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Save on travel via group deals

Last updated on: March 21, 2011 12:27 IST

Save on travel via group deals

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Preeti Khicha in Mumbai

"It was an SMS alert announcing the deal of the day that prompted me to purchase a vacation package at a group buying website," says Ganesh Jayaraman, a sales manager at a Mumbai-based company.

With a six-month validity of his four days & three nights travel coupon for Goa, Jayaraman will begin planning his vacation soon.

Travel enthusiasts like Jayaraman are experimenting beyond conventional online travel portals to meet their travel needs.

As the 'daily-deal lure' gains traction, a number of group buying sites are eyeing travel as a niche segment to grow their businesses.

In the last three months, the group buying category has increased its share of visits by 39 per cent, according to Experian India, which provides information, analytical tools and marketing services to organisations to help manage the risk and reward of financial decisions.

The online travel bookings market was estimated to be around $6 billion (Rs 27,198 crore) in 2010, compared to $295 million (Rs 1,337 crore) in 2005.

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Cashing in on the opportunity

Four months ago, DealsandYou, a group buying site that sells everything from restaurant meal vouchers to apparel, launched a dedicated travel section, D&Y Escapes.

"Previously, the website only offered one-off travel deals, but we felt the need to increase frequency of offerings in the travel space," says DealsandYou chief executive officer Gaurav Kachru. Now, the site offers weekend packages, long journey and adventure packages.

In group buying, while purchases are made individually, one requires a minimum number of people (customers) to avail of an offer. Such deals also have a closing time, resulting in impulse purchases.

Group buying sites focused on travel claim a win-win for all. For consumers, there are deep and limited time discounts.

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For businesses, there is an opportunity to liquidate their inventories and attract a large set of customers to view their brands.

"We are like an alternate media vehicle for vendors. The difference is that we do not take any cash upfront, but take a percentage of the incremental revenue from hoteliers," says Kachru.
There could be a spillover effect.

"Hoteliers might only advertise for a bed-and-breakfast deal, but customers will spend on other facilities at the hotel like dining and spa," says Manoj Gursahani, managing director of Vamoose.in, a group buying site for travel, leisure and vacations.
"For travel deals, we commit a limited number of customers to our vendors, as the business is still small. In other categories like apparel, the total group size is close to 20," says Kachru.

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Currently, travel deals contribute 15 per cent to total sales, and DealsandYou has so far sold nearly 5,000 travel packages.

Kachru believes the travel segment will grow faster, as deal values are usually higher and the segment has potential to generate larger revenues.

Rival group buying site Snapdeal.com is also beefing its travel section, Getaways, to lure travel aficionados. Founder and CEO Kunal Bahl says, "The travel section contributes 10 per cent to overall sales, but we believe this will grow."
Vamoose.in, a venture of Travelmart India, is the latest to join the fray. The site will be solely for selling travel deals.

To give impetus to this nascent concept, Vamoose plans to do away with the minimum group model and introduce deals available for a limited time.

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"We realised that for lower value packages, the groups might be large. However, for a Rs 40,000 package, numbers will be small in the initial days," says Gursahani.

Vamoose's incentive is the five to seven per cent margin on each transaction.

"We want to keep the margins low, so that the client gets the maximum benefit. This will ensure greater word of mouth, lower cost of marketing and, hence, a lower cost of customer acquisition," claims Gursahani.

To create awareness and drive transactions, Vamoose is tapping social media vehicles. "We are running a Facebook contest, which is integrated into the Vamoose.in website.

"Once a customer clicks the button, the contest is exposed to the entire Facebook friends community of the user," says Gursahani. Vamoose plans to rope in private equity players and reach break-even in the next six months.

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Photographs: Reuters
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If these sites gain acceptability, will it eat into the share of online travel portals?

The plethora of options will continue to be one reason for people to opt for large travel portals.

"Online travel portals provide airline deals, hotel deals, vacation packages and train ticket bookings, whereas group buying sites typically provide vacation packages," says Navin Chandani, managing director, marketing service and business information, Experian India.
Nonetheless, Bahl of SnapDeal says he wants to build a symbiotic relationship with online travel agents.

"We will help OTAs make liquid the 10 per cent distress inventories and recover costs on their perishable online deals."

For example, OTA Cleartrip recently advertised a coupon code on group buying site Mydala.com to promote bookings through mobile phones. It was a huge success.

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Photographs: Jason Lee/Reuters
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Challenges remain

The attraction for group buying sites comes with its own set of drawbacks.

Kachru of DealsandYou believes gaining mainstream acceptance will slowly evolve. "Indians are great bargainers and have culturally never been exposed to couponing as a culture," he says. Another challenge will be building secure payment gateways.

Logistics, too, hinder growth of this business. "For example, if you order a coupon cash-on-delivery, there are several locations that are not serviceable by our cash-on-delivery partners," says Kachru.

Yet, to push sales, DealsandYou has tied up with banks to allow customer payments via equal monthly installments.

Customers also complain of exaggeration of discounts. Vidhi Jain, a homemaker in Chennai, found that often the initial price advertised was inflated.

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"In one case, I found that the package could be bought at close to the discounted price elsewhere."

The quality of offerings is also a concern. For this reason, Jayaraman verified the hotel before purchasing the travel deal.

"I not only reviewed the hotel through other websites, but also posted the deal on my Facebook page. After one of my friends wrote a comment of his experience at the hotel, I finalised my purchase," says Jayaraman.

To build credibility, companies are taking other measures. Explains Kachru of DealsandYou: "We are like recommendation engines. Hence, we have an in-house team that monitors the quality of deals posted on the site."

"Vamoose, too, will introduce 'Vamoose certified' hotels, based on certain parameters, and if customers are not satisfied, we will give him a refund," says Gursahani.

Given the low barriers to entry, niche group buying websites have to be wary of commoditisation.


Photographs: B Mathur/Reuters
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"If all companies continue to offer the same kind of deals, it could result in deal fatigue for consumers," explains Pradeep Chopra, CEO and co-founder of Digital Vidya, a digital marketing training company.

"Leveraging social media versus the current tactic of mass mailing and SMSes, which people have started to resist, could be another opportunity," says Chopra.
Getting suppliers on board is another challenge.

"Most of the participation in this space has been from the unorganised sector. Smaller hotels, dependent on walk-in customers, as well as traditional offline channels of distribution are offloading their capacity through these websites" says Noel Swain, executive vice-president, supplier relations, Cleartrip.

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"Why would an airline or a hotel dilute their price compared to what is offered on their website, unless there is significant scale?" reasons Swain.

Collaboration with intermediaries like tour operators and online travel agents might work. Yet, given the low margins in the travel business (three to five per cent), it might impact success.

"Group buying is more successful in high margin categories like restaurants (around 45 to 50 per cent) and consumer goods," says Swain.

There will be a long gestation period before group buying sites gain scale. Building repute through value deals, a robust operational infrastructure and targeted marketing might be the first step in that direction.


Photographs: Todd Korol/Reuters
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