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Summary:

Groupon has made its business off selling deals that sound too good to be true: restaurant meals for half off, dirt-cheap massages and manicures, trips to the dentist for 75 percent off the regular price. This has been a boon to consumers, especially during difficult economic times.

Hotel

Groupon has made its business off selling deals that sound too good to be true: restaurant meals for half off, dirt-cheap massages and manicures, even trips to the dentist for 75 percent off the regular price. This has been a boon to consumers, especially during these difficult economic times.

With its recently launched Groupon Getaways product, Groupon is bringing the same pitch to travel. Only this time, the deals that sound too good to be true may actually be too good to be true.

While the main page features beautiful pictures of luxurious hotel rooms and sun-swept beaches that entice users to click the “Buy!” button, most come with significant restrictions.

Consider these partial restrictions from one recent deal:

  • Expires Sep 30, 2012
  • Not valid 10/21-11/6
  • Travel must be completed by 9/30/12
  • Valid only for option purchased
  • 10 day cancellation notice required or fee up to 1/2 the Groupon price may apply; on the following dates/holidays, 30-day cancellation notice required: 10/1-11/10, 11/23-11/26, 12/26-1/1, 2/10-2/14, 5/25-5/28, 7/4-7/7, 8/31-9/3
  • 12.75% occupancy tax not included

I’ve seen restrictions on Groupon Getaways that have extra cleaning fees of $175-$400, which is a significant percentage of the deal price. Some other unusual restrictions: “10% property propina not included,” “All cancelled reservations are subject to a $50 processing fee; 8-day cancellation notice required for travel from 10/17-12/20 and 15-day notice required for travel from 1/5-2/28 or fee up to Groupon price may apply,” “No Friday check-in with two-night option,” “Must book by 11/15/11 and complete travel by 1/31/12″ and “$15-per-night resort fee and 12.5% tax not included”.

Most deals also have blackout dates and availability restrictions. Blackout dates, dates when you definitely can’t use your Groupon, are disclosed up front.

“Availability” might not mean what you think it means

“Availability” is a very important restriction in the travel industry. Consumers assume that it means that if it is a room is available, they will be able to book it. That’s not what it actually means. Much like airlines, hotels divide their rooms into multiple inventory buckets. In order to use a Groupon, there must be availability in the Groupon bucket. Because of the low price that hotels receive for Groupon rooms, Groupon customers will be in one of the lowest availability buckets.

The reason that regular Groupons are so generous is that merchants are sold on the line that they can do the first deal at a loss and you will become a repeat customer. Hotels don’t buy that. To a hotel revenue manager, you’re a head in a bed. Not only must your head be profitable for a given night, it must be maximally profitable. If there’s a big convention in town and rooms are selling for $500 a night, you won’t be able to use that Groupon voucher that you bought for $100 a night.

This is especially important because Groupon Getaways works differently from most travel sites. You typically select a hotel, pick dates and then you get prices. (Which vary significantly based on the dates that you pick.) If you book, the prices are guaranteed for those dates. With Groupon, you’re not buying a specific date when you click. You’re actually buying a voucher that you may or may not be able to redeem at a later date. Think of it as buying a frequent flier voucher for a later trip.

Groupon will refund your money if you aren’t able to book the dates that you want, but for a consumer with his heart set on that trip to Jamaica, it will be a disappointment — and they’re worse off than if they never went through the process in the first place in terms of the time spent to buy the voucher, attempt to redeem and then request a refund.

Read the fine print — if you can find it

Another important difference from most hotel booking sites is that the Groupon value doesn’t include taxes, which can often be significant. Depending on the destination, length of stay and dollar value, consumers could find themselves with a bill for an extra $100 or more at checkout.

To make matters worse, Groupon Getaways puts all of this fine print on a separate tab that most users will miss.

By contrast, Groupon partner Expedia, in its own non-Groupon product, puts the significant restrictions right on the front page in a prominent position. Ironically, because ExpedianASAP requires you to select dates when you book, these restrictions don’t need to be prominent; a user would simply see no availability for those dates and wouldn’t be able to buy the deal.

LivingSocial’s Escapes product has fine print that is less prominent than Expedia’s but still on the main page.

Groupon spokeswoman Julie Mossler explained, “There’s only so much real estate on a page – you can either click one tab for the editorial description of the trip and related suggestions, or see the ‘fine print’ on the second tab. We pride ourselves on making things as clear as possible for the consumer so that they can make an educated purchase decision, and this is no exception. Things are bulleted, written in ‘plain English’ and refined for readability.”

But even Groupon’s main site has more prominent disclosure of its restrictions. I found a hotel deal on Groupon’s main site that had all of the restrictions on the front page.

