Mar
21
I've been following Groupon since Seth Godin first drew attention to it many months ago. I find it a fascinating concept, not so much because of the marketing power it appears to contain, but because of the incredible fees and discounts it seems to be able to bring to the market.
It all makes me wonder if you hoteliers are looking the other way while somebody else makes off with your margins?
Let's face it guys, you let the OTAs do it ten years ago. Now it looks like it's going to happen to you all over again.
It all makes me wonder if you hoteliers are looking the other way while somebody else makes off with your margins?
Let's face it guys, you let the OTAs do it ten years ago. Now it looks like it's going to happen to you all over again.
Here's my initial list of a few things you need to think about (and I suggest you write down your answers somewhere too):
1. What is your current cost per sales lead?
2. What is your current cost per sale?
3. What is your current profit margin?
You need to know all these things before you can embark on a voucher, discounting or other price discrimination-based promotion.
Why?
Because you need something to measure the promotion with. You need to know whether or not it really works for you. You can measure all the fluff and spurious data you like, but unless you're measuring stuff like this, you might be looking in the wrong direction.
Then you need to think about the nature of the promotion itself:
4. Has anybody actually paid the "pre voucher" price for your product?
5. Have you got a mechanism for capturing voucher driven purchases and encouraging future purchases?
6. Will any losses sustained on the voucher-supported initial purchase, be outweighed by the gains from subsequent purchases?
7. Do you know what the lifetime value of a typical customer is?
This is all important.
Taking Groupon as an example - they encourage vendors to offer serious voucher discounts and then they take 50% of your net charge to the customer. Taking a £10 gross price purchase as an example, let's say you offer a 40% discount. You're going to walk out of the room with 30% of your normal asking price in revenue, before you take the VAT off.
Now you need to have profit margins higher than 70% to have any hope of making any money on that sale.
If you know what your cost per sale really is, then you can measure it against the cost of acquiring a customer using Groupon.
Your next challenge is to encourage a repeat purchase. This is really tricky.
It could be that your new customer is very price sensitive and will only buy voucher supported items (perhaps because your standard selling price is too high and this new customer has a value perception some way below that price?).
Perhaps you haven't communicated the benefits of what the customer will get?
Or are these voucher based customers just in it for what they can get as cheaply as they can get it? In which case the only way you'll get a repeat purchase is with another voucher?
There's an old adage about price, "if they come for your cheap price, they'll leave for someone elses"
Don't get me wrong, vouchers work - I've used them successfully in many industries.
Just make sure you get the arithmetic right. Groupon especially suits businesses with low marginal costs (like hotel bedrooms). They're not quite so good for food operations where your margins probably won't support the initial discounts and costs involved.
You need to know what your marketing, lead acquisition and customer retention really, truly costs. Only then can you decide if the likes of Groupon can work for you.
1. What is your current cost per sales lead?
2. What is your current cost per sale?
3. What is your current profit margin?
You need to know all these things before you can embark on a voucher, discounting or other price discrimination-based promotion.
Why?
Because you need something to measure the promotion with. You need to know whether or not it really works for you. You can measure all the fluff and spurious data you like, but unless you're measuring stuff like this, you might be looking in the wrong direction.
Then you need to think about the nature of the promotion itself:
4. Has anybody actually paid the "pre voucher" price for your product?
5. Have you got a mechanism for capturing voucher driven purchases and encouraging future purchases?
6. Will any losses sustained on the voucher-supported initial purchase, be outweighed by the gains from subsequent purchases?
7. Do you know what the lifetime value of a typical customer is?
This is all important.
Taking Groupon as an example - they encourage vendors to offer serious voucher discounts and then they take 50% of your net charge to the customer. Taking a £10 gross price purchase as an example, let's say you offer a 40% discount. You're going to walk out of the room with 30% of your normal asking price in revenue, before you take the VAT off.
Now you need to have profit margins higher than 70% to have any hope of making any money on that sale.
If you know what your cost per sale really is, then you can measure it against the cost of acquiring a customer using Groupon.
Your next challenge is to encourage a repeat purchase. This is really tricky.
It could be that your new customer is very price sensitive and will only buy voucher supported items (perhaps because your standard selling price is too high and this new customer has a value perception some way below that price?).
Perhaps you haven't communicated the benefits of what the customer will get?
Or are these voucher based customers just in it for what they can get as cheaply as they can get it? In which case the only way you'll get a repeat purchase is with another voucher?
There's an old adage about price, "if they come for your cheap price, they'll leave for someone elses"
Don't get me wrong, vouchers work - I've used them successfully in many industries.
Just make sure you get the arithmetic right. Groupon especially suits businesses with low marginal costs (like hotel bedrooms). They're not quite so good for food operations where your margins probably won't support the initial discounts and costs involved.
You need to know what your marketing, lead acquisition and customer retention really, truly costs. Only then can you decide if the likes of Groupon can work for you.
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