Permission Marketing: Transitioning from E-Commerce to We-Commerce

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March 31, 2011
Marketing
Michael L. Kasavana, Ph.D., NCE, CHTP - kasavana@msu.edu

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The field of e-marketing is filled with complex terminology and inventive applications. There is everything from search engine marketing that involves clickable Website hyperlinks, to black hat marketing that relies on deceptive tactics to drive Web traffic, to geomarketing focused on local demographics, to affiliate marketing built on sales leads from online partners, to interruption marketing based on intrusive methodology. However, there is a leading growth area in hospitality online marketing termed permission marketing and it is rapidly evolving. While permission marketing has existed for several years, it only recently began to play a significant role in the hospitality industry. The functionality of customer relationship management (CRM) is transitioning from personalized offerings to time-limited deals (flash sales) and negotiated member transactions (group buying). While permission marketing is unique in that it involves solicitation of consumer consent to distribute promotional materials, it now has taken an added dimension with the ability to integrate with online social networks. A consumer who opts in ensures hospitality management of a more motivated recipient while creating a platform for a highly focused e-marketing campaign.

The hospitality industry is changing marketing strategies, realizing that many in the marketplace (Generations X, Y and P) have grown up using technology at an unprecedented pace. E-mail, text messaging, video streaming, digital signage, near-field communications, RFID and social media have set the groundwork for more interactivity between a hospitality business and its guests. Consider the widely reported success of a recent promotion on Facebook by Outback Steakhouse. The foodservice operator offered a free coupon for its signature item (Bloomin’ Onion) to anyone signing up as a “friend” on the Outback Facebook page. The offer netted the company 200,000 new friends in a seven-day period. Through this process, Outback was able to capture its friends’ e-mail addresses (establishing a pipeline) for on-going company promotions to an aggregated database of interested patrons. Basically, the Facebook friends promotion caused the visitors to opt in, thereby allowing the company permission to market various materials to a qualified audience. Many other social network-based Websites offer similar opportunities within the hospitality channel.

Alternatively, there are other forms of e-marketing. The basic concept of flash sales and group buying clubs is equivalent to an offline situation in which several buyers get together and negotiate a discounted price on goods and/or services with a retailer. As long as everyone in the group agrees to purchase the same good or service at the same time, then the retailer perceives the volume sufficient to offer a discounted price per transaction. In essence, the aggregation of buyers functions similar to a cooperative purchasing group or buying agency. When this formation occurs online, then the business model can be described as shifting from a basic e-commerce relationship (one-to-one) to a we-commerce relationship (many-to-one). With we-commerce, purchasers benefit from a negotiated lower price while the retailer gains increased sales. By design, social networking fosters viral activity and therefore is often difficult to effectively serve as a marketing tool. There simply is no easy way to measure return on investment or sales activity impact. Over the past decade more than 120 we-commerce sites have emerged in the United States; in excess of 500 worldwide. As well-known author Derek Gordon wrote in a recent article on prognostications for MediaPost.com, “Prediction No. 1: Look for a whole range of we-commerce applications and Web services in 2011.”

With a majority of we-commerce sites featuring promotions for hospitality businesses, there is much concern that hotels and restaurants may not always benefit from the exposure and price dilution inherent in third-party assisted permission marketing models.

Permission Marketing
Permission marketing (PM), often labeled social marketing, requires that the prospective customer provide explicit approval (opt in) to a hospitality entity to send promotional messages, discount e-coupons and/or rewards via e-mail. For example, assume a group of resort guests signs up to receive promotion materials from the property’s marketing department. The resort thereby has permission to provide sales information to a targeted group of loyal (familiar) guests. The motivation for Web-based permission marketing (often referred to as flash sales) may well be the failure of direct mail relying on unsolicited promotional messages. Permission marketing can be accomplished by an individual hospitality property (kelloggcenter.com, atlantishotel.com, etc.), chain or affiliated properties (omnihotels.com, hilton.com), or a third-party entity (groupon.com, snique.com, livingsocial.com).

