Thursday, 2 June 2011

A Warm Welcome to "Groupon Getaways"?

Got back yesterday from an interesting morning of presentations by the Scottish Tourism Forum at Crieff Hydro (more of that later) but one of the continuing themes being reinforced over and over by both Iain Herbert of STF and VisitScotland's Mike Cantley was that Scotland was never going to be a cheap destination but one which must offer value.

The cost of doing business in hospitality in Scotland was flagged up as being increasingly expensive not only with increased fuel costs but also the 20% VAT rate, red tape, lack of capital, passenger duty and others such as the cost of commission through third party bookings. A notional £100 room rate achieved was therefore much eroded by a host of increasing costs.

So when another "Deep Discounting" scheme is flagged up by two of the major operators in the market place you can't help but wondering what the fall out is likely to be for Destination Scotland.

According to Hotel Marketing, "Groupon and Expedia have joined forces to create Groupon Getaways™ with Expedia, an unprecedented offering that will connect consumers with high quality travel offers and give travel suppliers brand exposure among millions of shoppers. Groupon Getaways with Expedia will offer consumers deeply discounted, highly compelling travel deals from among the more than 135,000 hotels worldwide that work with Expedia. Starting in the US and Canada, with plans to expand to other countries, Expedia and Groupon plan to also include package deals, airline tickets, car rentals, cruises and destination activities."

So what do Scottish hoteliers do? Well yes they could multilaterally ignore it and the offer would not feature Scottish properties and it would go away. It would wouldn't it? No of course it wouldn't.

What is more likely is that a number of price lead promotions will filter through from even the most exclusive of properties increasing the downward pressure on everyone else's prices. A downward pressure that it takes some courage to ignore. I recall from days in night club management that pricing or discounting were only to be used very specifically within the overall Marketing Mix - I'm pretty sure that the Four P's have fallen into disrepute since I last studied marketing - but the principal remains solid. Discounting of price must be for strategic purposes, must be time specific, incentivise the purchase to be made now and not erode full prices on the longer term. Price is not the only promotional tool available to the hospitality sector.

You have to question how these basic principles have fared. Rack rate? Does anyone remember that? Whilst not advocating a single fixed rate as being the way things should always be, it is now accepted by the guest that they can and will "find a better rate" either at your property or if not your neighbours.

The Online Travel Agents have only increased the focus of competitiveness and whilst it's admirable for our industry leaders to talk about quality not price much of the the market is currently dictating otherwise - even at the quality end. Five star quality service at a discount will surely appear more attractive than five star quality service at full price.

The reality is that rate parity for a hotel often means more than simply ensuring that the same rates are offered to the multiple distribution channels out there. It can often mean having to compete with a varying degree of "parity" (even if not always matching) with the prices in their area for comparable products and that, in a free market, leads to deeper and deeper discounting of price - and this rate has to be discounted whilst maintaining the quality expected by the guest! It is a vicious circle of reducing (gross) profitability from room revenues combined with spiralling fixed and variable costs.

If you have deep pockets, you can make use of the third party channels to maintain market share, you can increase occupancy with the reduced rates and hope to make more on secondary spends. But yu can also factor in that the couple who have just booked the Groupon deal for the hotel have also just bought a five course meal at a top restaurant outside of your premises on the same Groupon site! Your secondary spend objectives are similarly under threat.

Like Canute the tide cannot be held back. Indeed it was a natural progression from off line deep discounted promotions that they would move online. It's just that the take up of these offers is so much quicker and so much more widely available that the impacts will be felt all the more deeply.

Hotels cannot keep paying 15 and 20% to OTAs forever. They must accept them but not rely on them and therefore a determined strategy of improving direct sales with the associated reduction in cost must be a short, medium and long term focus.

With online price lead promotions it is a case of balancing the discount within your own marketing mix. Use them sparingly, with very tight parameters of date and number of rooms available and look closely at how you can transfer the "discount" concept into your in house distribution strategy using your own channels - website, email marketing, Facebook, mobile and all your off line printed materials.

Best available rate on an accommodation providers website could (and should?) extend to promotional offers and deep discounts with creative use of advance savers, Facebook sign up exclusives, email marketing discount coupons. Online booking engines such as Bookassist already offer their clients many of these options and with the alliance of OTA's with Deep Discounters only going to become more influential it is time to look much more strategically at how your business is going to react.
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