Groupon Getaways aren’t the deal they seem to be

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.