Inbox Awareness
Permission marketing has proven to be a highly efficient target marketing approach that begins with the hospitality firm, or third party, requesting the consumer to pre-approve receipt of relevant promotional messages. Industry experts claim that opt-in marketing campaigns often experience a comparatively high rate of success (5 percent to 20 percent). Since promotional materials and e-coupons are delivered directly to the consumer’s inbox, they receive superior attention to alternate forms of marketing (mailings, Website promotions, search engine marketing, banner advertisements, broadcast e-mailing). Additionally, permission marketing is characterized by comparatively low costs of marketer-to-consumer communications while providing comprehensive metrics enabling rapid evaluation and modifications, if needed, to ongoing campaigns. 

Opting In
There are two forms of permission marketing: explicit permission and implicit permission. Explicit permission describes the situation in which the consumer responds favorably to a query relative to a special membership, or newsletter subscription, offered by a hospitality firm or third-party entity associated with distribution of special sales, discounts or promotional materials. Giving prior approval to dispense e-mail announcements and special programs renders the recipient much more receptive to the communiqué. Implicit permission is different in that approval is gained when a consumer responds to a general question posed during a seemingly unrelated procedure. For example, while completing an online hotel or restaurant reservation script, the guest may be asked “Would you like to receive exclusive special offers and discounts from us in the future?” with a default setting of yes. To decline permission to receive such offerings in this case, the guest would have to un-check the box beside the yes response. In either case, permission marketing hinges on the guest opting in to create a focused, target market possessing a high degree of information receptivity.

Opting Out
While some customers might opt in to permission marketing campaigns, at some point they may elect to quit  receiving and opt out. When this occurs the hospitality firm should remove the guest’s contact information from its e-mail listserv. Following opting out, the guest should only receive intrusive marketing materials from the firm. Much of the reluctance from the consumer side with permission marketing is the feeling many fear that once they opt in it is a lifelong decision. As a result, many firms have initiated renewal campaigns that require routine renewals to maintain opt-in member status. The initially granted approval in an e-marketing campaign is not forever. A guest may have opted in for specific information, but once the relevant information is received, subsequent messages may become bothersome as the need no longer applies. For example, a traveler seeking a particular brand of lodging in a major city may no longer have interest in that lodging company or city once travel is complete. Remaining on the company’s e-mail distribution list may shift the marketing platform from permission marketing to intrusion marketing and therefore an opt-out option becomes very appealing. Similarly, the message provided by the hospitality business to the guest may not have satisfied the guest’s original query, and therefore the guest may no longer have an interest in continuing the relationship from the start. With flash sales and group buying opportunities which tend to be focused on local geographical areas, there may be a greater need to offer opt out opportunities to enrolled members. In any case, effective permission marketing should be viewed as a relationship that requires routine maintenance and renewal/non-renewal options.

PM Characteristics
Permission marketing involves the marketing activities with the express consent of the consumer, thus making it unique. The consumer agrees to receive offers and promotions which significantly increases the likelihood that a message will successfully reach its intended recipient and action will be taken. PM discounts and rewards are distributed to a targeted e-mail audience with a very high-impact and lower operating cost than traditional marketing techniques. Since the consumer has indicated areas of importance in products and/or services, the distributed message will closely parallel these interests. In this regard, the distribution methodology associated with PM can be classified as push technology where the consumer authorized the communiqué versus pull technology where the consumer visits a Website, searches for desired content, then gains access or downloads the information.

An effective PM strategy can create a powerful one-to-one customer relationship that is often the goal of an e-marketing program. Such a relationship helps clarify meaningful channels and choices for the consumer while providing a more efficient use of consumer time. We-marketing operates similarly but involves enlisting and profiling multiple consumers in a many-to-one format and providing them relevant content. From the business perspective, PM techniques provide an ability to track company or partner Website activity and to initiate additional marketing activities on the fly.
 
PM Sequencing
Requesting permission prior to e-mailing promotional materials, special event pricing, affinity rewards and related discounts and opportunities is the result of enrollment and profiling of the consumer. Once the consumer’s interest areas are identified, the flow of targeted promotions can be relayed for action.

