Has the Groupon & Private-Sale Site Conversation been exasperated yet? Not Quite.

One of the most distinct trends of 2010 and one that is on everyone’s watch list this year has been the rise of private & group sale sites, the most noteable being Groupon. The CEO of Groupon, Andrew Mason reports that in 2010 their newly created business did over 760 million dollars in revenue and began 2011 with over 51 million subscribers world-wide.

Awed by the success of Groupon, local businesses and hoteliers alike have been trying to devise how—and if—they should participate in this new trend.

Most hotels are hesitant to wade into those waters, and rightly so. These “Online Private Sales” companies such as Groupon, LivingSocial, Rue-LaLa etc are emerging every day. The companies approach hotels soliciting their participation but there are more negatives than positives in the debate:

  • Not True Private Sales: These so called “private sales” are questionable. Anyone can join the networks, and it just takes just one local negotiated client to sign-up for these deals to destroy the trust hotels spend months or years establishing.
  • Huge Discounts: Some of these sites demand discounts of ~50% in order to participate, and then reap substantial margins of 20% or more. This limits the net revenue to very little per room.
  • Hotel Best Rate Violation: At this deep discount, these companies advertise lower prices than on hotel’s Brand.com which is a violation of the hotel’s Best Rate Guarantee.
  • OTA Rate Parity Violation: Online Travel Agency (OTA) partners realize these channels are also competition. As such, they closely monitor these channels and as soon as they see better rates for our properties than what they get from us today they will not only demand the same rates but also question our price parity strategy.

Most importantly, from my perspective these offers are a lot of work, with little payoff. The hotels I’ve worked with that have pursued this type of channel spend days or weeks setting up these offers, tracking them and managing them, yet the hotels rarely walk away with room revenue above what it would cost to clean the room. Finally, there’s no proof to show that this bargain buyer will evolve into a loyal guest, so what is it really worth?

While it’s not in the hotel’s best interest to participate, there’s still a very important lesson to learn from Groupon…

Groupon’s business model is very simple. First, Groupon entices local businesses to discount their services or wares by the theory of “bulk buying.” In other words, if you do 10 times your normal business then even at half-price, your business is still seeing 5 times the revenue it would normally. Secondly many companies offer to give discounts to Groupon in exchange for the publicity—i.e. access to the thousands of subscribers they’ve captured in your local area. That’s pretty much the whole sales-pitch.

The facts are that, in a given year, a local area has at least 365 businesses that are willing to discount their services at 40-80% OFF and then share 20% of their final revenue with this group-buying giant. Groupon reassures their vendors that the partnership will be rewarding—but are there no promises? Do businesses really see the revenue promised them by the “group buying” process, or is it a quick spike in foot-traffic, little revenue growth and no lasting loyalty—just as we’ve seen it was with hotels?

Groupon has built its success on the backs of local businesses desperate to get seen. And here-in lies the key.

If businesses in your area are so desperate for attention from Groupon buyers, doesn’t that suggest they could use your business?

Hotels have all of the same tools that Groupon does. Hotels have email subscribers either through their Brand or via independent list pulls. Hotels have a Brand website that receives thousands of views per month depending on your area. Not to mention what the Brand’s special offer or rewards site would add to the campaign. Then finally we have hundreds of guests everyday that rely on your hotel’s front-desk or concierge services to find the right restaurant, spa, or activity during their stay. In short,your hotel has bargaining power too, and we know that businesses in the area are ready to listen.

Building a value-added package and negotiating special rates has been a time intensive task in the past, but Groupon and other local area bargain sites have proven it’s worth the time. They have also warmed up many of the businesses in your area to the idea. Add a lasting relationship to the deal—and the absence of any 20% service fee—and your well on your way to offering your guests a more rewarding stay, your online shopper a great bargain, and room revenue that can actually benefit your bottom line instead of devastate it.

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