Tue 26 Apr 2011
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. Â 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*.
The power of Groupon’s success has surely been due to the happy consumers rambling on about the score they just made. Â You can’t go anywhere and not see it. Â 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 theÂ proselytizersÂ 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. Â 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! Â This post is meant to be a simple, accessible cautionary tale to Hoteliers and the like. Â I am not covering entirely new ground. Â 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. Â At least, realize the impacts.
[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. Â People are talking about the drawbacks of coupon sites much more often, and deeply considering the short term gain versus long term costs. Â 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 increasingÂ perceived consumer value in service of increasing sales at a profit, we need to look beyond Grouponâ€™s short-term sales impact, and ask how it might be influencing perceived brand value.
On this matter, we have serious concerns.Â Groupon, and its ilk, unfortunately is training people to expect a coupon on most anything.Â And that means that unless people find a deal, theyâ€™re less likely to buy at full price, preferring to wait until the next coupon cycle.Â This applies to current customers who are used to paying full price, and new customers who would now never dream of paying full price.Â The result:Â 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. Â ”The ratio of consumer savings vs business profit can kill small business“. Â Math, of course, is known to be frustratingly honest. Â This has been quite apparent with Groupon’s expansion into Europe, damaging small brands. Â 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)Â - 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 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 restaurateurÂ breaks down the costs in this article, “5,772 new customers — how can I not love Groupon?”, and the results are unnerving. Â 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 wonâ€™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. Â If this demographic exists, the onus is on the coupon sites to demonstrate newfound brand loyalty due to original Groupon-style sales. Â 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. Â 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 doesnâ€™t matter to them, which is why they are shopping via a coupon site. Â 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. Â Is that healthy for your year end? Â 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? Â 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 theÂ onlyÂ benefit.
The fourth comment is also vital. Â 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? Â No. No one will.), and it will confuse a branded guest, as well. Â If a guest is branded and paying rack rate, then a coupon either means i) they are angry that their brand wouldÂ distillÂ 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. Â I have friends who were planning aÂ reunionÂ at a specific property who found a coupon for the hotel they planned to book. Â That’s 2 for 1 that was going to pay rack rate. Â 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 wonâ€™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.
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. Â 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. Â In fact, the only way I use these sites now is to wait for a deal of a brand I already patronize. Â I am simply waiting for a business to give me free money. Â That’s nothing but damaging to a brand.
I leave you with these cautionary words:
Itâ€™s not a good investment. For some businesses, it may work short term, but it can also hurt long term. Â For hotels, it simply doesn’t make any sense. Â 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.
Thanks for reading, now go tell your GM or DOSM. Â Do it now! Â If you still don’t get it… good luck out there.