PM Models
Regardless of how a permission marketing campaign is implemented, its impact is predicated on establishing a connection with the consumer (potential guest). There are three popular permission marketing models applied in the hospitality channel: 1.) direct relationship marketing, 2.) portal partnership marketing and 3.) advertising marketplace. It is important to note that the degree of permission intensity is the primary differentiator among these models. Permission intensity is defined as the degree to which a consumer empowers a marketer in the communication network. Consumer interest tends to be the most critical dependent variable influencing the degree of participation exercised in response to the marketing message. As researchers have confirmed, consumer interest is positively affected by message relevance (interest) and monetary benefit (discounting), and negatively affected by complex information (non-intuitive) and privacy risk (confidentiality).

For example, compare these two scenarios: first, a guest provides an all-suites hotel company with an e-mail address while completing her online reservation script. Without thinking much about it, the guest overlooks a check box with a default setting authorizing the hotel company to e-mail promotional materials to the guest via e-mail in the future. Second scenari assume the guest completes a detailed information script consisting of a survey instrument requesting favored travel destinations, room preferences, recreational activities and food and beverage interests. The completion of this form enables the hotel company or third-party entity to distribute targeted promotional materials based on specified location and other factors. In the second scenario the guest has provided a much broader and deeper amount of data that translates into a higher level of permission intensity. To be successful, permission marketing campaigns have to assure the consumer that the process is under her control and that subsequent transmissions will be of high importance.

Direct Relationship Model. A straight-forward relationship is established directly between the guest and hospitality firm. In this model, the guest requests promotional alerts from the hospitality property. The ongoing relationship between the guest and the hotel, restaurant, club or casino involves a low level of permission intensity. Direct relationship modeling has become a very effective marketing strategy across all aspects of the hospitality landscape.

Portal Partnership Model. Under this model the guest provides permission to a social media Website (i.e. portal) and its associated business partners. The portal operates as an intermediary and draws from its partners relevant materials responsive to specified interests of the guest. Guests who opt in to the portal will be qualified to receive a variety of promotional materials from multiple hospitality entities. The permission intensity associated with portal partnerships tends to be higher than a direct relationship model but less than that encountered in an infomediary model. See figure 3.

Advertising Marketplace Model. While still not a popular model within the  hospitality industry, the advertising marketplace model involves guests providing an infomediary (i.e. specialized Website) with preference and interest data for interchange with associated hospitality businesses. The infomediary uses guest- provided data to identify relevant product or service suppliers and often geographic zones. The promotional materials provided by the hospitality firms participating in an advertising marketplace model are carefully targeted to the guest’s profile and locale. The infomediary is paid a commission as a result of facilitating supply and demand. Although moving higher on the hospitality preference list, this is a model that involves a high level of permission intensity and often a low level of profitability. See figure 4.

The advertising models may also differ in terms of how the consumer/guest is able to opt in or opt out relative to when permission is authorized. To opt in refers to the consumer explicitly giving consent to an entity to send promotional materials in advance of the distribution. This is not the case with an opt out. When the guest elects to opt out, generally it is after the firm, portal or infomediary has already initiated contact and then provides the guest the opportunity to decline to receive future messages. It is for this reason that the direct relationship permission model is probably the most effective format as it enables the guest to transact directly with the source entity from the start. Recently, there has been an explosion in the number of portal businesses interacting with the hospitality industry (linked through Facebook and Twitter). To date the advertising market model, which relies on an infomediary, has not evolved as quickly, but this may change as flash sales and group buying sites become more aggressive in market presence for hotels, restaurants, clubs and casinos. 

We-Commerce
Regardless of which permission marketing model is invoked, flash sales and group buying sales typically involve time-based couponing for inventory items (goods and services) that need to be moved in rapid fashion, often labeled as distressed inventory. Some industry observers claim that as a result of the current economic recession we-commerce sites (portal partnerships and advertising marketplace participant sites) have emerged as significant marketing forces specializing in flash sales and group buying campaigns.

Flash Sales.  Online sale offering short-term discounted prices, may be open sale or available to members only (member being anyone who enrolls or is part of an authorized partnership).?Sales can feature anything from products to services or food to hotel rooms.?The flash part of the sale is that the sales are usually available for a duration of only one to three days, and an assumption that the best products and services are likely to sell out even more quickly. As flash sale formats expand, many hospitality companies are adding them to their marketing strategies. From a business perspective, the main advantages of flash sales are the potential for a quick increase in sales and brand exposure. Disadvantages focus on price discounting and the ability to handle incremental volume increases. As an example, a small eatery that sells an extremely large number of food item discount certificates may be hard pressed to accommodate the traffic and transactions.

