To celebrate Facebook’s Deals going live…. it’s time to comment on the coupon craze. And craze it is…. it’s captured our attention to no end.  Not being fully versed with the Facebook model (I will fence sit until I know more), I will say one thing about these coupon sites in relation to your hotel, restaurant, or brand: *DO NOT DO THEM*.

WHAAAAAAaaaaaaaaaaaaT did you say???

The power of Groupon’s success has surely been due to the happy consumers rambling on about the score they just made.  You can’t go anywhere and not see it.  The crisis of perception is that everyone is beside themselves with how “cool” coupon sites are, but only regard them from the perspective of being a consumer. Stop being selfish, and think about these poor businesses. Everyone seems to be in a mindless consumer mindset when they consider them, and especially when they sign on to participate in them; all the proselytizers are consumer advocates or discounters. I don’t know one thoughtful business person that finds them to be anything but frightening, even if deemed necessary (and in hospitality, they never are necessary). They can surely bring business into an operation with low to no overhead, huge margins, or zero variable operational costs…. but to businesses like hotels, it’s a losing proposition.  Please, check your giddiness at the door – and hope these coupon publishers are a fad, because if they are not we are in big trouble. Whether you scored a good deal on Living Social is moot, so put on your business acumen hat… and let’s explore!  This post is meant to be a simple, accessible cautionary tale to Hoteliers and the like.  I am not covering entirely new ground.  But, I rather have something for us to refer to than having to explain my dour skepticism to each person incredulous as to how I am “missing the biggest thing ever”.

In fact, I wouldn’t mind being known as that one guy that stopped the entire hospitality industry from participating in any form of online coupon site.  At least, realize the impacts.

Search “Is Groupon Killing” in Google, or simply click this link.

 

Do you here a ticking sound? Is that for us or for Groupon?

[Leafing through pages of Google results] Leeeet’s seeeeeee….

They are killing brands, retailing, local food, restaurants, photography, and more. Whether this is hyperbolic is beside the point… the issue is that you can see significant duress about the long term efficacy of these coupon sites.  People are talking about the drawbacks of coupon sites much more often, and deeply considering the short term gain versus long term costs.  In fact, I don’t have to wax endlessly, for once, because a gentleman and scholar from DAVIDID Blog…. nailed it succinctly.

“But if marketing is defined as increasing perceived consumer value in service of increasing sales at a profit, we need to look beyond Groupon’s short-term sales impact, and ask how it might be influencing perceived brand value.

On this matter, we have serious concerns.  Groupon, and its ilk, unfortunately is training people to expect a coupon on most anything.  And that means that unless people find a deal, they’re less likely to buy at full price, preferring to wait until the next coupon cycle.  This applies to current customers who are used to paying full price, and new customers who would now never dream of paying full price.  The result:  More and more people will be trained to only buy on deal, which, of course, diminishes the perceived value of a brand both short and long-term.”

In fact, it can be even simpler when you consider this article about Groupon becoming the online Walmart that kills small business.  “The ratio of consumer savings vs business profit can kill small business“.  Math, of course, is known to be frustratingly honest.  This has been quite apparent with Groupon’s expansion into Europe, damaging small brands.  The New York times also comments on Groupon altering and destroying proper retailing, while other people muse about the crush of business that they can’t manage (more Groupon vs restaurants commentary here and here) - but I don’t want to stray too far from my original point:

 

A discount seeking non-branded consumer is not your guest.


If you ask me, it's not that uncertain, but it is surely a dead end.

If you are considering doing an online coupon, please do some research and find out if any of your competitors or professional peers have information regarding how their coupon went. In fact, the buzz and excitement is leaving us blind, so that a “successful” groupon customer might not realize all the associated costs. A restaurateur breaks down the costs in this article, “5,772 new customers — how can I not love Groupon?”, and the results are unnerving.  I do not understand how we were able to become this intoxicated with the shiny new toy, but the long term costs are even more problematic than the short term costs, which are, funny enough, also problematic.

The one thing for sure is this: someone looking for a deal will not become branded as they are already branded for the deal. Post stay, they won’t come back to the hotel, because they will be disgusted with normal rates. Groupon, Living Social, and other coupon advocates will claim that standard rates are a barrier to entry, and the coupon will allow for someone to experiment prior to committing to a brand or standard rates.  If this demographic exists, the onus is on the coupon sites to demonstrate newfound brand loyalty due to original Groupon-style sales.  That is a very meaningful measurement that equals equity for coupon sites, and would, in all likelihood, sell a hotel on a deal like these coupons. But it’s simply not likely, and I haven’t heard of these scenarios. I think it’s more selling and wishful thinking than careful logic on the part of Groupon and their clones.  But these Coupon Sites were never about the business side of things.

A consumer using any of these coupons will simply go back to the branded coupon site and buy the *next* hotel deal. Brand doesn’t matter to them, which is why they are shopping via a coupon site.  The deal is the brand. They won’t be your guests.

