‘Pressure selling’ & reshaping buying behaviour

DIGIT.FYI are reporting that the CMA have been looking at how hotel comparison sites operate. It’s an interesting read and has a number of implications for the industry.

One point in particular I thought was worth discussing:

Pressure selling: whether claims about how many people are looking at the same room, how many rooms may be left, or how long a price is available, create a false impression of room availability or rush customers into making a booking decision.

It’s a fairly standard sales tactic to encourage a degree of urgency, but when deployed on a larger scale this tactic can shape the way your customers buy your products.

Many eCommerce websites use pressure selling tactics, but when they scale they can lead to a critical shift in buying behaviours – look at Steam, the largest PC game digital marketplace:

• Limited time seasonal sales.
• Flash sales with steeper discounts.
• Higher “normal” prices with frequent steep discounts.
• The gamification of seasonal sales.

This ecosystem has evolved over time. Early on, it offered a good revenue injection for developers – a strong supplement to regular sales.

However, it has gradually trained customers to hold off buying at full price and wait for an inevitable sale period. While some developers have avoided discounting their products too early, for most the extra exposure from being featured in a sale, combined with a burst of sales has proven too much to resist. But it does come at a price – a premature devaluation of their product.

The real difficultly the game dev industry has is that no two products are the same. Most failures are written off as being ‘par for the course’ and indie devs in particular concede that most projects will never break even. It’s tough to learn from mistakes when you’re not prepared to accept that commercial failure may have been avoidable.

On Steam, the 25 or so sale days per year can account for a large part of a studio’s annual revenue – easily over 50% when you take into account non-seasonal sales that developers can trigger themselves (with a minimum of 8 weeks in between).

This in turn has an impact on how those products are being consumed – there’s a notable correlation between the price a person pays for a game (relative to it’s “normal” price) and the time they spend on it, and indeed the review scores they give it. In my experience, steep discount vehicles like bundle sites can result a significant drop in review score.

The psychology behind the change in behaviour is clear. You spend £30 on something; you are more likely to spend more time consuming it than if you paid £1. How many bargain bucket DVDs do you have in your collection, gathering dust and yet unwatched?

The system is increasingly becoming a race to the bottom, and with a continued increase in new indie games launching each year, that’s a problem. But, with market dominance (over 100 million users and about a 85% market share) and more revenue being generated for Valve (Steam’s parent company), it’s unlikely things will change. The pie is getting bigger – it’s just the slice the small players share is getting thinner.

Such is the importance of a good marketing strategy – the industry is not dissimilar to the SEO industry of 10 years ago. There was plenty of traffic to go around and competition wasn’t too harsh. SEO was a pretty good meal ticket even on a small budget. These days, many markets are saturated and are occupied by seasoned players. It’s a tougher gig that usually requires a broader approach to marketing.

OTAs have a similar grasp on the hotel market

In different ways.

Hotels allocate rooms to OTAs in advance and this becomes a commitment that they can’t get away from. An empty room doesn’t make money, so they can’t risk ending that relationship with OTAs and hope their other marketing channels kick in immediately.

This is the same FOMO that indie devs have when it comes to Steam sales.

What if I don’t do x?

If anything, OTAs put more pressure on hotels than they do individual customers.

OTAs expend large sums of money to ensure their SEO and PPC activities are top notch and do a good job of not just capturing early funnel visitors, but those on the verge of booking. In many cases, their brand presence encourages visitors to book through them rather than directly with the hotel (who in many cases will offer a better rate to save paying the OTA commission). For hotels who compete with OTAs, their marketing budgets have increased and their margins have lowered. This only serves to inflate the prices of hotel rooms for consumers.

But, again, it’s an ecosystem that is all about maximising conversions and the ROI they are getting on their massive marketing spend. And that’s where more pressured techniques come into play.

Similar to Steam, travellers have become trained to purchase in a particular way – not entirely down to OTAs, but the increased trust in big brands encourages buyers to favour them – particularly if they’re travelling out of the country or to unfamiliar locations. There’s a perception of trust in booking through an OTA, which is something independent hotels really need to overcome to gain more direct sales.

It’s natural that OTAs would seek to maximise the return from their efforts and I don’t think any of us can point a finger at them to blame for the shift in how we purchase hotel rooms. Indeed, their very presence promotes destinations and opens up a relatively easy sales channel for even small hotels (in the same way Steam has for small developers, in the same way Google has for small businesses, etc), which is a great thing.

Instead, perhaps we should consider our own buying habits and how we contribute to the commercial ecosystems we encounter. We already do this when we choose freerange produce or recycled packaging – there’s no reason we shouldn’t also show the same concern for the sustainability of small businesses.