“Sign up for Groupon now, uncle Dave. Bargains galore”.
With these solicitous words from my recently graduated 22 year old niece ringing in my ear, I duly headed off online to sign up for the latest deals on line.
To be fair I’d been thinking about trying to find out a bit more about ‘The Next Big Thing’ (that's website Groupon by the way ) in digital marketing for an age – as a journalist one is, after all, supposed to keep one’s finger on the digital pulse.
But that idle curiosity had turned into a nagging necessity because of rumours that Groupon is about to list on the market, with a likely market cap of at least $86 billion within a day of trading (I jest – maybe $5 billion is a tad more realistic).
More importantly quite a few contacts in the travel trade have been pointedly asking me whether I thought working with the eponymous special deals brand was worth the bother.
Given my experience with Groupon so far I’d suggest that the answer is a tentative no.
To me everyone’s favourite ‘group discount’ service is just too broad in its focus and I have a sense that for the travel trade there’s better alternatives.
In fact give Groupon’s massive success I found myself wondering whether the lower profile, US-listed Travelzoo group might be the place to spot even more interesting new trends in digital marketing.
Could the likes of Travelzoo offer a better travel based product than Groupon? The short answer seems to be yes – Travelzoo has obviously woken up to the dynamic behind Groupon and introduced two new services which are, I think, especially interesting.
Travelzoo Local is the direct challenger to Groupon but I suspect it has one advantage over its bigger, better known competition – its already selling to a community totalling 23 million online who are clearly interested in a travel deal of some form or another.
Here in the UK that subscriber list is 2.1 million strong (though I struggle to believe that anything near those numbers read the on line newsletters avidly) and even if only 2% of that subscriber list show an interest in the Local discount scheme, that’s 40,000 to 50,000 travel orientated consumers delivered straight to the end travel user.
Crucially the price points look fascinating – according to Travelzoo’s blurb “European subscribers bought $3.4 million in Local Deals during the first 45 days of the second quarter [of 2011], up 196% from the first 45 days in the first quarter of 2011.
“Travelzoo has published 78 deals in Europe so far this quarter, generating average gross revenue of $43,600 per deal, well ahead of Travelzoo’s average gross revenue per deal of $34,000 in Q1.
“Two deals in Europe in recent weeks each yielded more than $225,000 in gross revenue: A dining experience at Gordon Ramsay’s Maze in London, which holds a Michelin-star rating, sold 2,916 covers, and a getaway at a 4-star Berlin hotel generated 2,379 room nights”.
But Travelzoo is also trialling in the US a potentially more powerful product called Getaways. Again this is far from being rocket science – it’s a targeted, local offer but in this particular wrapper it’s aimed at the wealthier traveller.
According to Travelzoo’s blurb the US Getaways programme has already been trialled with “ 40 upscale resorts [that] have sold more than 28,000 incremental room nights. Travelzoo began testing the Getaways model in March; the new program alerts Travelzoo subscribers to upscale getaways within a two-hour drive or short flight from their home airport.
“Getaways typically include one or two nights at an upscale resort, with a fine-dining experience or a flexible resort credit to encourage Travelzoo subscribers to experience the resort’s full amenities”.
As with the Local Deals offer, subscribers purchase a voucher from the resort through the Travelzoo website and then book their stay directly with the property. Clearly Travelzoo is making a big deal of these two offers – more on the potential for the company later.
But for the travel sector I’d suggest that Travelzoo’s attack on the Groupon phenomena has a number of important, marketing-based takeaways. The first is that consumers, especially those that travel, love a time limited special deal.
They also love a deal that is local to them and not delivered via an aggregated national channel – for most of the travel trade that obviously means using a local travel agent on the high street, but the web is finally waking up to the potential of locality as well.
Lastly, but perhaps most importantly, we’re still not quite there on personalisation. No matter how clever Travelzoo is with its offers it can’t quite use the power of data mining to personalise – which is why the Getaways programme has the most potential.
This scheme is obviously applying a first, raw filter – it’s targeting wealthier consumers. For me the great drawback of most internet based direct marketing is that it delivers lots of the wrong sort of consumer – the one’s with little money and even less loyalty and upward mobility in terms of spend.
As a business I’d be ever so slightly worried that a successful Groupon-like campaign might deliver lots and lots of new business that isn’t sticky or replicable ie it’s not a sustainable marketing strategy, more a tactical skirmish.
Obviously if you’re targeting cashflow, there’s nothing wrong with that, but I sense that a proposition built around continuously delivering wealthier customers is one that has more power.
What would, of course, make even more sense is if the power of data mining within existing large suppliers of travel product was married to this opportunistic marketing type of campaign.
The large airlines as well Tui Travel and Thomas Cook clearly know a great deal about their customers and are clearly starting to develop new technologies that allow them to personalise product during the online booking process.
Yet what Groupon and Travelzoo show us is that many customers – rich and poor – are much more opportunistic and approach the purchase process very late in the day. They also want independent validation of an offer’s uniqueness via a brand that can deliver ‘great deals, locally’.
Quite how the travel majors work their way through this conundrum is still unclear – brands like Tui are trusted but would you trust a targeted online campaign from it telling you that it has the best local deal for a select group of consumers?
Turning to Travelzoo, I’d hazard a guess that if it can work its 23 million strong subscriber list intelligently – and grow that list – the sky could be limit if Wall Street realises that it’s overpaying for the likes of Groupon and LinkedIn.
These multi-billion dollar technology plays don’t have the segmented appeal of Travelzoo – they instead must play on the power of being the most networked player. Travelzoo’s share price has started to respond and a few weeks back shot past $100, before falling back to its current $60 level.
If we’re to believe analysts who follow the stock, that puts it on a 2011 PE of 36 (a bit toppy) and about 25 for next year – making Travelzoo that rare thing, a technology play with decent and growing cash profits.
Yet the key to future long-term success for the likes of Travelzoo is to move across platforms on to mobile devices and offer converged services where it can send out offers from its web based lists but targeted to mobile users with location based technology.
If it can succeed at this huge challenge, every travel business should then start rethinking its plans. A new travel tech paradigm might emerge that delivers targeted deals locally using location based technology to more affluent customers who’ve been chosen using data mining techniques, but all built around a time limited offer that is genuinely a great deal. No small challenge!
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