Group Buying Sales. Like flash sales, group buying is a specialized form of permission marketing that also originates with member registration as proof of permission to receive select offerings and promotions. As a member of a Website group, the participant opts in for unparalleled opportunities, including access to flash sales as well as group buying sites. With more than 120 candidate we-commerce Websites, three leading firms are impacting the hospitality industry: groupon.com, livingsocial.com and sniqeaway.com. A mobile application for smart phones, topguest.com, is also included since that format represents a near future trend.

Groupon.com presents daily discount coupon deals for local stores, eateries and services, and uses collective buying power (we-commerce) to sell coupons for 50 percent to 90 percent off list prices for goods and services. Unique deals are offered each week day through e-mail, Facebook and Twitter. Members sign up for deals of interest and once a minimum number of deals is achieved, the user is sent an e-mail with a link to a printable savings certificate or digital image for presentation via an iPhone®. The key is that the coupon is valid only if a threshold number of members purchase it. If not, no one is charged and the deal is canceled. Groupon.com operates in more than 300 marketplaces and has sold more than 19 million coupons since its launch in November 2008. With more than 20 million subscribers, AH&LA has labeled groupon.com the premier online resource for leveraging collective buying power.

Like other social buying sites, livingsocial.com members receive daily deals, discounted by 50 percent or more, based on specified interests for local restaurants, bars, salons, spas, theaters and more. The company’s mission is to add surprise to every calendar. Operating sites in more than 52 U.S. cities, livingsocial.com is the second largest group buying site, but claims to be the fastest-growing company in the social-buying category. LivingSocial involves a real-time, auction-style exchange of local offers from retailers in a marketplace. LivingSocial takes a somewhat different approach to the group-buying market than Groupon does. LivingSocial fields a local sales force in every city in which it does business and it develops an affiliation with media outlets. For example, LivingSocial has a relationship with the Washington Post where the newspaper uses its local reach to publicize the company’s latest deals to its readers.

Sniqueaway.com is a free, members-only private sale site providing exclusive access to deals at luxury hotels at deeply discounted rates, but unlike many other we-commerce sites, membership is by invitation only. The site is sponsored by TripAdvisor. Each lodging property listed has earned a minimum of a four-star rating and a four out of five review rating on TripAdvisor. SniqueAway counts on its members to tempt friends to SniqueAway. For every invited friend who books a SniqueAway Escape, members receive a $25 credit. Corresponding hotel reviews are shown alongside limited-time, members-only offers, providing quick insight into how other travelers view the hotel, and making it easy to book a room. The company boasts the simplicity of Website operations in a series of steps: look, book, save and rave. SniqueAway is part of Smarter Travel Media—a TripAdvisor Media Group company.

Topguest.com is a downloadable application for the iPhone and Android mobile phones that works automatically with Facebook Places and Foursquare. The guest installs the application on a mobile device, checks in with Facebook Places or Foursquare, then Topguest awards points and promotions based on venues visited by the guest. This Web-based service works with established partner hotels (Holiday Inn, Standard Hotel, Quality Inn), as well as revenue centers within the properties to incentivize guests and reward travel experiences.

We-Marketing Concepts
Flash sales involve a variety of couponing formats. Recently, coupons.com reported that the sale of digital coupons grew in excess of 100 percent in the last 12 months, exceeding $1 billion in savings. Much of this increase was attributed to flash sales and group buying sites. The success of sales depends on the supplier’s Website’s ability to conduct click streaming maneuvers, monitor weblog activities, and apply cookies.

