This article looks at how the private-sale travel site business model works and why I believe it will be a powerful business model in the online travel industry.
As an online travel business consultant, and an intrigued entrepreneur, I have been researching the new private-sale travel websites that have been gaining momentum in the online travel industry.
Private-sale sites, or member-only travel sites, are the NEW, NEW thing in online travel. The party got started over a year ago, but now the bigger travel players are entering with their own brands. Jetsetter.com and Rue La La were the first; Vacationist (an American Express Company), SniqueAway (TripAdvisor and Smarter Travel) and TripAlertz are the most recent entrants. I believe private-sale travel sites may be the next online travel business model that ultimately squeezes the OTA's (online travel agency) supreme dominance.
The emerging private-sale online travel business model was derived in part from the retail clothing private-sales websites of Gilt.com and HauteLook.com. There are hundreds of other competing websites in the private-sale upscale retail clothing product space. Private-clothing-sale websites enable sellers to unload unsold branded inventory at large discounts at a timed event with a deadline to buy before the inventory sells out.
The private-sale business model originated in part from the legendary merchandiser Edward Filene, the founder of Filene's Basement, who, in the late 1920's, created publicly scheduled automatic pricing markdowns on his clothes. The publicly promoted markdowns produced a high tendency for consumers to perceive that a bargain was available and that they should buy now or risk losing out on the opportunity, because they knew that within a defined, short period of time, in the next markdown, the item could be sold out. The price dropped systematically with each markdown until all the products were sold out. The clothing that was left over was donated.
The current web-based private-sale travel sites are invite-only, or member-based, and focus on selling hotel rooms. The private-sale travel business model will succeed in selling brand-oriented travel products including hotel rooms, cruises, tours, and individual travel products where the travel supplier wants to protect the brand image yet still discount to sell their unsold inventory. I also believe the business model will succeed in selling leisure vacation packages and business travel.
Why private-sale travel sites will succeed as a new business model for selling travel online.Private travel sales' core strength lies in its ability to harness the social network as the marketing and distribution channel for the website. The dynamic nature of the private-sale offerings, with exclusive weekly deals, book-by dates and large discounts off five-star hotels makes for great conversation between the members to disseminate the news virally via the social network.
The travel offering, whether it is a high-end hotel room in New York City or a tour through the vineyards of California, becomes chatter and discussion and is moved aggressively across the social network by the websites' members to their friends, family and colleagues. Dynamic travel offerings create the feeling that you are receiving a deal and spread virally online.
The private-sale business model plays right into the hands of the powerful online social network. The offering spreads through Twitter, Facebook, and the other social networks like wildfire. The distribution of the sale through the social networks not only helps the private-sale websites sell the travel offering, but more importantly, it quickly builds new memberships for the website.
The membership component of the private-sale business model creates the illusion of exclusivity, when in reality; there really is no exclusivity at all. The goal of every private-sale or membership website is to build the largest possible pool of buyers to sell their offerings to. It's truly just a numbers game.
Yes, you supposedly have to be invited or referred by a friend to join, but neither was the case for me, as I just entered my email address, and within a few days I received my membership acceptance. This may change in the future but the real reason for the membership component is to keep the search engine travel websites out. As soon as "everyone" is selling the travel product offering, the exclusivity component vanishes, and the membership, or closed door, keeps the online travel marketers and distributors out of the game.
High-end hotels and resorts are discounting rooms to the private-sale websites because they believe that their brand is better protected and not diminished by the OTA's and search engines distributing their discounts all over the Internet. Hotels have a sense that they are more in control of their discounting, and that the process is more efficient in managing their yield. Hotel rooms have "shelf life"; unsold rooms are lost revenue.
Having spoken to a few hotels, I found that they are saying, "the private-sale model is better than the OTA model." A few said that they believe this may be the future in online discounting. High-end hotels also believe that they are reaching the cost-conscious buyer, a target market that is difficult for them to reach through their traditional sales channels.
