said.
And then there might be a benefit from “breakage”—or the revenue generated from consumers who purchase a deal on Groupon or another flash sale site but never redeem it, he added.
Don’t forget the GDS
Flash sale sites are among one of several tools hoteliers can use to drive demand at the last minute.
Global Distribution Systems, for example, are a consistently profitable—if not oft-forgotten—distribution channel for the past few years, Hach said.
Through February 2012, reservations globally through the GDS channel were up 9%. Revenues were up 11%, according to TravelClick.
GDSes represent $16 billion a year in hotel revenue, Hach said.
The channel also incentivizes travel agents to up-sell to earn a higher commission, he said. Hoteliers aren’t likely to see that same behavior through flash sale sites, where guests are focused on the lowest possible price.
“A lot of savvy hoteliers are returning to GDS to fill those shoulder periods,” Hach said. “It’s a clear trend.”