SARASOTA, Fla. (April 29, 2016) – The hospitality industry will soon have two studies to help it discern whether hotel “flash sales,” those time-limited deep discounts on bookings, can really drive revenue.
For years, online sites such as Groupon and Jetsetter have offered temporary discounts to grow bookings during off-peak times. Lasting a few days or weeks, these specials can help hotels weather slow periods due to seasonality or deliver a needed jolt to the bottom line.
But are the customers who use flash sales also likely to spend big on room service, dine at hotel restaurants and visit the gift shop and spa? And do the proceeds from flash sales outweigh the costs associated with the online sites, which can run 50- to 75-percent of the booking revenue.
Dr. Katerina Berezina, assistant professor of hospitality management at USF Sarasota-Manatee, has released an article examining this hot topic and has another nearing publication.
Her study, “The managerial flash sales dash: Is there advantage or disadvantage at the finish line?” (International Journal of Hospitality Management, January 2016) delivers a careful analysis that concludes the quick discounts can drive revenue, but it’s a juggling act not suited for everyone.
For one thing, the sales can undercut bookings that normally would occur, so hotel managers must act prudently about how long to run the sales, how many rooms to set aside and whether they should be married to other discounts, say for dining and entertainment.
On the other hand, flash sales bring customers through the door, “and then they can be sold other types of services, including bundled services,” Dr. Berezina said.
“Hotels of different levels may find this helpful,” she said. “But at the same time, the deals need to be designed very carefully.”
Her 2014 study took a year to develop and involved interviews with 46 hotel managers at lodgings ranging from small independents to branded hotels and large hotel management companies.
Managers cited “seasonality” as the chief reason for turning to flash sales and noted that balancing the deals’ cost and revenue sides is a constant challenge. Not only do hotels pay commissions to the sites that broker the deals, but the rooms are advertised at heavily discounted rates to entice customers. In the end, flash sales’ rooms may generate only a quarter of their usual booking revenue.
This prompts another concern for hotel managers: Are flash sales customers even worth the trouble? Once booked into rooms, do these customers spring for additional services, or are they simply “the wrong customers” for their hotels?
Dr. Berezina draws two main conclusions: One is that booked rooms, even heavily discounted ones, are preferable to empty rooms, and the other, which she examines in detail in her second article, is that flash sales customers spend as much, if not more, than non-flash sales customers.
That article, “Hotel flash sales consumers: Who are they?” (International Journal of Revenue Management, forthcoming) concludes that flash sales customers might worry about price, but that doesn’t mean they’re averse to spending.
“It turned out the flash sales customers did not differ from other customers on price consciousness, but they differed on all other traits included in the study, having higher scores for those characteristics than regular customers,” she said.
Those traits include being “quality conscious,” being open to new experiences and, after returning to their homes, being likely to act as “market mavens,” or customers who talk up their experiences and the deals they landed. In short, flash sales customers are savvy shoppers.
Her study lasted six months and was based on surveys of 358 hotel customers, including 100 patrons of flash sales.
An assistant professor at USFSM since 2014, Dr. Berezina said she initiated the two reports out of her interest in technology, electronic distribution and revenue management. Additionally, her research found that previous little study had been devoted to flash sales’ effectiveness.
“Managers from different segments of the hotel industry suggested that flash sales may be an effective tool to increase a hotel’s exposure, raise brand awareness, sell distressed inventory and, therefore, lift up occupancy levels during difficult times,” Dr. Berezina said. “Those managers who have participated in hotel flash sales also warned the industry about the need to carefully design the deals and being mindful about the deep discounts and commissions.”