revenue management & flash sales: complementary or disruptive?

YOUR ONE STOP SHOP FOR REVENUE OPTIMISATION

Flash Sales & Revenue

ManagementComplementary or disruptive forces?

Kate Varini


Breaking News• Discounting sees ski holiday prices' tumble• Lift passes, ski rental and living costs have fallen up to 20%

compared with prices 2 years ago – comparison of prices in 10 resorts

• Switzerland only exception• Bulgaria best value for money for beginners at 17% cheaper,

costing less than half the price of Italy and Switzerland.• Family ski and boot hire was cheapest in Austria, helping push

the Austrian resort’s prices down 11 per cent from their 2009 high.

• In Canada and the US prices have plunged with ‘kids ski free’ deals leading to prices dropping by 23%

– Travelmole.com, today.


Breaking News: A new era is beginning!

• Tour operators ceasing trading after nearly 40 years in business.

• Thomas Cook • American Airlines


What are flash sales?

• Large discounts offered for a very limited time

• Not usually last minute• Sometimes linked to group buying• Sometimes bundled value items• Can be a tool to move guests to the

locations you want them to use


Flash Sales Can Work

Boost Sales Boost Cash Flow


Why are “deal sites” so successful

• Boredom with traditional offers

• Commoditization/frames of reference

• Recession, rising food prices• ……are they the new OTA?


Possible benefits

• Segment and target audiences– Specific demographics – Origin or destination points

• Opportunities to build loyalty with existing customer base

• Create demand• Gain visibility/new customers for firms


Suppliers said…

• 32% • 42%

• Causes?Price discounts erode brand value in the long term & a low rate of …..– repeat customers buying at full price– customer spending beyond coupon value


Challenges

• Results need to be measurable during and after – CRM/lifecycle of customer acquisition

• Can destroy or enhance revenue management plans

• Overuse negatively impacts WTP• Needs long term objectives e.g. use as a

tripadvisor add-on?• Requires specific goals for each offer


Good Bad and ?

• Livingsocial• Sniqueaway

or …?• Jetsetter• Groupon• Rue lala• Voyage Prive• Bloomspot• Yuupon• Eversave• Google..….etc.

• Providers keep no-show revenue

• Helps with cash flow• Focuses on building a

value experience• High prices• Discount capped to

maintain brand image


Pros Low cost, low risk customer acquisition and brand introduction channel Offload distressed inventory New customers Cross selling opportunities Cash flow benefits Billboard effect Build relationships with 3rd parties Decrease reliance on traditional OTA Sell experiences not just a discounted rate No comparison shopping/website cruising Copy written by professionals hence less boring, more entertaining Guaranteed minimum number of sales Buzz


Cons Customer confusion regarding who to contact when things don’t work Liability when working with 3rd parties Customers unrealistic expectations may generate negative reviews Wrong customer Over drinking, ruining experience for others One time bargain hunters that use all value of bundle Existing customers whose WTP is affected Loss of control of copy except for specific facts Breakeven or loss No non-redemption advantage


On the bright side…..

• A recent study showed that the benefits of offering a social coupon seem to out weigh the disadvantages– Buyers young, married, higher income– Some cannibalisation – frequent customers– Brought back infrequent &a substantial % of new

customers that said they would return and paid regular price and recommend (the restaurant) to their friends

– Would not have tried without daily deal

Kimes & Dholakia (2011)


Redemption Factor?


US Concerns• Employee perception, morale, motivation• Customer loyalty, propensity to return, spend• Study showed that these concerns are

overstated• No sign of difference between daily deal

customers and others except more impulsive, like to try new things and appreciate deals

• Conclusion: A well designed restaurant deal will benefit both the operator and the customer

Kimes & Dholakia (2011)


Best Practice 1

• Considerations – incremental cost of sales– the average sale– redemption percentage– percentage of coupon users who are already customers– how coupons does each customer buy– what percentage of coupon customers turns into

regular customers– the advertisement value of the business being

promoted to the population– how much does it usually cost to attract customers

through advertising


Best Practice 2

• Daily deal $100 • 25% Discount• Must book 10 days in

advance• Only 1 per customer


Living Social – A good alternative?• Once a week – offers to members 10-12, 4 & 5 star properties, all brand

types…bundling experiences, not in market for selling just on room • TRM and more interesting experience• Overall package discounted – value. Extras can be things provided by

hotels that can earn bigger margin for example early checkin• Discounting call to action does not mean reduction of total hotel revenue• 600,000 room nights in the last 12 months• A high growth, genuine channel: 400-800 room nights from a promotion

lasting one week • Travel magazine copy with purchase functionality• A well constructed social commerce should…

– Generate new demand ( when you want it)– Tell your story and strengthen your brand and loyalty– Be completely measurable– Protect total revenue– Work for all brands


Example of LS Deals

• Most sales on first day of promo with 15% buy within 30 minutes of getting email

• Customers travelled from up to 2 hours journey• Merchants do not pay if LS does not deliver• Travellers want experiences hence you need to tell your

interesting/inspiring…fantastic stories.• OTA all about price and very little about quality of your hotel. • Structured so it works for everybody – post event write up

including links to hotel – 200% increase in traffic…no cpc applied

• 3 room categories – wanted to sell suites – LS social produced a video of hotel, most sales at high price point…

500 sold600 sold


How it works: Discount does not equal low price

• Shift in consumer behavior• Power of mobile generation• Caution: think carefully about

who you are working with…need to feel building something together, understands your industry.