In fact, this article suggests a few ways that Groupon is going to kill your business, and one aspect is that you will become branded as a discounter.  Is that healthy for your year end?  How about 5 years from now as the economy strengthens? Will you get the rate back you gave up during the 2008 recession by discounting to no end?  So you don’t have to continually jump off to new links, I will repost the 4 concerns from the prior linked article:

1. You may always be fishing for customers.

2. You may be branded as a discounter.

3. You will get finicky and demanding customers who suck.

4. It conditions people that price is the only benefit.

 

The fourth comment is also vital.  It alters your pricing model, and suggests that your brand experience has no equity. Coupons destroy perceived value in your rooms. It immediately destroys the original value of the room to the Groupon user (would you pay 2x the rate you paid for your last stay?  No. No one will.), and it will confuse a branded guest, as well.  If a guest is branded and paying rack rate, then a coupon either means i) they are angry that their brand would distill their hotel stay by allowing a specific demographic water down the experience (in a way, it’s subsidizing rates so that rack rate guests pay more for a lesser experience… please explain how that might be fair?), or, possibly worse – ii) the branded guest who would have booked at full rate is, literally, given free money by the hotel.  I have friends who were planning a reunion at a specific property who found a coupon for the hotel they planned to book.  That’s 2 for 1 that was going to pay rack rate.  Smart business?

In summation – Coupon Sites like Groupon, Living Social, and the others impact your business by:

a) attracting non branded deal seekers who don’t know you, that won’t be back at full rate, which then may re-establish your brand as a budget, discount brand.

and / or

b) handing out your profits to branded people that would have paid rack rate who stumbled upon the deal.

On the right path.

Pro coupon site people ruffle at these comments, but I haven’t seen any meaningful metric from Groupon or clone sites that suggest a decent percentage of guests become branded, loyal fans. In fact, what I *have* seen are relaxing, healing spas with cooler toting cheapskates, or deal seekers causing endless headaches and complexity for well positioned, established brands. Your rack rate paying guests don’t take half the energy than these critical, troublesome deal seekers. A generalization perhaps, but often seen in practice.  Just ask the desk or prop level ops people how they feel about it.

Yes there are plenty of wonderful coupon site users – I can be one of them at times.  In fact, the only way I use these sites now is to wait for a deal of a brand I already patronize.  I am simply waiting for a business to give me free money.  That’s nothing but damaging to a brand.

 

I leave you with these cautionary words:

It’s not a good investment. For some businesses, it may work short term, but it can also hurt long term.  For hotels, it simply doesn’t make any sense.  I hope it’s a fad, but stay far away – because if the coupon craze is here to stay, it’s going to redefine the economy of your business.

Lot of sleepless nights ahead for Groupon

 

Thanks for reading, now go tell your GM or DOSM.  Do it now!  If you still don’t get it… good luck out there.

About Michael

17 Responses to “Yes, Groupon & Coupon Publisher sites are destroying your business.”

  1. Frederic Gonzalo

    Well, Michael, I was actually going to write a blog post about this very topic… but you sum it up so darn well, I will have to think fo a different angle. Or write it in French.

    Either way, you’re bang on. Enough said.
    Cheers,
    FG

  2. Michael Hraba

    Definitely French. It will give me a chance to practice. =) Thank you so much. I love your stuff, so you are quite the inspiration, at times. I appreciate it. Cheers!

  3. Steve

    Caveat emptor – In this case the buyer being the businesses that buy into this craze, much like the 80′s pet rock and the 70′s gas wars.

    Unfortunately I feel that many a hotel president or GM is so bogged down with other challenges (certainly in the last few years) that they listen to a misinformed DOS or over-exuberant young managers and don’t consider the long term implications of such a partnership.

    I guess Groupon has its place in today’s business world, but each business that does participate should be concerned with their brand or perceived value from that point forward. One would almost need to consider the use of groupon as a “re-branding” such as when Mossimo went from a cool boutique southern California clothing line to a Target mainstay. If you are ready for you customer service driven brand to be re-branded, please, please, please caveat emptor.

    Me, I will keep fighting for quality of service and high value perception through that quality as opposed to discounting.

    Next, can we tackle how the “heads in beds” approach in upper end and luxury hotels is taking many down the same dead end road?

  4. Dave Wilson

    Not a hotelier, though defintely seeing the impact of these sites in our industry. Longtime wine tour operator providing a unique, quality experience at a fair price. We steadfastly refuse to participate. Others in our market create dummy sites listing false rates for an inferior product hooking naive, ignorant, underinformed consumers. Shame on them. Buyer beware!

  5. Shane Keener

    Michael,

    This whole rush to coupons is very similar to what happened to hotels in the late 90′s with Expedia and Hotels.com and then again in 2001 and 2002 with Priceline.

    All this looking for a quick buck just dilutes and trades down. Thanks or the great post.