My charitable description would be that Groupon designers don’t know the basics of Web design that are known to just about any competent Web designer — people don’t click on tabs. The less charitable description would be that Groupon is deliberately hiding important restrictions because they are running out of cash and need to get revenue in the door to keep the lights on.

It’s hard to figure out intent from what I can see on the site today. But it’s easy for Groupon to fix the problem and be upfront with consumers: make all of the restrictions as prominent as its partner Expedia does.

Regardless of the reason, the end result is that Groupon Getaways is generating a lot of revenue. Travel is a great category because they can get revenue in large chunks — $500-$2000, instead of the average deal of $25. According to Yipit data, in August, Getaways accounted for $9.6 million in revenue. That was roughly 8% of all of Groupon’s revenue.

Because people may be unaware of the restrictions and the nature of the hotel industry, I would expect that a lot of them will come back as refunds in the future as people to try to use them and find out that they can’t.

Rocky Agrawal is a product strategist and consultant who has been covering Groupon intensively since its IPO was announced. He is on twitter at @rakeshlobster. He previously worked on local products at Microsoft and AOL.

Image courtesy of Flickr user Love My Tour.

  1. GroupOn has great deals but still appears to be figuring out travel. Private sales don’t have to be this way which is why we created newly launched spire.com, real time booking online or via full time travel professionals, all luxury hotels, guaranteed savings and you cancel for a $29 fee 72 hours or more prior to check-in.

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  2. The NYT article today (the one attempting to resurrect the IPO) is a trial balloon some Groupon insider is floating, in a backhanded PR effort to convince Groupon’s investors (customers? maybe even employees?) that they’ll remain solvent.

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  3. Travelocity has great deals and their daily deal is called dashing deals. I’ve found really great deals and there are no vouchers so its really cool.
    You get nice upper rooms and added items you have to pay for.
    Great way to find a deal

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  4. Only so much real estate on a page? Is she freaking kidding? Has she ever scrolled down or used the page scroll bar? Talk about the weakest excuse in the history of flim flam men.

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  5. It is worse than that. I am always leary of travel deals — for example, two for one airline tickets where the one you buy must be undiscounted coach so that it costs twice that of a “normal” ticket.

    So I saw a hotel deal that sounded interesting and I went to check it out. I found two things. First, the reviews on a travel site were full of complaints, such as ‘the pictures shown aren’t representative of the property’. Second, the discounted currently available price on a regular travel site was a few dollars less than Groupon. Yes, the stated Groupon discount was actually off the rack room price, not the actual selling price.

    I unsubscribed from the travel newsletter.

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  6. Gotta read the fine print!

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  7. fine print? who cares!

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  8. I disagree that Mr. Agrawal is “product strategist and consultant who has been covering Groupon intensively since its IPO was announced.” Mr. Agrawal is a on mission to destroy Groupon. He may be right to point out the many flaws he perceives in Groupon. However, he should not be confused with an analyst or writer who is simply “covering” the company.

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    1. you must work for those crooks

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  9. Yes, it’s extremely important to read the fine print. I’ve gotten some great deals on Groupon, but have passed on most of their offerings after reading closely. Did you know you can get a 6.4% cash rebate for your Groupon purchases if you click thru from http://www.myfrugalfriend.com? Makes the deals even sweeter!

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  10. When looking at this from a Hotel point-of-View it is clear that the Importance of collaboration between Revenue Management and Sales is Key in this case. True; Revenue Managers will Optimize their Revenues no matter what and will not allow a ‘Groupon’(or any other for that matter) price value stay at their premium periods; however they also have the best insight of when these guests will be most likely to get a ‘Yes’ to their stay request. Sales might opt for Groupon participation to obtain the vast amount of publicity that comes with it. And whilst safeguarding your Image and ‘Value’ in a guest’s eyes is important Groupon can be used as a tool to reach those guests you rely on in specific periods. My suggestion would be to offer a deal to be redeemed in a short time- period (provided Groupon allows this) rather than for example 3 months or a whole season. This will increase the times you can say ‘Yes’ to a Guest, thus increase Guest satisfaction on the special and possibly lead to a returning Guest.

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  11. I had the misfortune of using Groupon. Twice. The first time, it was for a home cleaning from a company that actually didn’t exist. They answered no phone calls or emails. The second was for a cruise that I was unable to take because of fine print restrictions. They still took my money in both cases. Some fundamentals do not change, if something sounds too good to be true, it usually is.

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  12. I haven’t seen a deal on groupon yet all the prices are the same as the business regular prices or specials minus the restrictions and availability

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