Thinking of implementing a yield management system at your spa or salon? Here are some tips for doing it right.

The idea of yield management is certainly appealing in the spa industry, but the path to implementing a successful program isn’t always obvious.

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 when there is limited or finite capacity, such as with seats on an airline, or in this case, a service provider’s time and energy.

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.

Airlines were the first to use this form of dynamic pricing, starting in the 1980s, and now it’s so common that we don’t even question it when we see airfares bouncing all over the place. Other industries have followed suit, like hotels, while others have been slower to catch on.

If you’re not an airline, and don’t get a free pass to do basically whatever you want, 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?

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.

Before you do anything, do your research, 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.”

Shumsky goes on to say, “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? You need to know who your customers are, what their needs are, and their willingness to pay for those needs.”

Also, 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 that 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, says Shumsky.

“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.”

And once you decide when and how much to lower and raise your prices, how do you let clients know about it?

“Certainly price hikes are not popular, but industry norms vary tremendously,” Shumsky notes. “While the airlines can do what they want and we don’t complain, in other industries it’s much harder to break with norms. Take vending machines: there have been attempts to raise the price of drinks when it gets hotter and people just go ballistic. It’s $1.25 for a coke and you don’t raise the price when it gets hot out.

“Is that any different from paying more for a flight when you’re a business traveler on a busy market? Not really. But that’s just the norm.”

One thing a spa or salon wanting to introduce variable pricing without upsetting costumers 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. 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.com offers a cloud-based spa software to help spa and salon management handle online spa booking, spa reporting, and more all in one place. Book4Time.com also offers powerful marketing tools to handle your customer surveys, loyalty programs, scheduling, yield management, payroll and more. Learn what all the hype is about. www.Book4Time.com

(Image: Copyright : Andor Bujdoso )