    Shane

  6. Michael Hraba

    Thanks for the salient point…. wow. I hadn’t even drawn the comparison. We gave up rates and inventory, and now it’s hard to control either of them due to OTA’s. Interesting that the OTA’s are dinosaurs at this point, as things rapidly change. Coupon sites as the new OTA is a really good comparison. Well done! THANKS! =)

  7. Michael Hraba

    Buyer beware indeed…. the fine print is so nebulous and confusing, you usually end up dealing with frustrated coupon seekers. Also… your brand is great, right? Why would someone think they NEED to discount if the rate is set fairly, as the market bears? I look at our rooms and feel they don’t need to be discounted… that the experience coupled with the room, etc is part of the rate. The discounting, to me, simply signifies a desperate, dodgy hotel or brand. At this point, when I see a coupon clone or Groupon for *anything* my first question is: What’s wrong with that place that they need to discount?

  8. Michael Hraba

    I love it Steve. If you start to do inverse relationships between rate and occupancy, coupled with labor and wear and tear, etc….. it certainly does appear that rate beats the living hell out of occupancy all the time, right? It is like what I mentioned above… why should you dilute a guest’s experience or perceived value because you want more people in the hotel, especially those types seeking a deal. There’s a massive difference between someone who pays rack rate and *WANTS* to be at your hotel, rather than someone who wants a deal and is, by dumb luck, in your hotel. Thanks for the thoughts sir. Always valued. =)

  9. me

    If business are against such coupon sites, they don’t have to make offers through them;

    their participation is voluntary.

    Also to the public, when using a coupon for restaraunt, don’t be a cheap ass, tip on the pre-coupon price.

  10. Michael Hraba

    Participation is voluntary, yes. But this “sensation” becomes a knee jerk response, almost a tribalistic bandwagoneering thing… Jumping other people’s trains. I bet you 50% of people doing Groupons have absolutely no clue about the business side. I bet you – like people who use personal preference when designing multi-use commercial projects (but I like it in my house, so it will be good for 1000′s of people) – most of the businesses are running Groupons because, as a consumer, they like them. But most probably aren’t thinking of long term biz impact… not by a long shot.

    And you sort of proved my point about the kind of people using Groupons… your point is ROCK SOLID and probably the most practical piece of advice out there for the clueless Groupon using deal seekers…..

    TIP ACCORDINGLY.

    It makes me sick how clueless they are. It’s interesting that this happens CONSTANTLY – does it tend to highlight the lack of awareness or savviness of a coupon site user? If you ask me, I think so. I don’t know one server who wants a coupon bearing guest; they know their tip is out the window.

    AWESOME comments…. you are dead right. It’s definitely a businesses voluntary choice. I simply want to provide more data so that the decision they make is actually *informed*.

  11. Jeff

    well said, well said! sometimes, nothing is better than something, if that something has a point of diminishing return and is potentially harmful to the overall experience.

  12. Michael Hraba

    What boggles me is the simplistic logic people take with hotel rooms: “An unoccupied hotel room is lost revenue.” No. That is simply not true. An occupied hotel room *COSTS* you money. That’s why we charge for them. There’s labor, utilities, amenities, etc. Having it unoccupied is less wear and tear on the hotel, less cost.. and if you are only making $5 over the cost per occupied room to bring in clientele that will never be back, cause more problems than not, and reduce the perceived value of a hotel’s brand…. then it simply doesn’t make any sense.

    Henry Harteveldt from Forrester wrote this about the Expedia – Groupon partnership.

    And I quote:

    “Travel sellers, though, need to be careful. Forrester’s analysis suggests that Groupon deals rarely produce profits for participating merchants – indeed, a key selling point to merchants about Groupon is its breakage rate. Travel sellers should do thorough analysis before agreeing to participate.”

    The power of the fad is such that the mind closes.. people enter their biz into this as CONSUMERS. Not business owners.

    Thanks for your comment!

  13. Tammy

    I am an avid coupon user, I love Groupon and Wagjag etc. I use them to try out businesses I would not have otherwise used. Once I try the place out with my coupon, if I get the service I deserve and the quality of the product, I will return and pay the full price, I have discovered lots of great places to now shop and spend my hard earned money!! I do believe there are people out there that use the coupons and never return, shame on them!!

  14. Michelle

    Yes, Groupon destroys small business. My friend’s hair salon is going bust because customers in Reading are chasing the latest Groupon deal and refuse to pay full price for anything. She was strong armed by Groupon to sell haircuts for £6.00 and lost staff as a result because. She was herself reduced to doing this to compete with other Groupon salons. So indirectly, Groupon is destroying small businesses.

  15. sushiqueen

    Very helpful info, My business is approched by them, but I decided not to work with them. It has to be 3 ways – win-win-win

Leave a Reply

  • (will not be published)

Trackbacks and Pingbacks:

  1. Les sites d’achats regroupés, ou comment dévaluer sa marque « Travel & Marketing 2.0

    [...] Yes, Groupon & Coupon Publisher Sites are killing your business [...]