  • Click streaming is the process of collecting, analyzing and reporting aggregate data about Web pages visited (and in which order). This data defines the data flow. There are two levels of click stream analysis: traffic and we-commerce analysis. Traffic analysis operates at the server level by collecting click stream data related to the path the user takes when navigating through a Website. It tracks how much data is transmitted before a user leaves the site. We-commerce-based analysis uses click stream data to determine the effectiveness of a current promotion as a channel-to-market is quantified by the visitor’s behavior at the site. It correlates pages visited with deposits to a shopping cart.
  • A weblog file is created on a host server and tracks page visits, duration and purchase behavior of unique Website visitors. The weblog functions similar to an online diary or automated audit trail and is a comprehensive recordation of Website navigations.
  • Cookies are text files created upon Website visits, stored on users’ PCs and used to customize the site upon return. Websites rely on cookies to store preference and transaction data that can be applied by a browser to a pending Website. Cookies also hold additional data, such as session tracking credentials, which the browser presents to the Website upon subsequent hits. If a Website does not manage cookies properly, the usability of the site may be impacted.

Major Considerations
There is much debate whether hospitality businesses should participate in flash sale or group buying sites since financial modeling usually does not favor profitability. Since we-commerce Websites tend to charge fees ranging from 35 percent to 50 percent of the price posted, there may not be much room for hotels and restaurants to earn a reasonable contribution margin. Often a business is required to price its goods and services near 70 percent off retail rates to qualify for a featured promotional campaign.

Despite the increasing popularity of we-commerce sites, hotelmarketing.com cites a recent study indicating that 40 percent of firms that transacted business deals through a top group buying site (groupon.com) stated they were not likely to use the service again. Furthermore, in analyzing the site’s business model, hotelmarketing.com noted that too many featured deals experience an additional reduction in price (30 percent to 50 percent) thereby decreasing the hospitality business share of revenue even further. Consider a hotel offering a standard room at a $100 rack rate. To post it on a group buying site, hotel management agrees to post it for a $50 nightly rate. Given that the standard split is 50-50 with the deal Website, the hotel will receive less than $25 for its $100 room after processing costs are deducted. Should the hotel have interest in being a featured deal at the site, it is possible that the posted rate may be $35 (an additional 30 percent discount) and the hotel would recoup less than $17 for the room.
Most hospitality businesses are typically not able to sustain such small margins. While the deal may provide the hotel a boost in exposure, it may also result in brand dilution (deep discounting). Despite such trepidations, a group buying site could be advantageous for some properties during exceptionally slow times when there is a high level of distressed inventory. Some revenue may be better than no revenue.

With respect to restaurants and we-commerce sites, rashmisinha.com highlights several potential dilemmas. Rashmisinha.com relates problems for guest reservations (guests with coupons frequently are offered non-prime reservation times) and selected menu item discounts (price reductions might only apply to undesirable portions of the menu) as well as the cannibalization of sales (guests receiving discounts for food they would purchase anyway). In summary, rashmisinha.com states the problem with group buying sites is that they invert the business-client relationship. In most business transactions the consumer first identifies a desired product or service and then uses an online shopping or price comparison engine to locate the retailer with the best price. With we-commerce sites, the process is reversed since deals are posted that invite the consumer to buy something that he/she may not need or want but are influenced by a price incentive. Additionally, a large number of purchasers may lead to the business (restaurant) being overwhelmed and thereby treating guests with coupons as second class patrons unable to accommodate them comfortably.

Other critiques of we-commerce sites include the failure of the site to provide the e-mail addresses of consumers purchasing the deal to the hospitality business for future independent marketing campaigns as well as an ability to limit the number of deals that can be sold at a maximum. With most group buying sites, the business must establish a minimum threshold for the deal to go forward, but is unable to set a maximum. As more we-commerce sites emerge there will likely be a greater pressure on the hospitality industry to offer even greater price discounts to remain competitive. The two questions that continue to haunt the industry are: can a firm build a profitable business through discounting and will deal-driven customers become long-term, loyal guests?

Summary
Permission marketing is consumer driven and quickly becoming a preferred strategy within the hospitality industry. The integration of social networks and group buying sites has contributed to the rapid transition from e-commerce markets to a we-commerce environment. In a recent development, Walmart joined the frey through a Facebook offering called CrowdSaver. The Walmart model works similar to groupon.com and livingsocial.com in that if enough consumers click the like button on a proposed discount, Walmart will offer the deal. If not, then the deal is not implemented. Given the tremendous reach of Walmart, all other we-commerce group buying sites may need to be highly innovative to remain competitive.