The private-sale website industry is literally in the initial growth stages. Jettsetter and Rue La La are two of the early pioneers. As the industry grows, and new players come in, new websites will niche down in both the leisure travel markets and the business travel market. I envision we will see private-sale and membership websites that target both specific demographic and travel lifestyles as well as geographic and destination-based markets. The early private-sale website entrants are currently at a similar stage of development as Expedia, Travelocity and Orbitz were when the OTA business model was created.
The private-sale websites utilize multi-media, imagery and text to tell you a story about why you want to stay at the hotel or buy a specific travel offering. I am impressed at how visually appealing the online merchandising presentation has been. The travel offering is being displayed online like you are looking through a high-end travel magazine or brochure. The best copywriters will tell you that stories are what sell products. The current private-sale websites do this very well.
Private-sale websites literally stole the playbook from the Internet informational marketers to create effective landing pages (home pages) that convert prospects into an automated online sales funnel. The most successful Internet informational marketers all know that to sell online you need a systematic, sequential sales process that ultimately converts prospects into buyers over a specified time period. Internet informational marketers sell successfully online by utilizing email opt-ins, email marketing campaigns (drip-drip-drip), one-time sales, limited offerings and book-by-date discounts.
The private-sale process starts by acquiring the name and email address of your prospect. The landing page, or home page, of the private-sale websites is a simple one-page. To gain access, you have to opt-in or enter your name and email address. There is nothing else you can do other than login. The secret to selling information products online is to move your prospect from point A to point B, removing all possible links, literally boxing the prospect in so there is nothing else they can do other than to enter their name and email address. Once the conversion takes place, adding the name and email address, the prospect is dumped into the automated sales funnel, and the systematic sales process and merchandising begins. Oh, it's a beautiful thing.
How it works. Selling hotel inventory in a private sale.There are a few different versions of the private-sale transaction between the website and the hotel. Predominantly though, this is how the deal is structured. The website negotiates a percentage off the lowest bar rate of the hotel. The percentage off can vary according to the hotel's seasons, or for specified periods of time within seasons. The website will sell the most dates it possibly can; this is negotiated between the website and the hotel. Remember, the more inventory the website has to sell, the greater amount of sales that are possible. The website is generally looking for at least two different hotel room types to sell.
The website "free-sells" the hotel inventory from the start of the sale to the end of the sale. Free-sell is a wholesale room buying term meaning that the buyer doesn't actually buy the inventory upfront. The website negotiates to "freely" sell the inventory during the sale dates. Free-selling removes all the upfront risk for the website. The website never pays for the hotel room until it has been sold.
Most sales are three–seven days —sometimes longer. Limiting the sale to three–seven days, or a predetermined number of days, protects the hotel from not having their inventory available for sale for an indefinite period of time. By contracting for short periods of time, the hotel can really discount without losing their shirt.
The hotel then receives all the bookings from the website at the end of the sale and payments to the website from the hotel are made. Most hotel sales to the website's members are non-refundable; the transaction is very clean and the website does not have to worry about cancellations. It's just pure cash in the website's pocket. This is a win-win proposition for both parties.
The only way to make money with this business model, that I can see, is to have multiple sales going on every week and to have the ability to sell thousands of hotel rooms each week.
I love the private-sale business model because it is simple from an operations standpoint. There are few moving parts. The heavy lifting is done on the front side through the marketing and selling of the travel products to the website's members. I believe private-sale websites that niche, and target a specific leisure traveler, a lifestyle or a regional destination, can be started fairly quickly by travel entrepreneurs and larger travel companies looking to jump into the game. The barrier to entry is limited.
The race is on.
Wanna build a private-sale travel company?
Creator of the Automated-Booking Markup Strategy:
www.mattzito.com/automatebookingmarkup Matt Zito is an online travel business consultant. Matt helps online travel companies, tour operators and travel agencies launch start-up online travel businesses and niche leisure vacation package product lines by leveraging seventeen years' experience selling travel, representing North America's most prestigious resorts and hotels, earning gross profits of 20%–40% per vacation package sold.Matt was the founder of the largest youth-based online ski travel company in the USA, which was acquired in 2007.Matt will be speaking at the Travel Weekly Leisure Travel Conference and Show on October 28th at 2 p.m. in the Atlantic City Convention Center. 
