Mr. Filsinger

Sales & Marketing

It’s a Fine Balance: The Rise in Real-Time Couponing and What Your Hotel Needs to Know

By James Filsinger, Chief Executive Officer, EZYield

There is no doubt that electronic couponing, or e-couponing, has changed the face of how we buy and sell goods and services. As with social media before it, hoteliers are finding – often through trial and error – how to use this channel to meet occupancy goals, increase brand awareness and benefit the bottom line. On paper, the benefits seem to be endless – e-couponing can increase how many people come through your doors, gets your hotel’s name out in the population, provides a boost in low demand periods and engages a new community of guests with this targeted channel. However, it’s important to realize that the benefits being waved in the faces of hoteliers from e-coupon providers come with real risks and challenges.

The growing use of e-coupons

Market leader, Groupon, had a little over 50 million subscribers at the end of 2010. According to Reuters, the figure was close to 115 million users in August of this year(i). This rapid growth can, in part, be put down to an increasingly digitalized consumer, but also the state of the global economies, including the recession of 2008 and the financial instability occurring in Europe and the US in recent months. This economic uncertainty is leading to increasingly fiscally cautious consumers, who are being driven by price more than ever.

In brighter economic times, it might have been seen as Scrooge-like to present coupons in the hope of saving a couple of dollars. However, the growing uneasiness about the economic situation – not to mention some of the ludicrous savings that can be made -- means that the stigma previously attached to this method of saving money is evaporating.

What does an e-coupon user look like?

The starting point for evaluating whether your hotel should be engaging in e-couponing needs to be looking at the clientele you want to attract, and contrasting this with the users of e-coupons. After all, every hotel caters to a niche – the Four Seasons isn’t aiming for the backpackers, and the backpackers aren’t looking for Four Seasons. So what does the e-coupon customer look like?

• E-coupon clippers are described as having “higher incomes, and a greater interest in trying new products…”(ii)
• They’re not loyal to one online coupon source”(ii), meaning they’re not likely to be loyal to one hotel, either
• They are also more likely to be local users of a product, rather than visitors from other areas

Based on the general criteria of e-coupon users, hoteliers around the world should be thinking deeply about whether this is the type of customer that their hotel should be looking to attract, and whether the discounting needed to qualify for an e-coupon deal is worth it in the long term.

If rooms need to be filled then there are definitely benefits to be had by the hotel in using coupons. Offer a deal that grabs the attention of users, and the half empty hotel that was previously a real cause for concern is now suddenly close to full, and rooms which were making nothing, are hopefully also bringing money into the hotel through ancillary revenue, not just the discounted room rate.

Importantly, to grab the attention span of the fickle e-coupon user, you need to have something spectacular, something that causes them to throw the lengthy purchasing decision making process out the window and click the all-important “book now” button. However, hoteliers do need to be careful at this point when engaging with e-coupon providers as it is all too easy to go for that spectacular offer and discount too greatly, which can have lasting negative impacts. Additionally, before using e-coupon websites with a view to boosting short term demand - it is important that hoteliers carefully plan for black-out dates and set restrictions that ensure business generated from using an e-coupon site has a positive impact on their business.

E-couponing and brand value

Although discounting through e-coupon providers can lead to short-term gains and fill empty rooms, it is important to keep in mind though that over- discounting comes at significant cost to the brand value of your hotel, your reputation within the channels you work with, and the loyal customers who are willing to spend with your hotel.

We all know in the hotel business that brand value takes years to build and weeks to destroy. This adage is important to remember when working with e-coupon providers because customers, after paying to stay at a specific hotel, establish a reference as to what a good or a service should cost.

Imagine if you went into a shopping mall and saw that avocados were now $20 each – you’d be outraged, and rightly so, because you only paid $2 last month. This pricing reference point is set from buying avocados previously. By using e-coupons regularly to boost demand, hoteliers run the risk of eroding brand value and resetting the reference level for their hotel to a much lower rate – after all, if a customer is accustomed to paying $150 for a room over a period of years, they could be outraged or choose to book somewhere else when the price goes back up to $300.

Sustained over-discounting to boost demand between hotels inevitably also leads to a commoditization of the product where price becomes the sole deciding factor. If the consumer has the idea that every hotel is a commodity, rather than basing their choices on brand value and the experience offered by a particular property, and starts basing their choices purely on cost, hoteliers risk damaging the very thing they’ve worked so hard to build – their point of difference.

