COUPON SITES - INNKEEPERS SHARE THEIR EXPERTISE

PACKAGE CREATED
'We had a package that involved not only staying at our inn for a substantial discount but also dining in a local restaurant, going to the local farmers’ markets, ice creameries, and local vineyards,' she says. That packaged adventure led LivingSocial to invite By the Side of the Road to participate in a deal offered in April 2010. Fitzpatrick’s “Absolutely Local” packages were already selling pretty well at full price—$689 for a weekend in the three cottages and $549 for the seven main-house suites, with discounts on the other amenities through deals with local vendors—thanks to growing interest in the “eating local” gourmet food movement. But hooking that existing product into the targeted market that LivingSocial provided, in which DC residents were served up only the deals available in their region, turbocharged Fitzpatrick’s reach.
 
SUCCESS
'We had no clue going in that in 11 hours we would sell 702 two-night getaways through LivingSocial,” she says. “1400 room-nights, more than double the amount we sold in 2009.” The key factor is that LivingSocial gave her services reach among a community that had already expressed itself as educated, interested and ready to buy, simply by signing into the Washington, DC, website. “These were intelligent and informed buyers who’ve asked to see what you’re selling,” Fitzpatrick says. “That’s much different than the audience in a newspaper or for a run-of-site Web ad.” Since LivingSocial takes a portion of the transaction fee for every deal bought on its site, the promotion also allowed a very precise ROI calculation—“something that’s very significant in the world of advertising.”
And for an inn with a name as unassuming as Fitzpatrick’s, being featured for a day in LivingSocial also brought By the Side of the Road some much-needed visibility for would-be lodgers who hadn’t yet found her. “Prior to that day in April, people were finding me by going to http://www.ShenandoahValley.com, or searching Google for ‘Virginia bed and breakfast’,” she says. “Normally we get 89 hits a day to our Web site. The day of the deal, we had 5,000 unique hits to our Web site, and we have averaged 200 or more every day since then.” Google searches on the branded forms of her inn’s name have increased by 600% or more.

Finally, since users on social buying sites like LivingSocial and Groupon have to pay for the deals in full when they’re offered, By the Side of the Road was given access to a pool of advance capital that should allow Fitzpatrick and her clan to invest back into the property—something that can be hard to get from a bank these days.

But the promotion wasn’t a total success. “Five thousand people looked at our Web site, that day, but only 702 bought,” she jokes. “That made me think, ‘What are we doing wrong?’ Hopefully the others bookmarked us and will come back later.”
 
"ILoveInns has shared with me the response to their recently published newsletter, which included an article written by Brian Quinton relative to our LivingSocial sellout last April.  ILoveInns.com may wish to pursue this subject in greater detail in future newsletters, but I'm taking the opportunity to personally comment relative to individual concerns."

DON'T MISUNDERSTAND THE VALUE
"It is easy to misunderstand the value of this kind of marketing strategy.  As a "pioneer" when our Washington, DC Deal of the Day ran last April 30, 2010, we took a risk and crafted the best possible offering we could, based on available information.  LivingSocial was very supportive and helpful; at that time this kind of comprehensive package being offered on their site was brand new to them, as well."
 
BED & BREAKFAST INN AT THE FOREFRONT OF LIVINGSOCIAL ESCAPES
 
"The extremely successful sale of 702 two-night packages in a 10-hour period was unprecedented.  It helped LivingSocial to see the natural parallel between tourism marketing and their delivery system.  Subsequently, they developed a unique travel vertical called LivingSocial "Escapes".  The individual spearheading this effort has an outstanding travel background as a travel professional, as does the staff he has created for LivingSocial Escapes.  What they offer to me, is a marketing strategy for my inn that just keeps getting better."
 
"Having said so, now let me address some responses to the ILoveInns.com newsletter.  A superficial analysis of the components of our deal does not accurately reflect our experience. To compare full price to discounted price on 1400 room nights, for instance, is not meaningful, as we would have never sold 1400 full price rooms.  One of the least appreciated factors in a Livingsocial.com deal is the value of the database they have cultivated. Most merchants/innkeepers are fairly one-dimensional in their thinking about this kind of marketing. Their initial understanding says, "I'm discounting 50%, paying a commission on top of that and, in return, getting very little for my room tariff".  It's understandable that a cursory analysis might take your there. Again, that is not our experience."
 
