Can flash sales add profit to the bottom line?

1. Flash Sales &
Revenue
Management
Complementary or
disruptive forces?
Kate Varini
YOUR ONE STOP SHOP FOR REVENUE OPTIMISATION

2. 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.
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3. Breaking News: A new era is
beginning!
• Tour operators ceasing trading after nearly 40
years in business.
• Thomas Cook
• American Airlines
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4. 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
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5. Flash Sales Can Work
Boost Sales Boost Cash Flow
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6. Why are “deal sites” so successful
• Boredom with traditional
offers
• Commoditization/frames of
reference
• Recession, rising food prices
• ……are they the new OTA?
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7. 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
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8. 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
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9. 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
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10. Good Bad and ?
  or …?
• Livingsocial • Jetsetter
• Sniqueaway • Groupon
• Providers keep no-show • Rue lala
revenue • Voyage Prive
• Helps with cash flow • Bloomspot
• Focuses on building a value
experience
• Yuupon
• High prices • Eversave
• Discount capped to • Google..….etc.
maintain brand image
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11. 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
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12. 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
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13. 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)
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14. Redemption Factor?
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15. 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)
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16. 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
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17. Best Practice 2
• Daily deal $100
• 25% Discount
• Must book 10 days in
advance
• Only 1 per customer
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18. 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
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19. Example of LS Deals
600 sold 500 sold
• 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…
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20. 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 $2000 - 1 night stay,
10,000 $1 night
• Look at discounting levels
114 sold within 7 days
carefully (not a good idea to
use rack rates, better BAR to
not show too huge a
discount
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21. 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
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22. 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
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23. 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
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24. 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.
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25. Arrive at 7am, wait until
Reverse Flash 10am for ticket office to
Sales! pen. 500 tickets
available. Must use
same day
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26. What business are you in?
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27. 
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
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