Yield management in the airline industry is so entrenched now, nobody even talks about it as a special strategy. It’s just part of their pricing policy. Hotels too have generally done a good job with yield management. But what about spas? Can yield management really even work for a hotel spa? Maybe.
The Oxford dictionary defines yield management as – The process of making frequent adjustments in the price of a product in response to certain market factors, such as demand or competition.
Hotel Spa Guests are Primed for Yield Management
The hotel room sold in peak season is the same room sold in low season. The only reason we pay more for it is because, in peak season, it is a scarce commodity. On the same basis, when a spa treatment is a scarce commodity, it too should demand a higher price. It’s one of the fundamental theories of economics. Supply and Demand. Infact, your hotel spa guest has already encountered yield management at least twice before they got to you. Once when they bought their plane ticket and then again when they booked their hotel room. So you could argue that your spa guests have already been primed to accept a yield management strategy at the spa.
And yield management does not have to be something that is only applied during seasonal seasonal peaks. It can also be applied on a daily basis too. If you know that your spa is always busy between 4-9pm, why not charge a 10% premium for treatments during this time? Assume a Balinese Massage normally sells for $70. The price from 4-9pm then could be $77 – 10% more. Of course, the smart thing to do may be to make $77 your ‘normal’ price and offer a 10% discount before 4pm.
Nobody likes a premium but everyone like a discount.
Yield Based on Profit Margin
Another way to apply yield management is to only offer the treatment with the highest profit margins during busy periods. Let’s stick with our Balinese Massage selling for $77. If the costs (such as massage oil, labour, laundering linen, etc) are $50, your profit is $27. Now, let’s assume your Reflexology treatment sells for $60, but because you use less oil and less linen, the costs are only $25 so the profit is $35. Financially then, you want to sell more Reflexology treatments than Balinese Massage – especially during peak times. If you do, you’ll be making $8 more profit each time.
If a guest asks for Balinese Massage, your receptionist could say something like, “I’m sorry madam, we don’t have any vacancies for a Balinese Massage today but we do have an opening for a Reflexology treatment – and it’s actually 22% cheaper than the Balinese Massage.” This will probably come off as a you being a lot more genuine than if you only offered a more expensive alternative too.
Still having trouble convincing the guest? You can always offer them a 10% discount to come back tomorrow for a Balinese Massage. The guest sees you have offered them a cheaper alternative for today, plus they get a $7 discount tomorrow for not getting what they wanted today. And for the spa, you’re still $1 ahead of the game! You made $8 more profit today by booking a Reflexology treatment in that slot rather than a Balinese Massage. And tomorrow you only had to give a $7 discount to get the guest to come back. Every little bit helps. 🙂
Of course, a $1 saving isn’t really going to make much difference to your business – unless you do A LOT of treatments. Also, you’ll need to weigh up the benefit of the extra profitability with the risk of having an unhappy guest who may not come back. But you get the general idea.
Know your profit margins per treatment. Push the high margin treatments – especially at the busy times.
Demand Stickiness is the Key
WORD OF CAUTION
At the start of this article I mentioned it was all about Supply and Demand. But we need to remember that in most cases, spa is a want rather than a need.
I’ve written about this concept a few times before HERE, HERE & HERE. (yeah, it’s a bit of a theme of mine.)
So, unlike airlines and hotels, who are by and large catering to a need, spas are not likely to have the same power over the guest when it comes to yield management. If the demand is not firm, the leverage is weakened. Still, it does surprise me that we don’t see more hotel spas giving it a try.
Would love to hear from anyone out there who is actively practising yield management. Or maybe you’ve tried it and it didn’t work. Either way, would welcome any practical examples.