Hotel Flash Sales: Beneficial or Detrimental?

There is debate whether flash sales web sites are a blessing or a curse for the lodging industry. Blessing because these web sites alleviated the depressed demand induced by the recession. A curse because these web sites have turned into a “pac-man” draining revenues away from the lodging industry. Flash sales in the lodging industry (e.g. Groupon Getaways, LivingSocial Escapes, Jetsetter, etc.) thrived as they gobbled up unused hotel room inventory. In its first year of operation, LivingSocial Escapes, for example, featured hotel deals from about 800 properties, sold about 500,000 room nights, which corresponds to about 45,000 room nights per month, and 1,500 travelers per night. These are impressive stats for any form of a distribution channel that helps to sell perishable inventory. But, what are flash sales web sites? How do they work? And, are they beneficial or detrimental to the U.S. lodging industry?

Flash sales web sites provide a time-limited deep discount for the advance purchase of products and services. On average, most hotels that use flash sales as a means to market and distribute rooms provide a 50 percent discount. This deep discount leads to debate among managers regarding the effects that such a deep discount on rates may have on the overall performance for their hotel. Effects of notable concern on specific measures that could affect future hotel performance include: a disintegrating bottom line, the rate of return, brand equity and value, attracting the right customer mix, rate recovery efforts, and pricing strategies.

The ongoing controversy on flash sales reveals some deep suspicion on the effectiveness of discounting in pricing strategy. Should hotels discount? If yes, when, and through which media? We interviewed nearly 50 industry professionals regarding their experience with flash sales promotions. The interviews included general managers, revenue managers, and sales and marketing managers from luxury, boutique, independent, franchised hotels, and management groups from first and second tier tourism destinations across the U.S. The interview data assessment reveals common themes that will come of interest to other managers who are considering using flash sales or those who have used flash sales promotions to move inventory. The themes include advantages such as distributing and selling rooms that otherwise would not have been sold; exposure to a larger market; promotion of the property, etc. On the other hand, managers also indicated some drawbacks from the use of flash sales (i.e. misrepresentation of hotel brands, brand erosion, steep discounts and high commission costs, price parity issues, etc.).

Explicit details on the results of the study will be shared at the 2013 Club and Hotel Controllers Conference happening right now in Minneapolis. The session will provide the market landscape conditions that drove hotel managers to adopting flash sales; explain why hotels are using flash sales; reveal major themed advantages and disadvantages of using hotel flash sales; provide recommendations for what type of hotel properties flash sales seemingly benefits the most and vice versa what type of property does not seem to benefit.

Meaningful and relevant discussion at the conference can be defined by you. We would like to hear from the readers of HFTP Connect about their experience with flash sales by answering the following questions in this blog:

Thank you for reading this post and for sharing your thoughts!

Katerina Berezina, M.S., CHTP, is currently a doctoral candidate at the University of Florida. Her research interests lay in the areas of hospitality information technology, e-distribution and revenue management. In 2012-2013 Katerina serves as a Chair of the HFTP Social Media Advisory Council. She is also the Founding President of the HFTP student chapter at the University of Florida.

Kelly J. Semrad, Ph.D., is an assistant professor at the University of Florida. Her focal area of research includes the application of econometric research designs to hospitality firms in order to determine the effects of discounting on financial performance. She currently serves as an associate director for the UF Eric Friedheim Tourism Institute. She has presented more than 30 research studies in more than 15 countries at international conferences and has numerous publications and a book on discounting in the lodging industry. She serves as faculty advisor for the HFTP chapter at the University of Florida. Kelly has taught at multiple universities domestic and abroad as well as for the Walt Disney World Scholar Program.