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a Year of Flash Sales and Price Wars in Hotels

flash_sales2011 will become the year of flash sales in travel. But not the way you think. Of course websites like SniqueAway, Group, VoyagePrive and Jetsetter will catch on. But after a while hoteliers will figure out these websites will only erode their value proposition and average room rate even further than OTA’s have done supposedly in the past. No flash sales will take a different route in hotel marketing.



Statistics from emarketer.com below clearly show flash sales websites gaining in popularity with consumers. Their traffic has increased significantly in the last year..

emarkerer_flash_sales_stats

Besides these retail discount shopping websites, new start-ups have been launched for the hotel and travel industry. New websites that we have seen enter into the flash sales model for travel include; SniqueAway, JetSetter, VoyagePrivé, LivingSocial and RueLaLa.com. They are a kind of copy of what TravelZoo has been doing for years already, emailing out travel offers and hotel deals to a subscriber base.

sniqueaway

These websites work on a membership-only basis, creating the notion that the rates are not published to the greater public. We dare to differ on that opinion. As it is so easy to join these websites it will not be long before the opaque-ness will disappear.
 
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Once they have created momentum and consumers are catching on, your guests will understand that besides offering €200 on your own websites, they can get better deals by subscribing to these online discount stores. They just have to wait and sit back for an offer to come out.

jetsetter

Hotels are all jumping on board of the Flash and Private Sales train, as they lack creativity, insight and willingness to invest in direct sales. Once again they are supporting and building a model which in a few years they will start complaining about. Yes it amazes me to hear hotels complain about the so called high commissions of the OTA, but at the same time support new models which will erode average room rate even further and will leave you with a lower net ARR.

groupon_hotel_offer

Websites like Groupon and Guestmob are teaming up consumers to drive down prices at hotels by the so called value of volume. Well let’s do some math before going down this road. A 50% discount of your BAR, with a 50% revenue share leads to a 25% net ARR from the public rate you are selling your hotel at. Let alone the ARR erosion, would this kind of room rate actually deliver margin to your bottom line?

All these types of ecommerce start-ups are useful for the retail and electronic markets which need to offload unsold stock from their shelves as new models come out or the next season line is launched. For these types of products discounting is a method to get rid of otherwise unsellable inventory.

wind-erosionThis is not the case in hotels. Heavy discounting as experienced with OTA’s over the past years will only lead to the erosion of value perception by the potential client. We will be trading down our product value once more, making it harder to demand and convert the rates we need and should sell our hotels at. You should not allow yourself to be lured in for short term gains which will have long term ramifications, without thinking it through properly.

So it is once again time for a wake-up call for hoteliers. You should focus and use the tools out there to promote your hotel and website directly. There are lots of free tools out there. Have you considered a 10% early bird discount through the offer coupons of Google Places? Put a tagline as well in Google places to make your hotel stand out a bit more. Guess what, this one is for free.

Are you investing the same amount in SEO as you are paying in OTA commissions? Why not? Don’t you want your hotel website to produce? From experience we have seen that SEO can run at a 10% cost in terms of ROI. If my math still works correctly, this is a lot better than 15% - 25% OTA commission.

Then there are websites which through loyalty programs and rebates lower your rate. They cut their commission to be more competitive. We have noticed Otel.com is doing this. They take net rates from distributors with which you have sell rate and rate parity agreements and publish your hotel rates at 15% instead of 20% margin. Hotels have to wage a war on these cash back or rebate systems to stay in control of their rates.
 
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Yes 2011 will become a year of rate war. But not so much between hotel competitors, instead we are foreseeing a war between the hotels and their distributors. Hotels will become tougher on OTA to respect rate parity.

guerilla_warfareOnce we have got these basics under control, it is time for guerilla war fare. We have to outsmart and outperform our competition. How can we do this? We can learn a lot from all these new websites. Hotels will drop rates for particular dates out of parity to pick up a few extra occupancy points. They will do so not structurally, but only for a time span of 1 or 2 hours.

They will do so on OTA with a lower % commission to attract more volume through meta-search sites like Kayak and HotelsCombined. It would not make sense to do so with your most costly distribution channels.

Most importantly hotels will do so through their own website. They will launch rate offers for a short time which does not allow for the competition to monitor this. Think about this, lowering your rate at 7pm and raise it again at 7am to sell to overseas markets while your competition is at sleep. Also your local and loyal guest base won’t see it…

Hotels will get more creative and break rate parity where and when needed for their own good. In 2011 Flash Sales will grow initially through the new ecommerce initiatives. But hotels will wake up and try to shift this principle to drive direct sales through their own hotel website and reservation’s office. They will start to understand how to convert consumers from looking to booking by promoting urgency and exclusivity themselves…Hope you enjoyed this article!

Cheers,

Patrick Landman @ Xotels

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