• LS only recruit people with a travel background

• Look at discounting levels carefully (not a good idea to use rack rates, better BAR to not show too huge a discount

$2000 - 1 night stay, 10,000 $1 night

114 sold within 7 days


How it works (cont…)• (50%) discount on total value not price - $115

– 100 room price– 80 dinner– 40 champagne– 10 late check out

• Cost to hotel? 15 + 30 + 20 = $65. • Contribution: $50• Merchants paid 80% of revenue in 15 days then rest after

80 days• Cash flow • Pay on purchase not usage….so full revenue comes to

hotel


Top Tips Digital Sales Strategy

• Integrating marketing, distribution, revenue• A thoughtful review of what each deal site offers

– possible sales actions and financial gains• Who is the target customer?• Use value propositions• Discount if you book now (easyjet approach)

– Lengthens the booking window and helps you better forecast

• Flash sales directed at guest while they are in the hotel using LBS


What else? • Get more creative in driving direct sales through your

own hotel website – Try dropping rates for particular dates but only for a time

span of 1 or 2 hours– Consider lowering rate sat 7pm and raise it again at 7am– Willingness to pay is higher on a Monday morning that on a

Sunday night • Offer a lower % commission to attract more volume

through meta-search sites• Use an 10% early bird discount & Google Places tagline• Invest the same amount in SEO as paying in OTA

commissions • Use cashback & rebates to offer lower rates


Conclusion

• Deal-sites put pressure on profit margins. • Some consumers display desired add-on purchase

behaviours • Creates practical implications to isolating consumer

segments resulting in discount vouchers cannibalizing the existing customer base.

• The advertisement potential of deal-sites as a good opportunity to increase brand awareness and online buzz

• Deal-sites increase online reviews but often in negative ways

• deal-sites are a recessionary phenomenon with a flawed business model that will continue to hurt the hospitality industry as long as merchants continue to use them.


Arrive at 7am, wait until 10am for ticket

office to pen. 500 tickets available.

Must use same day

Reverse Flash Sales!


What business are you in?


References Atkins D. (2011) Digital Flash Sales, private sales, daily deals, group buying sites promo offers.

Hospitalityupgrade.com Arabshahi, A. Undressing Groupon: An analysis of the Groupon Business Model. Available at www.ahmadalia.com,

Dec. 2010 Byers, J.W., Mitzenmacher, M. & Zervas,G. Daily Deals: Prediction, Social Diffusion and Reputational Ramifications,

arxiv:1109.1530v1, arXiv.org, September 7 2011 Dev C., Winter Falk L., Mougeot Stroock L. (2011)To groupon or not to groupon: A tour operator’s dilemma.

Cornell Center for Hospitality Research. Dholakia, U.M. (2010) How Effective are Groupon Promotions for Businesses? Available at

http://ssrn.com/abstract=1696327 November 10 2011 Dholakia, U.M. (2011a) What Makes Groupon Promotions Profitable for Businesses? Available at

http://ssrn.com/abstract=1790414 November 10 2011 Dholakia, U.M. (2011b) How Businesses Fair with Daily Deals: A Multi-Site Analysis of Groupon, Living Social,

Opentable, Travelzoo, and Buywithme Promotions Available at http://ssrn.com/abstract=1863466 November 10 2011

Edelman, B., Jaffe, S. & Kominers, S.D. (2011) To Groupon or Not to Groupon: The Profitability of Deep Discounts, Harvard Business School Working Paper

Golz, J. (2010) Doing the Math on a Groupon Deal Kimes S., Dholakia, U. (2011) Restaurant daily deals: Customer responses to social couponing. Cornell Center for

Hospitality Research Luca, M. (2011) Reviews, Reputation & Revenue, Harvard Business School Working Paper Malcolm, J. (2011), Daily Deal Sites Must be Profitable And Relevant for Local Merchants Available at:

www.businessinsider.com/sai November 10 2011 Starkow, M. (2011) The Pitfalls of Last Minute Sales in Hospitality, HeBS Internet Marketing Blog. Available at:

www.hebsdigital.com/blog/the-pitfalls-of-last-minute-sales-in-hospitality/, October 14 2011 Xotels.com

http://www.ahmadalia.com/

http://ssrn.com/abstract=1696327



http://www.businessinsider.com/sai

revenue management & flash sales: complementary or disruptive?

Education