Pros and Cons of Flash Sales for 2012

You see them on sites like Jetsetters, Living Social Escapes, Hotel Tonight, Groupon and several others: “Deluxe Vacation in Paradise, Regularly $2,000, Book Now for Only $1,000, Save 50%.” The promotional text is crisp; the offers relatively straightforward. The question is, should you as a hotelier participate in these programs? And importantly, what role will flash sales play in 2012?

Flash Sales: What Are They All About?
A flash sale is defined as an internet-based promotion that is offered to potential guests for an extremely short period of time (one to seven days). The offer is typically for an inventory-restrictive packaged program available over a specified time period and priced at a discount significantly below BAR. As well, most flash sales require full payment at time of booking. Once purchased, they are generally non-cancellable, and may also be non-transferrable.

A Customer Survey
As you would expect, consumers love a sale. In the research report from Q2 2011 conducted by Condé Nast Traveler entitled ‘What Matters Now, Volume XLI,’ two out of three respondents agree: “I’m intrigued by travel ‘flash’ sales.” Of that same group, 11% have already booked travel or accommodations through a flash site, with another 44% planning to do so in the near future. Condé Nast concluded with their opinion that flash sales are here to stay, and I’d be inclined to agree.

Pros and Cons for 2012
Flash sales appeal to hoteliers for several reasons. The ability to unload rooms from a non-productive period is the dominant attractor. It’s a clutch tactic to increase occupancy and shore up dry spells. Moreover, if these rooms can be bundled with value-added extras, the loss in ADR can be made up somewhat through a balanced REVPAR. Flash sales can also be utilized as a tool to push suite upgrades, golf rounds, kids camps and even F&B programs. Lastly, I have experienced hoteliers who do a flash sale just as a means of invigorating their leisure sales team.

As a further bonus, you’ll know your results within a very short period of time, making it very easy to plan further actions. With programs prepaid, there is limited financial risk and immediate cash flow. Flash sales sites give your product a higher awareness to a new set of consumers. And, for those who tried your product at this incredible low price, there is the potential for them to be converted to regulars.

On the flip side, liken flash sales to the use of an addictive drug. There is a certain rush from the first time you see hundreds of thousands of revenue dollars come in from a single program in a very short period of time. It’s hard to fathom and the idea of repeating a flash sale again and again will quickly come to mind. My experience, however, is that each successive use delivers less of thrill and less of a business bump. But, like any addiction, it’s hard to get out of the cycle, especially in 2012 where packages and room rates are being pinched from all sides.

In terms of direct monetary disadvantages, flash sales weaken overall ADR. This is obvious for the short-run, but when used repeatedly over the years, flash sales will lower your brand’s perceived value, further weakening your ADR. Now that it’s 2012, you’re likely dealing with a more web-savvy crowd, one that’s fully acclimatized to breakneck marketing tactics. Once they get a regular taste for flash sales, that’s all they’ll want in their diet. There is also the risk of displacement. A flash release is received by all subscribers to a given site. If one of your subscribes just so happens to be booked at your hotel for that same period, they may demand compensation.

The costs of managing a flash sale also have to be taken into consideration. Flash sale providers with large, dedicated subscriber bases will not distribute your product to their database for free. In addition to the discount you offer the customer, anticipate a further percentage for the middleman taken straight off of the top of your yield.

The Bottom Line
My personal feeling is that flash sale sites have their time and place, albeit very rare. If you are dead set on using them, do so sparingly and don’t include them as part of your core marketing plan. This will prevent consumer displacement and negate any long-term declines in ADR.

How often you ask? I’d say no more than once or twice during your fiscal 2012, and only for periods that need real bolstering. You have to always remember though: the more you offer deep discounts like this, the harder it is to restore your true value proposition.

(Article by Larry Mogelonsky, published in Canadian Lodging News on January 20, 2012)

Larry MogelonskyPros and Cons of Flash Sales for 2012