Making Friends with Discounting

By Jeremy McCarthy Group Director of Spa & Wellness, Mandarin Oriental Hotel Group | December 25, 2011

"Discount" is the dirty word of the hospitality industry. For the last ten years, spas and hotels have held discounting as the absolute last straw in any marketing campaign. Unfortunately, the recession of the last few years has forced spas and hotels to exhaust any and all options to get consumers in the door. Loathsome though we were to do it, the economic situation became severe enough to bring us all to our last resort efforts, discounts included.

The spa industry in particular, has had a love-hate relationship with discounting over the past decade. In other words, the consumers have grown to love discounts, and the industry professionals have grown to hate them. In fact, in the last ten years of attending industry conferences and seminars, I can't think of one where industry professionals didn't eschew discounting in favor of "value-adding" strategies that leave the pricing integrity of the spa intact.

So where does this hatred of discounting come from? And can the spa industry continue to keep discounting at arm's length when consumers are already cutting their spa spend due to the economic pressures of the day? Can spas afford not to discount, when competing against deeply discounted deal aggregators such as Groupon, Living Social or Rue La La?

These are important questions to answer when consumers report "finding deals" as the #1 reason they use websites to search for information on spas. And Groupon, just in the last twelve months, has sprinted past Facebook and Spafinder as one of the most popular websites consumers use to find spa information (30% growth over last year according to a recent report by Coyle Hospitality Group.)

Looking at the rise in popularity of websites like Groupon, it would be easy to imagine a future where nobody pays full price. After all, why pay full price for anything if there is always a deal to be had on the internet? For this reason, some argue that Groupon is not sustainable, and is dragging the industry down (the discounts and commissions are so substantial that it is very difficult for a spa to be profitable while running one of these promotions.) But there seems to be no shortage of spas that are desperate enough to gain some market share by slashing prices, at least for a short term event.

The debate around these discount websites is in full swing, with industry professionals on one side cautioning that spas who participate are trading long-term sustainable growth for short-term cash flow (and devaluing the entire industry in the process.) But there are success stories too: spas who say their business was brought back to life by the power of the Groupon masses.

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The hotel industry has undertaken a long-term effort to build more responsible and socially conscious businesses. What began with small efforts to reduce waste - such as paperless checkouts and refillable soap dispensers - has evolved into an international movement toward implementing sustainable development practices. In addition to establishing themselves as good corporate citizens, adopting eco-friendly practices is sound business for hotels. According to a recent report from Deloitte, 95% of business travelers believe the hotel industry should be undertaking “green” initiatives, and Millennials are twice as likely to support brands with strong management of environmental and social issues. Given these conclusions, hotels are continuing to innovate in the areas of environmental sustainability. For example, one leading hotel chain has designed special elevators that collect kinetic energy from the moving lift and in the process, they have reduced their energy consumption by 50%  over conventional elevators. Also, they installed an advanced air conditioning system which employs a magnetic mechanical system that makes them more energy efficient. Other hotels are installing Intelligent Building Systems which monitor and control temperatures in rooms, common areas and swimming pools, as well as ventilation and cold water systems. Some hotels are installing Electric Vehicle charging stations, planting rooftop gardens, implementing stringent recycling programs, and insisting on the use of biodegradable materials. Another trend is the creation of Green Teams within a hotel's operation that are tasked to implement earth-friendly practices and manage budgets for green projects. Some hotels have even gone so far as to curtail or eliminate room service, believing that keeping the kitchen open 24/7 isn't terribly sustainable. The May issue of the Hotel Business Review will document what some hotels are doing to integrate sustainable practices into their operations and how they are benefiting from them.