Mr. Maack

Spas, Health & Fitness

Should Group Buying Sites be Included in a Luxury Hotel Spa Marketing Plan?

By Rick Maack, Owner, Balance Spa Management

In the past two or so years the group buying internet site phenomenon has taken retail and service industries by storm. Led by the juggernaut Groupon, the group buying sites have inundated the internet with the half off special. When determining the viability of the model it is hard to argue with a Groupon valuation estimated at $4 billion or more. It is equally hard to argue with not venturing into the group buying phenomenon as a spa owner or manager when all of your competition appears to be benefiting from the mass hysteria of the Deal.

Spas and salons were early targets of group buying sites because of the sheer number of locations in the industry, the cost structures of the spa financial model and the state of the economy. There are tens of thousands of spas and salons in the United States alone. Competition for customers is fierce. The economy over the same time period has been abysmal, especially for the spa and salon industry. Hence the uprising of the Deals and the Group buying sites.

Our company, Balance Spa Management, is a complete outsourcing solution to the spa, salon and fitness space for hotels. As an owner of Spas in luxury hotels our company struggled early with whether to get into the group buying site game. A hotel spa is much different than a local spa even when it is outsourced. For a hotel spa to succeed in this economic environment, guests must be cultivated from the local community. When operated successfully the hotel and spa identity is seamless. That identity and reputation must be held in high regard and protected by both parties. So our struggle resulted from the need to be accepted as a luxury brand and yet compete in the local marketplace.

The answer for us, as to whether to utilize group buying sites was a guarded yes. Our spas need to compete in local markets and to do so we must maintain visibility to the potential local buyers who were now all flocking to Groupon or other group sites. However, to compete effectively with our hotel partners we needed to develop a strategy that would protect our relationship with the hotels and our luxury co-branding strategy.

Our group buying site strategy started with developing the goals for utilization. It was determined and we believe correctly, that group buying sites are nothing more than marketing and advertising dollar alternatives. We develop marketing plans annually and refine the plans quarterly, so we have determined how much we are willing to spend to obtain a customer. Client acquisition costs should be an essential element to any service based business marketing plan and business plan.

Once the acquisition cost was determined, we could begin the next step of the group buying process, service selection and pricing. Pricing of any service is important but is even more critical when utilizing group buying sites. The group buying sites generally ask for at least a 50% discount on services offered through the site and in their emails. Combine this discount with the 25% to 50% fee taken by the group site as their fee and we were challenged to maintain our acquisition cost goal. We also determined that we needed to maintain a relatively high price after discount to maintain the luxury spa identity. Therefore, we determined that selling packages were the best alternative for our offers. Having a bit of an affinity for formulas, we derived the formula below for our pricing:

Service Price(Undiscounted X Discount = Net Proceeds) - (Group Buying Discount + Cost of Providing Service + Product Cost + Overhead Allocation) = Net Client Acquisition Costs

There are subjective elements to the formula that we have not included in the formula used to develop pricing. There will some breakage, that is vouchers that are never redeemed and if staff is doing their job, there will be some upselling that should occur. These elements will reduce net costs but they are not measurable at the time of pricing. Spas and salons should track these numbers to develop true costs subsequently.

Preparing the offer is just the beginning of a successful deal offer. Preparation for the volume generated by the group buying sites is paramount. If a spa is not prepared, service to the new customers will suffer. If customer service suffers, the reputation of the spa and hotel may also take a hit. We suggest that the spa staff up for phone calls the day of the offer or even set up a separate phone number and call center to handle the volume. It is important to not underestimate the volume that will be generated by the offers.

Set expectations for discount customers. Many customers who have purchased vouchers expect that they will be treated as a discount guest. When setting appointments for these guests let them know the process at your spa and let them know how welcome group buying guests are and that they will have the same experience as a guests who pay full price.

Staff up and schedule for the increased volume. Therapists will be busy and it is wise to pay particular attention to daily scheduling so therapists are not overtaxed which may lead to reduced quality. Front desks associates will be challenged with the new guest influx as well. Add staff to the busy shifts to assure there are no reductions in the level of service provided outside the treatment rooms.

Finally, remember that the special deal was offered in order to gain new clients and increase market share. Information is the gold commodity of service industries that rely on the internet. Gather information from your new guests, most importantly their email addresses. Our spas have gathered thousands of email addresses from our customers gained from group buying sites. Eventually, when you have critical mass, your spa can run its own deep discounted specials saving the group buying site fees.

In the euphoria that is Groupon and its clones, the reality is the tail that will eventually wag the dog for most retailers; that reality coming in the form of the liability of the unredeemed discounted vouchers, vouchers being redeemed long after the cash from the deals has been spent. Careful planning and pricing should prepare retailers for this inevitability.

The answer to the question posed, “Should Group Buying Sites be included in the Luxury Hotel Spa Marketing Plan?” is yes but very carefully. To summarize our process to a successful group buying site offer, here are some points to remember:

• Understand you market position
• Protect your brand
• Plan and Price with caution
• Prepare for the phone calls the day of the offer
• Set expectations for discount guests
• Observe and execute in the spa, you will be busy
• Know the difference between cash flow and profit
• Gather information from your guests
• Follow-up to bring the guest back

Rick Maack is the Business Development Partner and Owner of Maack Management and Balance Spa Management, a fully outsourced option for the spa, salon and fitness center of luxury hotels. Mr. Maack leases space from hotels and/or building owners providing a lease income stream and revenue share to hotel partners. Mr. Maack operates seamlessly with the hotel, using the hotel brand and look. All expenses of operation are borne by Maack Management and a revenue share option is included in most leases. The revenue share with the hotel assures that the spa and the hotel have like goals. Mr. Maack can be contacted at 302-223-5942 or rick@maackmanagement.com Extended Bio...

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