Is Deep Discounting Hurting More than Your Bottom Line?
Should Campground Operators Continue to Participate in Discount Clubs?
Booking Camper Nights at Any Cost
Do you know what Deep Discounts Really Cost You?
There is a commercial that runs on TV in Southern California that drives me crazy. It’s a personal injury attorney who claims that he can “get you back”. For purposes of discussion, let’s call him Tony A. Walker. The advertisement presents a series of former clients who claim …..”Tony A Walker got me $250,000”, or “Tony A Walker got me $500,000” The ad then goes on to imply that if you have even the smallest injury, this personal injury attorney can turn your injury into free money.
So the thought hit me…….Hey, if these attorneys are spending hundreds of thousands of dollars building their name on TV so that everyone thinks of them when they have a slight injury, why not see if they would simultaneously promote your campground and they might even promote you for free…… Here is how the ad might work …. “if you like camping, stay at XYZ Campground. Then if you get injured, call Tony A Walker”.
Now before you think Gary has lost his mind, consider these arguments:
The ad probably won’t cost you anything.
It will get broad exposure.
It might drive more guests into your park.
It helps you market to consumers who are looking to get something for free.
If you get sued, who cares, the insurance company pays for it.
If it dilutes your brand and guest loyalty over time, who cares, it’s bringing in camper nights NOW.
Isn’t that similar to what many parks are doing when they provide deep discounts to guests who belong to someone else’s club?
The clubs promote your campground for free.
You get broad exposure.
They claim to drive more guests into your park.
They help you market to consumers who are looking to get something for free.
They claim the program doesn’t cost you anything because it uses unsold inventory.
If the program dilutes the perceived value of your services over time, who cares, ……it’s bringing in camper nights NOW.
There are quite a few theoretical problems with club discounting, especially the 50% clubs which I refer to as “deep discount” clubs:
First, very few campgrounds measure how many guests would have otherwise stayed in their park without the deep discount. Many operators have experienced the scenario where walk-in guests thumb through various discount cards looking for the highest discount……”do you take this club, do you take that club”, working their way down from the highest discount until they find one you will accept …….
NEWSFLASH…. You would have had those guest anyway whether you offered a deep discount or not.
The value of all discount programs really should be measured in terms of the total discounts cost (reduced revenue) vs. how much true incremental business the programs actually generate. To do that, you have to measure how many new guests were actually driven to you by the program and. how many guests would have stayed with you anyway. If half of your guests receiving a discount would have stayed in the park anyway, the cost of acquiring each new discount customer doubles; meaning the cost of acquiring each new 50% discount customer becomes 100% because you are also granting the discount to existing customers. If 75% of your guests receiving the deep discount would have stayed in the park anyway, the cost of attracting each new 50% discount customer becomes 150% of the original rack rate for that site. That means you are giving away the site for free, plus paying an additional 50%, and you are also paying utilities and other variable costs associated with that site.
The second problem - By granting discounts to guests who belong to a club, you give up a certain amount of control over the timing of when the discount is issued. Oh sure, you can set your policies to only allow deep discounts during mid-week or during certain seasons, but once you select the eligible time period, you generally have to honor the discount whether the park needs the additional business or not. If your mid-week is nearly full because of some local event, you are likely still granting a certain number of deep discounts because you committed to do so. Many operators are now looking for ways to drive guest traffic to their park when they need it rather than using the shotgun approach of offering discounts to everybody during certain periods of time.
The third problem – What about your loyal guests who don’t belong to a club? Do you reward them too? A guest who stays with you twice a month is much more valuable to you than a new guest receiving a 50% discount. Yet, many parks actually charge their highest rates to their most loyal guests. Doesn’t that drive your loyal customers to join these clubs and become loyal to someone else because you haven’t treated them special?
The biggest problem is the damage these discounts cause to your brand and perceived value of you site night. From a philosophical standpoint, why would you deeply discount your inventory and your brand in return for loyalty to someone other than you? Doesn’t that tell your guests that your prices are not worth your normal rack rates? Doesn’t deep discounting undermine the revenue of your existing loyal customer base? For example, assume a guest makes a 3 night reservation during mid-week of your off-season and receives a 50% discount for all three nights. He tells 3 of his neighbors (who are your loyal guests) that he joined club X and paid for his membership fee through the first 2 discounted nights of stay. So then your 3 loyal guests also join the club and each of them convinces 3 other guests to join the club and so on. Pretty soon, the majority of your loyal guests belong to these clubs and most of your customer base is now hounding you for discounts during all seasons. But who cares? As long as you believe the deep discount clubs are driving more camper nights NOW, it doesn’t matter what it costs or what it does to your loyal customer base. Right?
In the spirit of fairness, the following are arguments I have heard in favor of deep discounting:
1) The discount clubs claim their programs do not cost you anything because they simply utilize site nights that would otherwise remain unsold.
2) Some newer campgrounds argue that they need deep discount programs to build their customer base.
