Will Expedia & Groupon Turn Your Hotel Into A Commodity? - By Madigan Pratt

Could the Expedia/Groupon combination turn your hotel rooms into a commodity like an airline seat – a product with little or no differentiation – left to compete almost exclusively on price?  Here are questions you should be asking.

In a recent article, “What Groupon Getaways With Expedia Means for Hotels” Expedia puts forth the proposition that it makes good business sense to sell your $200 room for $50. Here’s their thought process:

• To start – cut your $200 room price in half (to $100)
• Then make Expedia/Groupon a 50/50 partner. For every room night sold you get $50 and Expedia/Groupon gets $50.
• If your hotel’s operating cost is $40 you’ll make $10 for each room sold.  Sell 1,000 rooms and make $10,000. (Somehow I suspect Expedia/Groupon achieves a better ROI. Do the math using your own operating costs.)

Expedia/Groupon goes on to offer a rationale for why their venture makes sense for your hotel. Here are their points and my thoughts:

• Customers have been shown to spend as much as 60 to 80 percent more than the value of the Groupon. When someone says “as much as” it usually indicates the high range – not the average. I suspect the average is lower, don’t you?
• Expedia/Groupon has 50 million subscribers so it will not cannibalize your existing customers. With so many subscribers, they probably do a pretty good job of reaching a significant portion of your existing customer base. Converting existing, higher paying past guests to Groupon buyers qualifies as cannibalization in my book.
• Your hotel can now spend marketing dollars on real customers rather than on efforts that are hard to measure and may or may not work. This assumes two things:
  
  • The customers they send you are not only “real,” but are profitable both short and long term. The Expedia example illustrates the guests they send are marginally profitable, at best, in the short term
  • Your hotel is not effectively tracking its marketing ROI.

As a hotelier, here are a few questions you should entertain before selling rooms at a 75% discount. These are especially good questions if you represent a small luxury hotel:

• Who are these Groupon buyers? What chance is there of making them loyal repeat guests – those who would visit again and pay a more reasonable rate? Or are they simply bargain hunters who will only buy at a steep discount?
• How does participation in Expedia/Groupon affect your brand image? With 50 million subscribers they are bound to reach past guests and even repeat VIP guests. What will they feel about your property when they see deeper discounts being offered to strangers than they perhaps have received? Will it erode my brand?
• How does participating in Expedia/Groupon affect the relationship you have with other travel suppliers, like travel agents? If they are actively selling your hotel, how happy will they be when one of their clients complains they can get a room for less than they can?
• What happens when one of your loyal repeat guests sits by the pool next to an Expedia/Groupon buyer and they start talking about what a great value they received? Will your loyal repeat guests be pleased at how your hotel has rewarded them for their loyalty?

If you are interested in immediate revenue and not concerned if participation will turn your hotel into a commodity, Expedia/Groupon presents interesting logic you can use to justify participating in their deals.

However, if you are a marketer interested in differentiating your hotel, building a strong brand with loyal and profitable customers, then promoting rooms on Expedia/Groupon at a huge discount is probably the last thing you should consider.

Travelers may see Expedia/Groupon as the best thing to happen since the inflatable neck pillow. It may also be a good deal for Expedia/Groupon. It’s hard to imagine a scenario where it would ever be a good idea for your hotel.

Caveat emptor!

What do you think?

 

About Madigan Pratt

Madigan Pratt has more than 25 years of strategic marketing communications experience, including advising Fortune 500 companies, Tourism Boards, destinations, and luxury resorts. Madigan leads a team of marketing, public relations and social media professionals at Madigan Pratt & Associates. Originally founded in New York and now headquartered in Williamsburg, Virginia, Madigan Pratt & Associates is an award-winning marketing and advertising agency specializing in customer relationship marketing for hospitality and luxury service clients.

A well published author and popular conference speaker, Madigan provides expert counsel to the hospitality industry and publishes tips at Hospitality Marketing Blog. He has served on numerous travel industry association boards including the Caribbean Tourism Organization, The Association of Travel Marketing Executives and HSMAI Resort Marketing Advisory Board.

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Reader Comments:

Music to my ears Well done Madigan, I am with you all the way on this. 2011-07-29 Robert

 

More Than 50% Of Groupon's Business Customers Do Not Want To Issue Groupons Again Interesting Reading: A Groupon Merchant Survey: http://www.businessinsider.com/groupon-survey-results-2011-7 2011-07-29 Sr. Naranja

 

Totally agree with Madigan I'm so glad some people see sense, and also make a stand for the supplier, a commodity is as good a word as any to describe what Expedia and Groupon &c.do to denigrate hotels to the absolute bottom of the pit. The Expedia stance on why hotels should, or even conceivably could, benefit from their group and flash selling tactics, is just a load of abject nonsense. 1000 rooms at $10? - give me an example. Deal buyers spending over 60-80% on top of the deal price - prove it! How a company like Expedia can put such ridiculous propositions in front of any savvy hotelier, just shows how ignorant they are. I represent over 120 UK hotels as front line consultant, I see everything that happens at the coal face. My well run clients get their best prices for their best rooms, these are always sold out first. Their best spending customers usually return, and have no interest in cheapskate sites. If they were to do anything, they would throw their worst rooms at thess deals, but have more integrity than to do this, or to artificially inflate value packages so that after all the Grroupon/Expedia manouevres, the customer thinks he/she is getting a bargain. 2011-07-13 Robert

 

Great Article. Makes sense! Mr. Pratt's clear eyed evaluation of the negative effects of bargain clearinghouses like Groupon on your establishment's value and service should be read by all in our industry... Kimberly King/Ken Grantham, owners, The Green Cat Guest House, Poulsbo WA 2011-07-01 kimberly

 

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