I think it's safe to say that no amount of exposing questionable numbers or pointing out pricing faults is going to eliminate daily deals from the marketing landscape.
So, now that I've made my opinions known regarding daily deals, I felt it was important for me to provide some tools to help small tourism businesses structure their deals in order to maximize their impact.
In a recent rebuttal to Rocky Agrawal's guest series on Techcrunch, the owner of a BBQ restaurant wrote about his very positive experience with Groupon.
At the end of the day, bashing daily deals is fun but doesn't really help small businesses protect themselves against making a mess of their finances.
In order to do this, tour and activity operators have to keep in mind that the business of running a scheduled fixed availability tour or attraction is quite different from the business of running a spa or restaurant.
As I outlined in my article Does the Groupon model lead tourism businesses racing for the bottom, tourism based businesses do not attract repeat customers, so they do not benefit from the argument that the daily deal is going to bring back loyal customers.
Activities generally don't offer value-adds so the customer isn't going to purchase more than the value of the coupon and, probably most importantly, tours and activities have limited inventory and are generally scheduled, which means they have to booked in advance.
Before considering a daily deal, make sure to read the agreement carefully. There is an interesting analysis of the Groupon terms and conditions available here. The advantage that tour and activity companies have over restaurants and spas is that they have the ability to manage inventory more efficiently.
Daily deals are a great opportunity to test out yield and channel management features if the reservation system supports it.
During your negotiation with the daily deal sales person, you should keep in mind that your goal should be to maximize your return on investment while reducing the impact to your administration.
Once you've had a chance to review the agreement and have checked your reservation system to make sure it supports channel & yield management, you will want to consider the following:
1. Limit inventory for deal seekers
If your reservation system has the ability to allocate specific inventory to the deal, then you should do this well in advance of the deal running, and make sure that "Limited Availability" is built into your deal terms.
For example, if you offer 15 seats you may want to allocate a maximum of 5 seats to be available for daily deal customers.
This serves to limit your exposure to 33% of your inventory on any given tour and still allows enough inventory for regular paying customers.
2. Limit redemption of your deal to slow days
Most tour and activity operators have busy days and slow days. The problem is that, like most of your customers, your deal seeker customers are probably going to want to book the tour on popular days.
Consider limiting the deal seekers to slow days or, if you want to allow deal seekers to purchase during your busy times, refer to the previous suggestion of limiting the number of seats available to deal seekers.
This is basic yield management and is a practice often done by hotels and other accommodation providers to fill rooms during slow periods. If you add this limitation, it ensures that your busy days will be filled with your highest paying customers, therefore maximizing your revenues.
3. Force deal seekers to online bookings
Make it clear that deal seekers need to use your online booking system to redeem their vouchers or book your tours. This allows you to control how the deal is redeemed and what restrictions will be applied.
For example, if the deal seekers do a search for availability and you specify that they must book a specific tour, then you can limit the number of seats they can book and the pricing that is displayed to the customer.
Limiting the deal seeker to online bookings also has the added effect of reducing your administration and reducing your costs for managing the booking. Since your revenue for deal seekers is going to be much less, it is important to find ways to reduce the human costs for managing these tours.
Even though you may pay a little more for your technology to handle the booking, the cost will always be less than the cost of a human to process the same booking.
4. Create a unique offering for deal seekers
Instead of discounting your regular tours or activities, try creating something totally different for your deal based customers. This has the effect of allowing you to determine the costs and revenues for a specific product rather cannibalizing your core products.
It also allows you to limit the bookings and availability for the specific product which guarantees that your existing products will not suffer from deal seeker overload.
The unique offering should be different enough from your regular offering to avoid confusion and to reinforce the value of the deal. When creating a deal offering like this, consider partnering with other local services to enhance the deal without increasing your costs.
For example, consider including a discounted meal at a local restaurant, free admission to a partner attraction, or a coupon for a local retailer. In this way, you can actually extend the benefits of the deal to your partners who may run a similar deal that includes your business in the future.
5. Cash equivalent versus discounted service
This is by far, my number one recommendation. Let's take the example of a sightseeing operator who offers a daily tour for 15 people. The tour is valued at $150.
If you offer your tour at a discount of 50% off and stick with the average 43% commission to the daily deal provider, then your revenue on the tour will be $42.75.
Given that the customer purchasing this voucher is not going to be a repeat customer and is not going to purchase anything beyond the value of the coupon, your revenue on this sale will be $42.75. If you change the voucher to be a fixed value voucher with a cash equivalent, for example $20 towards any tour for $10, then your revenue changes dramatically.
Using the same example, your tour is $150 - $20 = $130. Subtract the additional $4.30, which is the daily deal cut and your take on the tour is actually $125.70.
This is quite a big difference compared to $42.75. Offering the cash equivalent deal has an added benefit of not devaluing your core offering. The tour is still $150.
Companies like the Gap, Old Navy, and others have offered these cash equivalent deals so there is precedence.
If the sales person you talk to says that this is not possible, then remind them of these high profile examples. They work well because they don't limit what the customer can purchase which means that the up-sell potential is higher but they are not as good for the deal provider because the deals are smaller.
Structuring your deal this way also means not having to change your existing pricing or product offerings.
6. Be confident with your numbers
Don't let the sales person pressure you into doing a deal that doesn't work for you. For many businesses who have not been careful with their deals, only the deal provider and the customer benefit.
If you use the aforementioned suggestions for structuring your deal and stick to your requirements, then you will increase your chances of ensuring that your deal is 1) good for your business 2) great value for your customers 3) successful for the deal provider.
The overwhelming response to any daily deal cautionary post has been that businesses need to do their due diligence and plan their deals properly. Just take a look at the comments on my previous Groupon post for example.
I would argue that the hordes of daily deal sales people are not doing small business any favours by being so aggressive with their sales tactics and, therefore, it makes sense to empower small businesses to protect themselves.
Conclusion
If you are a tourism based small business or you work with small tour and activity operators, please encourage them to prepare themselves.
There is no doubt that Groupon, Living Social, and the rest of the daily deal horde will be knocking on the doors of more and more small tourism businesses.
If we help them prepare, hopefully we can reduce the number of daily deal victims we so often read about online.