One of the most effective systems used in hospitality to maximize revenue while increasing spa occupancy is yield management. The idea of yield management is certainly appealing in the spa industry, but the path to implementing a successful program isn’t always obvious.
But, let’s back up here. You might be asking, “What is yield management?” Basically, yield management is the process of frequently adjusting the price of a product or service in response to market factors like demand or competition to maximize revenue. It’s most commonly applied with limited or finite capacity, such as with seats on an airline, or in this case, a service provider’s time and energy.
The system is based on understanding, anticipating, and influencing consumer behaviour which is itself influenced by factors like seasons, time of day, holidays, etc. When demand is high, prices go up, when demand is low, prices go down. A good software system can maximize peak period utilization and drive traffic during slower periods.
Successfully implemented, a yield management system will optimize intake, minimize downtime, increase revenue, and keep your spa or salon appointment book busy and your staff happy.
So what’s the secret to a successful program? How much should you raise or reduce your prices, when, and what for? And how do you communicate these shifts with your customers in a way that they will not only accept, but embrace?
Here are a few strategies for a successful use of dynamic pricing.
- Before you do anything, do your research. Book4Time reached out to Robert Shumsky Professor of Operations Management at Dartmouth’s Tuck School of Business, and an expert in yield management, to get some tips. Shumsky cautions. “Don’t make these decisions with your gut or by just copying what your competitors are doing. Yield management should be done using data and market research.”
- Know who your customers are, what their needs are, and their willingness to pay for those needs. You don’t need a yield management system to tell you that your prices should be higher on weekends, but maybe they should be lower on Sunday mornings. Also, perhaps different prices should be charged for advanced reservations vs. walk-ins. Should there be a penalty for a cancelled reservation?
- Lowering prices during the week might not be the best course of action. One spa manager we know who recently implemented yield management opted to raise his weekend prices instead of lowering his weekday ones and found his customers were more than happy to pay the premium for weekend visits. It had no negative effect on revenue at all.
- Experiments are another way to test things out. Shumsky, also said, “If you’re a chain with five spas, you could change the prices at one for a half a year and see what the effect is. Based on that information you could probably make much better decisions.”
Once you decide when and how much to lower and raise your prices, how do you let clients know about it?
- Grandfathering. One thing a spa or salon wanting to introduce variable pricing without upsetting customers might do is to grandfather, says Shumsky. “You could allow existing customers to retain their existing rates but charge new customers peak pricing. Another way is to bring in a higher price on weekends but add in a little extra service that doesn’t cost you much, and say you’re now charging for deluxe service.”
- Be careful to let customers know that they are still valued. This is important in the spa industry, Shumsky points out, because it’s one that relies heavily on trust. But if you provide exceptional experience and a top-notch customer service, they will stick with you. And if you don’t, then you should be working on that first.
Book4Time offers powerful marketing tools to handle your yield management that provide you with the most accurate data while helping you save time on research and implementation. Talk to one of our experts today to see it in action!