The issue of rate parity must also be taken into consideration when dealing with e-coupon providers and looking at brand value. Hoteliers spend a lot of time and effort trying to ensure that they sell the same rooms for the same rates across multiple booking channels – in spite of different booking sites and tools charging varying fees and commissions. A danger with engaging with an e-coupon site to market your hotel and try to boost demand is that the rates offered through this process will fly against traditional approaches to achieving rate parity, thus calling the ideals behind rate parity into question.

What e-couponing means for the channel

Hoteliers also need to consider the wider channel implications of engaging with e-coupon providers. Travel agents both OTA and traditional shop-based like to feel that they’re getting the best rates for their customers, with the best commissions and most up to date information possible. When travel agents see a cheaper rate than they can get for their customers on a couponing site, they can get annoyed that they aren’t able to get the same rates for their customers, as well as removing their opportunity to gain commission. The channels and relationships hotels have, all hold loyalty to brands, and are likely to recommend hotels based on their experience with every point of contact they have with a hotel. Risking the relationship with them by not giving them the attention they need means there will be significant implications for the future.

The benefits of e-couponing

There are clear benefits, not just challenges, associated with the rise in e-couponing. For large multinational hotel groups, where a brand is replicated across the globe, e-couponing could help with introducing new guests to a particular hotel group. Impress the customer with the local service and there are flow-on effects that can increase the chances they will stay in the same hotel when they travel to another country or city where that hotel group has a presence.

E-couponing is growing in popularity amongst sections of the hotel community for a reason. When an injection of cash flow is required, e-coupon providers can offer a much needed boost, not to mention the brand exposure that featuring prominently in a newsletter emailed out to large subscriber bases can offer. A hundred new customers just waiting to be impressed by the luxurious surrounds of a hotel, or the personal service it can provide seems like the stuff of dreams, especially when it’s as easy as a simple e-couponing system.

It’s also accepted that customers who get a discounted price often spend above and beyond what they’ve paid for the room on ancillary sources of revenue like day spas or restaurants, recouping some of the costs. All of this is fine on paper, but if the infrastructure and staff investment isn’t there to recoup the margin, hotels are not benefiting and are just cutting out their margin.

The bottom line with e-couponing

For hoteliers, the secret lies in looking at e-couponing as a marketing expense to build brand awareness, rather than viewing e-couponing guests as a way to build recurring revenue. E-coupon sites should be used with the right channels at the right times to effectively build visibility where you need it. Groupon and other e-couponing sites have the potential to be effective channels when the situation warrants it – like to use to cover fixed costs in slow or shoulder booking periods, or to promote new amenities like a bar or spa. Any hotelier knows that every channel has a specific use, whether it is e-coupon sites, online travel agents, brick and mortar travel agents or the company website, and each need to be used effectively in order to maximize REVPar and build awareness. Hoteliers around the world will learn that e-coupon sites are a challenging, yet functional tool – use them too much and dilute the brand, don’t use them and risk losing market share to competitors. Finding the balance is where the art lies and is where savvy hoteliers are set to benefit the most.

References:
(i)http://www.reuters.com/article/2011/08/05/us-groupon-subscribers-idUSTRE7746I120110805?feedType=RSS&feedName=businessNews&utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+reuters%2FbusinessNews+%28News+%2F+US+%2F+Business+News%29
(ii)http://www.internetretailer.com/2007/01/25/how-e-coupon-users-compare-with-offline-coupon-clippers

A veteran of more than 14 years in the travel industry, James Filsinger was appointed CEO of EZYield in November 2010. EZYield is the originator and industry leader of automated online distribution management solutions for the worldwide hospitality industry. More than 3,500 hotels in 92 countries utilize EZYield’s advanced channel management software to streamline the distribution of rates and inventory to 500 forward distribution channels in multiple languages and 168 currencies. Prior to joining EZYield, Mr. Filsinger served as CEO and General Manager for Moneydirect Ltd., an international joint venture between Sabre Inc. and Amadeus IT. As launch CEO, he successfully led the company through an aggressive global expansion to proactively address changing market conditions and anticipate client needs and requests for future product and service capabilities. Mr. Filsinger can be contacted at 321-765-8486 or jfilsinger@ezyield.com Extended Bio...

HotelExecutive.com retains the copyright to the articles published in the Hotel Business Review. Articles cannot be republished without prior written consent by HotelExecutive.com.