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Yield Management – Oh My Gosh, What if Someone Complains...
Like many college students, I slept through most of my economics classes. My University held Wednesday night dances that didn’t start until 10:00 and “of course” I only stayed for 30 minutes because I wanted to be alert for my 8:00AM Economics class the next morning. Needless to say, occasionally I would raise my head off my desk and try to listen to the concepts of Supply and Demand. At the time, little did I realize that I would see Supply and Demand permeate everywhere throughout my adult life. Ever try to buy tickets to a sold out Jimmy Buffet concert? Prepare to pay double the ticket list price. A few years ago my wife needed to buy a Furbie for a Christmas present and I couldn’t find one in any store. So I ended up paying over $100 on eBay only to watch the prices drop to $30 the week after Christmas. And then the ultimate example of Supply and Demand is Gasoline prices, for which we all love making our weekly contributions toward the construction of palm island and indoor skiing resorts in Dubai.
The travel industry has turned Supply and Demand into a science where prices are continually adjusted day by day as occupancy increases and decreases. Purchase an airline ticket early when the plane is half full, you save money. Wait until the flight is almost full, you pay a lot more. The same holds true for hotels, car rentals and most other travel businesses. The travel industry calls this dynamic pricing “Yield Management” and uses computer technology to continually measure occupancy day by day and adjust pricing automatically to maximize profit margins. In outdoor recreation, the establishment of high season, mid-season and off season prices is a simplistic form of Supply and Demand pricing, but it really isn’t true Yield Management because it doesn’t optimize pricing day by day as demand for sites and cabins change within a season. If you sell out your peak periods months in advance and don’t adjust pricing in the process, there is no question that you have left money on the table.
I am amazed by how many people in our industry recommend against using Yield Management Pricing. The most common argument we hear include “Our guests talk more than guests in hotels and airlines” or “We have a special relationship with our guests and we don’t want to upset them”. Are you kidding me? If pricing fairness were really a cause of guest dissatisfaction, you would see more online guest reviews complaining about prices. Also, parks offering 50% deep discounts would also receive huge numbers of complaints from guests not receiving the discounts. Instead, the club guest tell your loyal customers about their price, more of your guests join the club and the following year the park ends up giving more guests the 50% discount. So if your guests are always talking, and their behavior changes in order to save money, couldn’t you drive guest behavior to benefit your park? With Yield Management pricing, your guests will talk, they will figure out that booking earlier saves money, and over time more guests will book earlier to receive the better rates. As a result, will get paid earlier and you generate higher average daily rates during peak periods as your occupancy increases.
So how much does pricing really affect consumer decisions to stay at your park. To answer this question, I encourage you to review your guest surveys or visit consumer rating sites and read the various consumer comments. They complain about service, cleanliness, courtesy and only a few complain about price. Oh they want it cheap, there is no question about that, and if you offer a way to get it really cheap they will take it. But what your guests really want is an experience and most are willing to pay for quality and for service. I’m not saying that price isn’t important and it definitely needs to be balanced with the experience and value you provide. As an example, why would consumers pay $3.50 for a cup of coffee at Starbucks when they can get a cup of coffee at McDonald's for 99 cents? The answer is …. Because they want a different experience than they get at McDonald's, and they are willing to pay for it. If you take the time to ask your guests why they selected your park, most will say their decision was influenced by recommendations, or location, or convenience, or the experience, or safety, or a multitude of other reasons. And somewhere way down the list, is price.
Why then do some of the software companies in our industry recommend against using Yield Management? Aren’t they in favor of you becoming more successful? Hmmmmmm…. Could it be that their technology cannot simultaneously adjust online and front office pricing in real time as your occupancy changes? Ask the question and you are likely to get that “because your guests talk” argument again. Do you really think just because guests don’t talk as much on airlines or in hotels that nobody knows the person next to them probably paid less than they paid? Maybe it’s a secret and nobody else really knows!
Why are Campgrounds and RV Parks reluctant to adopt Yield Management pricing practices when the rest of the travel industry has been using it for years? Are they waiting for someone else to go first?
I believe the real issue is fear of the unknown.
• What if somebody doesn’t like it?
• What if somebody complains?
• What if I have to explain to my guest why their rates are higher than someone else?
I would counter these questions with questions of my own.
• What if you didn’t have as many guest complaints as you think you might because most of your Yield Management pricing was done online?
• What if you answered any guest complaints you actually receive with “prices are calculated automatically … if you book early, you get a better price… Just like hotels and airlines”.
• What if your reservation system did all the work for you, continually reviewing and adjusting both your front office and online prices?
• What if park operators freed themselves from phone duty and clerical tasks and actually created a better experience that more than justified higher prices during peak periods?
• What if your park made enough additional revenue to pay for additional services or programs that improved guest experience?
• What if Yield Management made you enough money to pay for your entire computer system?
• What if your year-end profits increased and the value of your business grew?
Fear of the unknown is often more powerful than logical thinking. Fortunately, Yield Management is not a new concept and the consumer is very used to pricing based on supply and demand, especially in the travel industry.
OK, so you think you might want to give it a try. To increase your chance of a successful program, the following are some of the more commonly used best practices to implement Yield Management Pricing:
1) Introduce Yield Management Slowly – Don’t shock your guests by pushing prices too high too quickly which might cause you to start losing reservations. Instead, test your rate increases slowly. Try smaller price increases at various occupancy breaks and keep track of comparative volume changes. As you increase your formulas over time, watch for volume slow down and pull back slightly when you determine what the market will bear. Then continually test that limit during peak periods to maximize your yield.
2) Create multiple Yield points where the rates change in small increments rather than one large rate increase as your occupancy hits one specific level. In other words, rather than one large rate increase when you hit 75% occupancy, you might increase your rates in steps….. example: +5% at 40% occupancy, +10% at 60% occupancy, +15% at 80% occupancy and +20% at 90% occupancy.
3) Let your online reservation do the price negotiation for you. – Guests push back or want to negotiate more when talking to a real person. Online reservations make it easier to adjust your rates as occupancy increases. By the time your guests arrive, the reservation has long been paid for and the rate is less of an issue.
4) Drive more reservations online. This frees your time, saves you staff costs and makes it easier to yield manager your rates. Place a greeting on your phone system that says “For best rates, reserve online at www.mypark.com. For more savings reserve early.” You can cover much of your online booking fees and pamper your guests with the time you saved through the reduced reservation phone calls. You will also get paid earlier.
5) Charge slightly higher rates for phone reservations. This can cover much of your payroll cost, drive more bookings online, and partially offset your discount costs if you charge more for your higher cost phone reservations. Your Yield Management software should be able to drive different price formulas based on source of reservation (in addition to occupancy levels). That way you can easily control the relative cost differences between front office and online prices as your occupancy rates change.
6) Add “Prices Starting From” to your price lists and web site. This will tell the consumer that prices may vary at different times and change the perception that your price list is a commitment .
If your reservation system provider offers online and offline Yield Management, they should be able to help you analyze your Yield Management opportunities and adopt other best practices to maximize your revenues while minimizing guest push-back.