3) Some campgrounds treat discounting as advertising. They claim the promotion received in the club publications is comparable to paid advertising.
However, there are several flaws in these arguments.
Deep discounts use site nights that are otherwise unsold: The argument claiming the program does not cost you anything (because it uses unsold sites) does not consider the cost of discounting reservations that would have otherwise generate full value or the cost of loosing your loyal repeat customers to the discount clubs.
Deep discounts help new parks build a customer base: If you are a new park, do you really want to create a large base of customers out of guests that are trained to look for deep discounts? If you are a mature park, do you really want to convert more and more of your customer base into deep discount customers?
Deep discounting is just another form of advertising: The flaw with this argument is that the total cost of the program could be much greater than simply buying advertising, especially if you discount a large percentage of reservations that would otherwise stay with you anyway. The true cost of deep discounting includes the cost of loosing existing loyal full price guests as they convert to discount guests (i.e., guests who want the discount over and over and over).
So what conclusions can we draw?
As a system provider servicing nearly a thousand campground businesses, we continually have the opportunity to discuss various issues and best practices with our customers and our knowledge and conclusions continually evolves from these discussions. Obviously, there are strong opinions in the industry regarding deep discounting. Many believe deep discounting is generally bad for your brand and bad for the industry. However, others don’t seem to have a problem with it and each park must make its own decision as to whether deep discounting (or any club discounting for that matter) makes sense for them. What we can do is present some concepts for you to consider in evaluating your discount and promotional programs and policies.
1) Understand that deep discounting will dilute your brand value. Whether it’s a slight dilution or a significant dilution depends on the policies that you create around your discount program. The more times the discount is available (and the longer the allowable length of time), the more significant the dilution becomes. Each loyal customer who converts to a discount club member results in a significant dilution of your goodwill and ultimately the value of your business.
2) Measure, measure, measure! You cannot make informed decisions or evaluate your policies around discounting and other promotional programs unless you have good data to compare program cost to program benefits. Many operators measure the new business driven by advertising or promotion programs, but fewer operators measure the cost and benefits of discount programs. Make sure you measure how many new customers each type of discount program actually drives to your business and exclude discounts offered to repeat customers or walk in customers who would have stayed with you anyway. Then compare the value of the actual new customers to the total cost of discount issued (including the cost of discounts issued to customers who would have stayed with you anyway). To accumulate costs, you might set-up separate general ledger accounts in your reservation system for each discount type offered so that you have that information readily available when you need it.
3) If you decide to participate in a deep discount program, limit your cost by limiting the number of consecutive days that the discount can apply. For example, if you limit a 50% discount to one specific day of the week and your reservations average 3 days, you just reduced the discount cost from 50% to 16.67% (or 1/3 of the 50% discount rate because the other two days are at full rates).
4) Look for new ways to attract new guests without undermining your rate structure (and thereby undermining the value of your business). Create special offers and promotions that don’t blatantly discount your rack rate. For example: use your advertising or email campaigns to offer specials such as “Stay 3 days mid-weak for $”, or “Stay 3 days during this period and receive free tickets to X”. Provide promotional codes or certificates in your email, advertising or web page so that you are not offering the discount to everybody. Note that creating special pricing promotions through multi-day packages preserves the integrity of your daily rack rates.
5) Look for ways to reward your loyal guests in ways other than direct discounting. For example, you could issue convenience store coupons equal to some percentage of the reservation, and increase the value issued as the guest returns more often. Because your cost of convenience store purchases is less than the retail price, your certificates will be perceived as more valuable than the actual cost you incur.
6) Look for ways to convert discount costs into loyalty programs. The larger brands such as KOA and Yogi are creating loyalty programs to reward their guests for repeat visits to their brands. Loyalty programs have been proven to be very effective in building repeat visits at a cost that is typically less than even the 10% discount programs. However, loyalty programs are expensive to set-up and are difficult for individual or small groups of properties to manage. They also require some sort of integration with your property management system to be efficient. As Hercules continues to be broadly adopted, we are creating a foundation that will ultimately allow individually owned parks to create alliances or virtual loyalty groups with other parks that would allow small operators to operate programs comparable to those of the bigger chains. In the meantime, you might consider offering specials or packages that increasingly reward your guests for repeated visits, as an alternative to deep discounting to your existing customer base.
In summary, I believe some of the programs that exist today have outlived their usefulness, provide questionable value and potentially damage the health of the entire industry. Prior to the internet, directories and clubs were the primary channels available to market to consumers, and the directories and clubs controlled somewhat of a monopoly on consumer access. However, the internet has created the opportunity to think differently and market more effectively, but old marketing habits die hard. Everyone knows the owners of the deep discount clubs are primarily concerned with one thing….. that is, selling more club memberships and influencing consumer thinking where more and more consumers expect you to discount your inventory. If we keep buying into such programs in a big way, we increasingly train all consumers to only look for lower prices, question the value of the services we provide, and then we wonder why our profitability and the value of our business declines.