Are You Ready to Jump On The Flash Sale Bandwagon?

If you haven’t heard of Groupon, you must be living on an uninhabited island somewhere.  But just in case, here is a brief description of how it is supposed to work.

How It Works

The park agrees to a steep discount (50% or better) on a stay.  There is very limited ability to blackout dates for the use of the coupon.  What is agreed on is the number of coupons that need to be purchased in order for the coupons to be distributed.  Of the amount collected, Groupon typically retains 50% and sends the balance on to the park.

If we look at some quick math, that would mean that the agreement is to give a 50% discount on a park stay if 500 or more people purchase the deal.  If the normal nightly rate is $40, the discount would be for $20 per night.  (Let’s assume for this example that you are only going to discount a two night stay.)  With 500 coupons sold, the total income would be $20,000.  Of the $20,000 Groupon would retain 50% or $10,000 and the park would receive $10,000.  So far everything sounds great doesn’t it?

What Does This Mean To The Park?

Now let’s look at the other side of the problem.  Since the assumption is a two night stay, in reality we are talking about 1,000 site nights for $10,000 or $10 per site per night.  I don’t know of any park where the cost per site night is $10 or less, so a Groupon deal can be considered a “Loss Leader.”  Meaning that the cost is greater than the income but the hope is that the person redeeming the Groupon deal will come back and stay at the normal rate.

There is an argument that there are residual sales due to the person staying in the park.  Sales at the gift shop, the grocery area and/or the RV supplies area will increase.  My question is will those sales increase enough to offset the loss?

The second part of the problem lies in the fact that you are going to receive a large amount of money ($10,000 in our example) spread out over 1/3 in about 5 days, 1/3 in 30 days and the final 1/3 in 60 days.  The coupons, however, usually have a one year shelf life, so they can be used at any time through the year.  In other words, you are going to collect for deeply discounted business today but you are going to be paying for it for quite a long time.

What Is The Impact?

A couple of items to take a hard look at before deciding to do a Groupon deal can have a huge impact to your overall business:

1.)     How many of your existing customers are going to buy the Groupon deal?  The real reason to go with Groupon is to attract new business, but if they are existing customers there isn’t going to be any gain.  This is a statistic that is going to be very hard to track as Groupon doesn’t provide this type of analysis.

2.)    How often will those new customers come back?  If the Groupon customer doesn’t return the park has basically given away two nights with no chance of recovering any losses.   My experience and my intuition continues to tell me that people who shop for the latest deal do not become loyal customers who return to purchase at the regular price.

Is It Worth It?

So now we get to the real question.  Is a Groupon, Google Offers or any of the other “Deal of the Day” sites worth going to in order to attract new customers?  The answer is…Depends.  For me the answer is always “No, Thank You.”  I feel the same way about the 50% clubs that offer to bring more people in if you will give those customers a 50% discount.  Here are my reasons against these types of “deals.”

 

1.)     If you have priced your sites right, giving deep discounts is the equivalent to telling the guest, “The nightly rate is $40 but I realize that is way too much for you to spend so I will give you the site for $20 tonight.”  That sounds a whole lot different than just saying “Yes, we honor XYZ discount club” now doesn’t it.  But the bottom line remains the same.

2.)  Do the guests who receive the deep discount come back and pay full price?  Why should they?  After all they belong to XYZ club or they wait for the next “Daily Deal” and get a discounted price.  There is no incentive to become a regular customer.  In fact, the incentive is to find that next “Daily Deal” and go there.

3.)  If you agree to run the deal, are you going to be able to cover the losses?  Unless you are way out of whack on your rates, you will incur losses.  You are going to receive a large infusion of cash but you are going to need it later when the deal is redeemed.

How To Generate New Business

Now, here are my suggestions for increasing your base without the Daily Deal sites:

1.)    Create a guest loyalty program where you reward your current guests for bringing in new business.  Give them a one night discount for every 5 new guests they bring in.  Now you are giving your existing guests reasons to brag about your park.

2.)     Consider running a Facebook ad.  These ads are based on a pay per click basis (PPC) but you can define your target to a very explicit audience.  Again, the deal would be a onetime use and would be a reasonable discount.  (By the way, I have always considered a reasonable discount to be between 10% and 15%, with larger discounts being given under very special circumstances.

3.)    Spend the money you would have given Groupon on beefing up your website to attract more customers, add a social media program to your efforts and look at paying for some SEO efforts for your website.

I’m looking forward to hearing what has worked for you.

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