When travelers sign up for the new Groupon Getaways with Expedia they are told this is the best thing to happen to travel since the inflatable neck pillow. That may be true for the traveler, but what does it mean for your hotel?

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?

AUTHOR: Madigan Pratt

Madigan Pratt is President of MP&A Digital & Advertising, an award-winning agency helping luxury hotels attract and retain profitable customers. Principals with over 60 years of collective experience at some of the world's largest advertising and direct marketing companies lead the agency's team of marketing, creative, public relations, Internet and social media professionals.

  • Madigan,
    I wholeheartedly agree with the excellent points you make about this flash sale model. A couple of additional thoughts from a brand perspective are:

    1) The other accredited third-party distribution partners besides Expedia are monitoring these distribution channels and will not be pleased to see you offering lower rates in violation of rate parity agreements. This will get messy.

    2) Is that these promotions involve a fair amount of manual effort by the participating hotel to set up the offers, manage, and track them. This cost is in addition to the revenue opportunity already sacrificed by the hotel.

    All in all, a poor proposition for the hotelier.

    Thanks for the post!

    June 30, 2011
  • Caroline

    Mr. Pratt,
    Thank you for your sharing your thoughts about the expedia sales pitch. I am actually completing my master in Hotel Management, and we have had a lot of exchanges about the pros and cons of the online travel agencies such as Expedia. This is the first time I hear about this new “Grupon Getaway” and I am shocked. It seems that Expedia is taking over the proper hotel to “sell” its rooms. They hadn’t enough of their 20-25% commission?! Now they want us to cut our guestroom rate in half and then share fifty-fifty? That’s unbelivable. And what’s even more unbelivable, is that some (or many?) hotels will actually agree to enter in this game! I’m so sorry to see where all this is going : we are just about to shoot ourselves in the foot. This goes beyond competition. This offer will sure screw the small hotels trying to reach for immediate (little) revenue, and take control over the more profitable hotels. I can’t see how you can go back to normal after falling into this strategy.
    As a customer, I would never pay 75% more to return in a hotel I could have gone for much cheaper with this Grupon promotion, because I’ll know that now I can go for this price – and what, just wait for the next offer! That’s easy… On the contrary, I would be totally offended to see the hotel I use to go doing such a big discount while I’m always paying full price or, exactly as you said, never received such a big discount. They are not rewarding the right people! This is the same feeling when sitting next to another person in the plane and discovered he paid 400 bucks less than you. Maybe you too would just wait for the next offer, the next time (goodbye, loyal & repeat business!)…

    I am actually working at a small luxury boutique hotel. We sometimes receive Expedia customers – it is definitely not our primary clientele, but as we need to fill the hotel on quiet nights, we took the decision to sell through Expedia. Everybody knows that these customers are not the ones that are likely to spend more, and by far! The typical would refuse any kind of amenity or upgrade, and grab his voucher to get his complimentary apetizer as soon as possible. We’ve all seen that. For this reason, I have no idea where Expedia gets their statistics. It would be interesting to actually know where do they spend that 60 to 80% value… at the restaurant across the street? At the big famous mall closeby? I don’t think it would always go into the hotel’s pockets, unfortunately.

    At the hotel where I am working, we are trying to differenciate ourselves from the other hotels in the city every single day. We try to keep our name and banner strong. We are LUXURY and QUALITY. So are our guests. I am proud to say that the owners I’m working for are completely against this Grupon strategy. Of course, our price stays high, much higher than these Expedia crazy offers, but at least we are able to keep the loyalty of our customers, our reputation and our image. AND a good ADR.

    July 4, 2011
  • hi,
    Reading all this I am kind of shocked as well as amazed coz it gonna affect the whole hotel industry. right now hotel industry facing difficult economic times its really hard time. For a Hotel Owner its a cut thro strategy. As far as I see this is all game where Hotel Owners gonna get in trouble.

    July 12, 2011
  • I wanted to thank you for this excellent read!! I definitely enjoyed every little bit of it. I have you bookmarked your site to check out the new stuff you post.

    July 25, 2011

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