Digital discounting – Deal… or no deal?

16 April 2012
Digital discounting – Deal… or no deal?

Are those online discount deals a great way to fill tables or rooms at quiet times? Or do the reduced prices and charges make it impossible to turn an honest profit? Two operators tell their stories

Gareth Banner
General manager, the Hempel hotel, London
The decision to work or partner with "flash sale" companies such as Living Social and TravelZoo can be hugely beneficial but you need to enter into any agreement with your eyes wide open. This form of promotion is far more aggressive and instant than almost any other type of marketing and many hoteliers or restaurateurs fail to anticipate the speed and level of demand that can be achieved.

It's essential that operators understand their margins in detail and give real consideration to all the deductions that will be applied. What might seem like a reasonable offer at first glance might not be quite so viable once you deduct commission (gross), VAT, booking engine fees, credit card handling charges and cost of sales. It is very easy to find yourself in a position whereby you're left with a lot less margin than you may have initially envisaged.

The main reason there has been such an explosion of online flash marketing is simply because they work. Unless you're working in large chains or brands, the sheer size of the databases to which these companies can promote your business is far greater than you could ever achieve directly. However, the added benefit of this in the longer term is that you have the opportunity to capture details of those that take up the offer and grow the size of your own qualified, in-house database.

In order not to irritate or alienate their own subscribers, offers are closely vetted by an "editorial team" to ensure that they will be well received when they are sent out. This can often result in robust negotiations, but it is ultimately the operator's decision whether or not they are prepared to accept the terms. If you can't live with the level of commission or the level of discounting, then walk away. Nobody is holding a gun to your head. But you need to decide how much you really need the business.

We ran an afternoon tea promotion with Living Social and a restaurant promotion through TravelZoo at the start of this year. These were well planned, tactical decisions that exposed the restaurant and lounge bar to a huge number of new customers and in turn, generated a considerable amount of incremental revenue during a period when there was plenty of excess capacity. In order to produce really compelling F&B offers, we leant on some of our suppliers to help sponsor and subsidise the campaign and this allowed us to add a lot of perceived value at little or no extra direct cost to our own business.

Owing to the leisure nature of these offers, it is essential to manage availability by day of week or else you can easily end up over subscribed at times when you know you don't actually need a great deal of extra help. After all, if the objective of a flash sale is to drive incremental revenue and soak up excess inventory, then it is a cardinal sin if you end up displacing full-paying guests or customers.


â- Manage availability of your promotions to make sure your business doesn't end up oversubscribed at times when you don't need the extra trade.
â- Take the opportunity to capture crucial customer information and build up your own in-house database.

Johnnie Mountain
Johnnie Mountain
Johnnie Mountain
Chef-patron, the Atrium and the English Pig, London
I first took the call from a really great guy called Hugh. Hugh promised lots of things - guaranteed bookings, no fees, no artwork costs, eâ€'mails sent to "subscribers" (in excess of 1.5 million in Greater London alone). I couldn't believe my ears: this guy had direct access to over 1.5 million people that were looking for deals for eating out in restaurants? It was an absolute no brainer: where do I sign?

From then on things really moved. All I had to do was come up with a menu that I was willing to offer with a 50% minimum discount. Half-price meals are never really a great idea because the restaurateur is always looking to make a couple of quid and therefore "something" will suffer.

Although I am reasonably astute, I never quite got the fact that Groupon would also then be taking their cut. I negotiated this down from 40% to 30%. What was I doing? First, I'm giving meals away at half price and then from that half price, I would then give a further 30%! Never mind. It will fill the restaurant and act as a "rent-a-crowd".

I completely underestimated what would happen next. The advert went out: "Johnnie Mountain from the Great British Menu", etc. Over 3,000 vouchers were sold and each voucher represented two people. That meant feeding over 6,000 people over a four-month period; 1,500 per month; 400 per week. Over £100,000 worth of vouchers were sold in less than 24 hours.

Dealing with the fall-out was horrific. I had to employ two people, full-time, over the next two weeks, just to deal with the number of calls and eâ€'mails. People would book from midnight to 2am, 4am, midday and onwards. I really had no idea of the scale of shit I had caused. Suddenly, I thought sod it: open the doors and let them flood in. Otherwise we will never crack it.

The restaurant was now "fully booked" - but with a new type of customer. They were a different breed. These people were professional voucher users and could see we were mere amateurs. I had to buy new jugs for the amount of tap water we "sold". The complaints about the wine were thick and fast, too. What did they expect? Pouilly Fuissé or vintage Burgundy for £29 per COUPLE for three courses?

The payments started to come in and I noticed a little discrepancy. Groupon also took the VAT from the voucher to pay their VAT. I ended up with just over £18 per couple. £18 for two people - three courses, bottle of wine and no service charge.

I realised I had made a mistake, but I didn't expect what happened next. I called Groupon and asked what happened to the vouchers that would not be redeemed and the rather sheepish answer was: "Well, we keep the money."

Sod off, I replied, why should you keep the money, when the public had bought the voucher for my restaurant? They said that was the way it was. No wonder Groupon were offered £4b for the company.

â- Read the fine print. Make sure you understand exactly what you're committing your business to so that you can deliver what you promise without being out of pocket.
â- Set terms and conditions but keep them simple. You don't want to put customers off and it will help make the offer easy to manage.
â- Negotiate a better deal. Many flash deal providers will be open to discussions around the amount of commission they charge.

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