Cornell scientists look at Flash Sales Sites like Groupon and LivingSocial

The Center for Hospitality Research (CHR) is a unit of the Cornell School of Hotel Administration and the academics there publish quarterly reports on different aspects of hotel management and operation. The reports are geared for a hotelier audience, although occasionally reports touch on loyalty programs or other interesting data for me as a hotel frequent guest consumer, analyst and blogger. 

The most recent quarterly report from CHR is “Emerging Marketing Channels in Hospitality: A Global Study of Internet-Enabled Flash Sales and Private Sales” by Gabriele Piccoli Ph.D. and Chekitan S. Dey Ph.D. You can link to the article abstract here, but you must register with the website to gain access to the full article.

The article examines the major players in the flash sale market for hotels and travel packages like Groupon, LivingSocial and Jetsetter and discusses hotel manager rationale for using or not using these sites.

My interest in the article is primarily due to the listing of these flash sale sites with real data for the range of discounts consumers are receiving when purchasing from these online travel offers. DealsWeLike.com, another BoardingArea blogger, frequently writes about the deals on flash sale sites like Groupon and LivingSocial. Gary Leff of View from the Wing and Ben Schlappig of One Mile at a Time both gave their spin on another one of the major flash sale sites JetSetter.com recently.

Here is some of the data lifted from the Cornell article with my spin.

What I like about the CHR reports is the fact that the major hotel companies sponsor the Center for Hospitality Research including Carlson Hotels, Hilton and Taj as senior partners and Four Seasons, Hyatt, IHG, Jumeira Group, Marriott, and Wyndham and also Expedia and Priceline as CHR partners.

Phenomenon of Social Couponing: Daily Deals, Flash Sales and Private Sales

2010 USA generated $228 Billion in e-commerce and travel was $85 billion of the total.

Since 2008 flash sales have been increasingly used by restaurants and hotels.

Flash sales is the fastest growing component of e-commerce.

Groupon and LivingSocial are the flash sales sites most used by hotels for listing deals.

Flash sales sites started with a model of operation requiring a certain number of people to sign up to activate a deal. When the deal hits the threshold sales, then the deal is activated and the group of consumers are charged for the travel purchase, and issued travel vouchers to redeem for the deal. This strategy requiring a certain number of buyers before the deal activates. This type of sales model is in decline.

August 2011 data showed travel was the third largest sales area for flash sale sites producing 11% of the daily revenue, yet only consisting of about 3% of all flash sale deals.

Private Sales Travel Websites

The Cornell report researchers predict the membership aspect of private sales sites will erode to reduce the barriers to the traveling public. Open access to more consumers will allow these member-only sites to better compete with sites like Groupon and LivingSocial where only an email address requirement is necessary to get started.

Travel Only Private Sites (Parent Companies)

• SniqueAway (TripAdvisor-Expedia)
• Vacationist (Travel + Leisure and American Express)
• JetSetter (Gilt Groupe)
• VoyagePrive

Retail Oriented Sits with Travel Offers

• RueLaLa (Aug 2011 teamed up with Virtuoso to offer luxury travel deals)
• Hautelook (Hautelook Getaway has upscale travel offers through acquisition of website BoVoYou)
• Ideeli (partnered with VoyagePrive to create cobranded travel channel)

Orbitz and CheapTickets launched members-only weekly flash sales in July 2011 through “Insider Steals” offering discounts up to 50%.

Priceline has “Tonight-Only Deals” offering discounts for same day bookings.

September 2011 – Travelocity launched Dashing Deals.

Groupon and LivingSocial Hotel Deals

November 2010 – LivingSocial Escapes launched.

July 2011 Groupon and Expedia partner to create “Groupon Getaways” and launched mid-July. For the month of August 2011, Groupon offered 110 deals and sold an average 476 vouchers per travel deal at an average cost of $182.66. LivingSocial offered 138 deals and sold an average 234 vouchers per deal at an average cost of $208.83.

That data may seem like LivingSocial.com is a higher priced site, but these are different deals on different sites and LivingSocial offered 49.4% average discount compared to Groupon’s 51.0% average discount.

The point to remember as a consumer is the average discount is 50% on either site and some deals offer even high discounts (up to 75%) while some deals are lower discounts (as low as 15% to 20%).

Groupon’s flash sale market share is 53% while LivingSocial is about 20%.

Groupon Customer Profile:

• 68% are 18 to 34 years old.
• 50% bachelor’s degree and 30% graduate degree.
• 75% work full-time.
• Single women (77% female, 49% single females).
• High salary (48% above $70,000 annual salary).

Hotelier Profile for Flash Sales

• A survey of nearly 200 hospitality firms internationally showed 42% had listed an offer on a flash-sale site.
• The survey also showed 46% have no interest in participating with a flash sale internet site.
• Flash sales are more likely to be offered by hotels with more than 150 rooms.
• Discounts had wide range from 15% to more than 75% off best available rate. 45% to 55% discount accounts for around 42% of all sales.
• 35% of offers for 1-night stays. 30% of offers for 2-night stays. 21% of offers for 3-night stays.
• Most offers were nonrefundable, but there appears to be a trend of increasing refundable purchase options like offering a credit for future purchase.
• Hotels typically paid 15% to 20% commission to the site, but some paid as much as 40% commission.
• Private sales sites charge higher commission on average than flash sales on Groupon and LivingSocial.
• Upscale 53%, upper-upscale 45%, and luxury hotels 41% are the biggest market segment users of flash sales sites.
• Branding and marketing are two main reasons for using flash sales with filling rooms as the third most cited reason. Hotels want consumers to get exposure to their name.
• TravelZoo was most used to boost hotel occupancy.
• Vacationist was most used to boost profitability. (LT note: this hotelier response sounds like Vacationist might not be the best place for hotel bargains to me.)
• 80% of deals had no minimum activation level meaning any buyer gets the deal. Most private sales sites and LivingSocial have no activation minimum requirement.
• 35% of deals had no maximum restricting the number of buyers for a deal.
• An interesting finding is most hoteliers cited “Encourage Loyalty” as the number 1 factor for using LivingSocial and number two factor for Groupon.
• LivingSocial is popular with hoteliers for its ability to upsell with offers for room upgrade or purchase additional services.
• About 25% of the deals are rated clearly successful by hoteliers. About 1 out of 3 deals hoteliers say they would not run again.
• About 70% of customers who purchase deals are new customers.
• Research shows the Flash Sales customers are not much different from the average hotel guest. These are not the bargain hunters who will not spend another penny at the hotel. Average additional hotel spending was 29% over the flash or private sales transaction with a wide range based on travel site:
• Groupon = 33% additional spending
• Hautelook = 24%
• LivingSocial = 21%
• RueLaLa = 14%
• Jetsetter = 10%
• Vacationist = 9%
• Hoteliers ranked the promotion as successful more by the number of new guests rather than additional spend at the hotel.
• Repeat business (loyalty) cited as one of the main reasons for using these sites is at odds with the data showing only 11% of customers buying hotel rooms on these sites came back to the property.
• Hoteliers who actively managed the total cost of a sale were more satisfied with their flash sales experience.

My conclusion is these sites are great for someone seeking a deal on a vacation package or hotel room. Hotels are running their own flash sales with deep discounts available with many brands in one to three day flash sales.

As always, compare rates to make sure you are at least getting the average 50% off the hotel room. The Cornell charts showed about 5% of hotel sales are greater than 65% off. Those are the hotel deals to be looking out for when you check flash sales and private sales travel offers.