YIELD MANAGEMENT Money Matters “I
t is no exaggeration to say that over the past few decades, sophisticated pricing and revenue management techniques have added tens of bil- lions of dollars to the net profits of
hundreds of firms. The remarkable thing about these profit improvements is that they typically come from existing products and often from existing sets of customers,” according to Robert Cross (chairman and CEO) and colleagues at Revenue Analyt- ics who specialise in pricing and revenue management strategies. What started in the airline industry has
now been adopted by most hospitality and tourism industries. But what really consti- tutes revenue/yield management and can it be successfully used in the spa industry?
What Is yIeld management? The term yield management was coined by American Airlines, one of the early pioneers of the concept. When it was later adopted by Marriott International, it became known as revenue management. In short, yield management is about optimising reve- nues. Some define the concept broadly to include treatment menu engineering (see Spa Business 2012, issue 1, p26), design of spa facilities, marketing and market seg- mentation, staff optimising and training (SB11/2 p22), discounting (SB11/4 p24) as well as pricing strategies (SB08/1 p30). Jean François Mourier, founder and CEO,
of hospitality revenue management soft- ware solution RevPAR Guru Inc believes
118 spa business handbook 2012
What is yield management and are spas really making it work for them? Leonor Stanton investigates
Leonor Stanton, independent hospitality and spa consultant
that “the right rate – one that attains the balance between stimulating enough demand to maximise occupancy, while not leaving money on the table in the form of too low a rate is the key to a successful revenue management strategy – making pricing perhaps the most important aspect of revenue management.” However, Mour- ier acknowledges that yield management is not just about pricing but also a “way to understand customers, anticipate their behaviour and adapt strategies to maximise profits. It is about using inventory, capacity and pricing to ‘manage’ revenue”.
CompatIbIlIty WIth spas Frank Pitsikalis, founder and CEO, of spa and hospitality software provider Resort- Suite suggests there are six key qualifiers for yield management – all of which the spa industry meets. These include: Perishable inventory – like airline seats,
hotel rooms and restaurant seats, unsold treatment hours can never be recaptured; Variable demand, fixed capacity –
spas experience tremendous fluctuations in demand. Treatment room occupancy levels can vary enormously in some busi-
nesses from 20 per cent on some days to 90 per cent on the busiest days. The major- ity of spa facilities have a fixed number of treatment rooms. A few hotel, resort and destination spas can expand their capac- ity by providing massages elsewhere – in the grounds or by the swimming pool, or in the bedrooms. But on the whole, spas have a fixed capacity for treatments; Sales via reservations – although spa
treatments are booked in advance, many spas have experienced a decline in lead- times with customers now tending to book at the last minute; Multi-pricing capability – some spas are
already starting to practise variable pric- ing on their regular menus; Pricing as a powerful driver – as with
most leisure activities, consumer behaviour is affected by cost and can be used to target different market segments in spas; Relatively low variable costs – cost of
products used in treatments represent a small proportion of total revenues. Although payroll is relatively high in the spa sector, only a proportion of staffing costs (thera- pists) are variable, as costs for management, reception and cleaning staff etc are fixed.
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