Michael Kasavana, PH.D., NCE, CHTP, is a NAMA professor in Hospitality Business for the School of Hospitality Business at the Michigan State University. He can be reached at kasavana@msu.edu.

©2011 Hospitality Upgrade
This work may not be reprinted, redistributed or repurposed without written consent.
For permission requests, call 678.802.5302 or email info@hospitalityupgrade.com.

 

Restaurant.com - How it Works!
An industry segment offered by coupons.com is restaurant.com. A membership sign up enables participants to gain exclusive access to members-only savings, rewards and special promotions. Members access coupons and discounted gift certificates as well as specials and promotional items from linked online business partners (lobstergram.com, lacensebeef.com, mrsfieldsgifts.com, thefruitcompany.com.) Restaurant search results can be filtered by the following criteria: cuisine, city, average entrée price, meals served, atmosphere, gift certificate denominations, special features, entertainment, parking availability, attire, payment types, and banquet facilities.  


Groupon.com - How it Works!
Each day Groupon broadcasts an e-mail to members with a deal of the day targeted in a geographic marketing area. The deal consists of a discounted (at least 50 percent) price on the best stuff to do, see, eat and buy on a local level.?Groupon and retailers establish a minimum threshold sales quantity so that if an insufficient number of deals are sold, the offer is defunct. Reaching the threshold number of sales means the buyer does not pay until the threshold is achieved. All deals are accompanied by a set of conditions for use as well as an expiration date. Hence, Groupon is a four-step process: 1.) Groupon negotiates with retailers to offer discounted deals; 2.) Groupon promotes deals to members via online marketing channel; 3.) A number of deals sold must exceed threshold sales level; and 4.) Groupon sells coupons to customers and splits revenues with retailers. Since Groupon members can suggest and petition to have new firms join the network, part of Groupon’s business model is to convince consumers that the incentive is sufficient to lead to a purchase decision. For each deal purchased the member receives a reward (the currency is in Gs) and early purchasers often receiving bonus Gs. Groupon sells retailers on the fact while many coupons may be purchased on an impulse basis, a significant percent (10 percent to 20 percent) of the coupons will likely not be redeemed. Groupon retains 50 percent of the dollar amount of the deal price plus processing costs (credit/debit card fees).?So a $100 hotel coupon may sell for $50 with the hotel receiving less than $25 from the coupon sale. Such small margins have caused much speculation in the hospitality e-marketing literature. Forbes estimated that Groupon revenues in 2010 were between $350- $500 million with 33 million members and 440,000 deals sold in more than 100 cities. Groupon is integrated with Facebook and Twitter, so no need for additional registration if already registered with either online network. Restaurant deals consistently are among the most popular Groupon deals.

 

Additional We-commerce Sites:

dealradar.com aggregates more than 80 daily deal sites, and makes them viewable to enrolled consumers quickly and efficiently. Consumers than select the desired deal(s) of the day. Dealradar was launched in May 2010 as a free service that locates and collects offers from a myriad of Websites. Sites include Groupon and LivingSocial and markets in the United States, United Kingdom, Australia and Canada. Dealradar.com basically indexes and classifies local deals and bundles them and communicates them to consumers, in proximity to the businesses offering deals, via e-mail, Twitter, Facebook, RSS or mobile application. Selecting a deal will link the consumer to the site where the deal originated. Once a deal is purchased, the partner site shares a portion of the revenue with dealradar.com.

Although not currently available in all geographic markets, screamindailydeals.com brings together consumers in a buying community through attractive deals. It also distributes a percentage of the firm’s proceeds to designated schools and organizations. An added benefit of this offering is that it provides opportunity for participants to earn school rewards through purchasing decisions. The four steps in this process are: e-mail receipt of deal, purchase of deal, share the deal for referral dollars, and generate 10 percent of proceeds back to local schools and non-profit organizations. At Screamin Daily Deals, spreading the word about the business produces positive rewards for members. Each member is assigned a unique account number and whenever someone joins the group and includes the member referral, the member earns $10 in Screamin?credits so long as the new member purchases a coupon within 30 days of enrollment. This site is powered by DealOn.



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