Hospitality-related deals are hot on group-buying sites, but it's definitely not worth your effort if all your establishment gets are bargain-hunters. Jaclyn Lim finds out how you can retain first-time customers and - dare we hope - build brand loyalty.
For travellers and staycationers, group-buying websites are probably the best thing to happen since the pillow menu. But does it make business sense for hospitality establishments like your hotel to sell a $300 room for $150?
Many hospitality establishments seem to think so, using these group-buying websites to woo first-time customers. Patrick Linden, chief executive officer of Deal.com.sg, observes: "About 30 per cent of our deals are travel-related. We have partnered local hotels not just for hotel stays, but also for F&B and spa deals." In Singapore alone, Deal.com.sg has sold over 40,000 vouchers for hotel groups like Holiday Inn and Grand Park Hotels. The figure is closer to 100,000 vouchers if you include regional destinations like Hong Kong, Japan and Thailand, as well as neighbouring islands like Batam and Bintan.
Meanwhile, Groupon Singapore has featured approximately 100 hospitality-related deals since June 2011. Take the five-star Royal Plaza on Scotts, who has partnered with Groupon twice. The first deal offered a weekend stay at $228, buffet breakfast included. It was worth $488. Within 24 hours, 286 room stays were sold. The other deal offered a three-course set dinner with live band at Heat Ultralounge at $35, 50 per cent off its $70 value. Over 1000 vouchers were sold in 10 hours. Patrick Fiat, general manager of Royal Plaza on Scotts, explains: "For us, a partnership with Groupon provided a new distribution channel to generate demand during off-peak periods."
That may well be true, and many hospitality establishments do see plenty of pros when it comes to partnering with group-buying websites. Like how each deal exposes your brand name to hundreds and thousands of eyeballs. "Deal.com.sg reaches over 400,000 Singaporeans through various channels daily," says Linden. "The benefit outweighs the number of sold vouchers for a hotel. Our merchant partners derive real, sustainable value out of the customers we send them."
But skeptics say that such group-buying strategies are costly to the establishment and do not build brand loyalty, as they are more likely to attract legions of bargain hunters, not customers who are used to paying full price for quality products. Regardless, if you choose to jump on the group-buying bandwagon, make the deal truly worth your while - find ways to keep the hordes coming back.
Unfortunately, that's easier said than done. Utpal Dholakia, associate professor of marketing at Rice University's Jones Graduate School of Business, surveyed 150 businesses in 19 United States cities that completed Groupon promotions between June 2009 and August 2010. His data showed that only 19.9 per cent of deal users return for full-price purchases. Not terribly exciting. In other words, merchant partners have to work harder to justify the customers coming back and paying full price. Here's how.
Structure a smart deal
When you're working out the mechanics of your deal, consider reaching out to "a more sophisticated higher spending power segment," suggests Linden. "$1 burger deals, for example, naturally draw a younger and less loyal crowd." So make sure that you know your objectives (is it to drive membership sign-ups at your hotel spa?), your target audience (ask yourself which group is more likely to become repeat customers?) and work out a feasible price point (set it so that buyers will be nudged to spend over the voucher value).
First impressions count
It's all about the experience. "Never treat a customer who is coming in through a group-buying website as second-rate," says Linden. "If you do that, you lose that customer forever - even another hugely discounted deal will not bring them back." So focus on creating a superior service experience for every guest - from the minute he or she walks through your door.
Deliver what you promise
"Delivering the products that were committed in the deal is fundamental to build trust with the customers who have made the purchases," says Fiat. If the deal listed a sea-view room for 50 per cent less, honour it. There is nothing that will hurt your establishment's reputation more than a customer tweeting about how she was short-changed with a garden-view room when she redeemed the deal.
Offer a time-sensitive incentive
Give your group-buying customer another reason to return to your establishment. Before they check out, consider presenting them with discount vouchers that they can use at your hotel's restaurants or spas. Linden suggests: "It could be a 20 per cent discount on a spa session in the hotel. Time counts, so make sure the validity expires within four to six weeks."
Ask for feedback
New customers are the best source of feedback - don't let them go without asking about their experience at your establishment. Linden advises: "Have them fill out a short survey." When put across in a sincere manner, this gesture shows that you care about the customer's opinions and it might just win that customer back.
Build a relationship
Remember: For merchant partners, group-buying is not about a one-time transaction. Before your guests leave, present them with a business card listing your Facebook and Twitter accounts. Tell them that there are special promotions and discounts that will be broadcasted through these avenues to encourage them to "Like" your page or follow your tweets. When you foster a sense of community, there is a higher chance that they will return.
Can you live up to the deal?
We've all heard horror stories of daily deals gone wrong (read: unhappy customers and a bad reputation). So before you offer a 90 per cent discount on your hotel room, make sure your establishment can deliver.
- Set a limit to the deal: There have been cases of deals selling thousands of vouchers in a day. But don't jump for joy yet - a merchant will have to honour what it has promised. Patrick Linden, chief executive officer of Deal.com.sg, explains: "We have an internal formula which ensures that hotels don't oversell their capacity. So each featured deal has an internal cap, which our sales team will advise merchant partners on."
- Be prepared for the sudden spike in demand: Many problems can arise if your establishment is not ready to cope. A reputable group-buying website will screen your business to make sure you're able to handle it. Take a hugely discounted hotel stay. As rooms are usually subjected to availability, the hotel should state in the fine print that the deal is valid for a longer time (like six months) while blocking off peak periods like Christmas.
- Consider worst-case scenarios: Hotels might turn away customers because of a lack of rooms, restaurants might refuse vouchers on weekends and spas can be overbooked. Find out how hospitality-related deals can go wrong - and work with your group-buying website to address these issues.
Group-buying mechanics
Here's a step-by-step process for merchant partners.
- The interested merchant contacts the group-buying website.
- Both parties work out a deal together, typically offering more than 50 per cent off a product or service. You can also set the minimum number of vouchers that needs to be sold before the deal is "on".
- The deal goes "live", which means the group-buying website features the deal for a brief period of time (1 - 3 days). It might also blast details on social media like Facebook and Twitter, and send the deal to its huge customer database on its mailing list.
- Buyers click on the deal to purchase printable coupons or voucher codes (for e-businesses), paying the group-buying website first.
- Buyers then take the voucher to the merchant partner to redeem it for its value.
- The merchant partner keeps a log of the redeemed vouchers, and informs the group-buying website periodically.
- The group-buying website, which typically collects 50 per cent of the revenue and some miscellaneous fees, will send the remaining revenue back to the merchant partner.