TIPS YOU CAN USE
 
"In order to craft a profitable offering that is deeply discounted, one must carefully analyze the position of the property.  In our case we had 65% of our inventory empty.  After 12 years, our occupancy rate was averaging 30-35%, slightly below the B&B industry average of 40%.  We knew our fixed costs per room on a daily basis.  We estimated the increase in variable costs that could occur as a result of the Livingsocial deal.  We carefully calculated the maximum inventory that we were willing to offer over a specific period of time.  At the on-set our package was valid for 12 months.  We extended that period to 17 months at Livingsocial's request because the Deal was selling so fast and furious.  They were concerned about purchasers getting the booking date they desired and about we (the merchant) being overwhelmed immediately.  Livingsocial interacted with us repeatedly in a supportive role, on that very exciting day last April.  Their concern was for the guest as well as the inn."

MISTAKES YOU DON'T HAVE TO MAKE
"Currently we have redeemed more than 400 of those packages.  We have meticulously calculated every penny of income specifically because we understand that our Deal was underpriced.  That's part of being a "pioneer" on the upside of any learning curve.  DESPITE the latter, our RevPAR increased 23% for 2010.   With the first quarter of 2011 nearly passed, we will again be carefully analyzing this most important measure of profitability for our business.  While we naively did not blackout any suites or rooms, and only excluded our "high" season and one special-event weekend from the Deal, we are still able to book "full pay" guests, to further increase our bottom line."
"We carefully manage  Livingsocial versus Non-Livingsocial sales figures.  We carefully monitor deal costs; making bulk purchases that save us money because we are able to do so with the volume of pre-booked guests for which we now plan.  We proactively attempt to "upsell" these guests with emails suggesting they purchase additional amenities - rose petals, chocolate covered strawberries, etc.  Additionally we attempt to "upsell" when they are here - our Comphy Sheets, our Deneen Pottery Mugs, our personalized robes, for example.  We are more than able to cover the expense of extra housekeeping by the tips left by Livingsocial guests.  Because tipping is expected on a Livingsocial deal, we placed "gratuity" envelopes in each suite/cottage and these guests are very generous.  An added benefit is our full-pay guests are also leaving a gratuity because the envelope is in the suite."
 
CAUTION
In the meantime, we continue to receive cautionary comments from innkeepers warning inns to be extremely careful before testing the waters. Watch for more next week.

TRY WEEKDAY ONLY

By Yvonne Martin of the White Oak Inn in Ohio.

I am very concerned that many B&B owners do not understand the implications of these deals. They just hear these great stories about B&B's that get hundreds of reservations and lots of money upfront. They aren't seeing the downside and it is a big one.
If their business model has been done correctly and their room rates priced appropriately, no B&B can AFFORD to do more than a small percentage of their business at 25% to 40% of regular rates. Every business model is going to be different but I would SERIOUSLY not recommend that an established B&B offer a number of vouchers greater than 40% of their full weekend capacity.   A startup could safely do up to 60%.

Now full disclosure is that we just did a Living Social deal ourselves.   So I do have firsthand knowledge of how the process works.
We structured our deal very carefully and tried to think through all the ramifications and I still made some mistakes.

But I see many innkeepers being seduced by the big upfront dollars and throwing caution to the winds. They're not thinking about the very low profit margin in these reservations and how overwhelmed they will be with this many guests.

Not once during the process did LivingSocial question me about whether I was going to be able to handle the volume of business. Since my deal had to be "approved" I assumed that perhaps they had looked at the size of my property and were comfortable that I could. But I've noticed some smaller properties doing deals recently that I think are suicidal.  And LivingSocial has let them do them.  My fears were somewhat confirmed today when I spoke to a new sales rep at LivingSocial about how my deal went. She admitted this area of business is new to them (They've only been doing it since November)  and they are still learning from mistakes.  LivingSocial has deep pockets and can afford to make mistakes. Innkeepers can't.

When LivingSocial Guests Don’t Find Rooms on Weekends

If you have 5 or 6 rooms and do a deal that sells 500 packages, that leaves at least a couple of hundred people holding vouchers who will not be able to stay on a weekend.  A good percent of them won't even be able to get weeknights during good weather months.   So they are going to be very unhappy, both with the B&B and with LivingSocial.

The LivingSocial contract says unhappy customers will be given refunds and LivingSocial will ask for the money back from the merchant.  So what happens if the innkeeper has been stupid and spent that money on a new roof or a trip to Europe?

And even assuming the innkeeper has been smart enough to put the money in a savings account and not spend it until the guests stay, what about the negative publicity, reviews and word-of-mouth passed on by the unhappy purchasers.  What about the regular repeat FULL PAY guests who have been "shut out" of their favorite inn for a year?    Or who do get in, but talk to the other guests at breakfast and find out that almost all the other guests paid half what they did?   The B&B could lose their business permanently.

Every business model is going to be different.    But I would SERIOUSLY not recommend that an established B&B offer a number of vouchers greater than 40% of their full weekend capacity.   A startup could safely do up to 60%.