Yield Management in the Spa: A look at the Principles, Benefits, Challenges and Opportunities

By Elaine Fenard Partner & Chief Operating Officer, Europe and U.S., Spatality | January 02, 2011

Yield management, also referred to as revenue management, is commonly defined as the process of understanding, anticipating and influencing consumer behavior in order to maximize revenue or profits from a fixed, perishable resource.

The International Dictionary of Hospitality Management states it more transparently as 'selling the right inventory to the right customer at the right price at the right time.' In other words, when it comes to perishable inventory, "use it or lose it" is the mantra. It all began on January 17, 1985 when American Airlines launched Ultimate Super Saver fares in an effort to compete with a low cost carrier. The Edelman Prize committee recognized the revenue/yield management systems developed at American Airlines for contributing $1.4 billion in a three-year period. Yield management spread to other travel and transportation companies in the early 1990s including implementation of revenue management at National Car Rental. Since the year 2,000, yield management techniques and dynamic pricing have been applied to many e-commerce sites and even the financial services industry. Variable dynamic pricing is a common and accepted practice in an increasing number of industries, affecting more and more consumer purchases. Today this practice is becoming more widely recognized, understood and accepted by consumers

The Principles of Yield Management for Spa can be applied if we look at the three essential conditions necessary in order for revenue management to apply. These are first, a fixed amount of inventory available for sale. Second, the inventory is perishable; that is, there is a time limit to selling the items, after which it ceases to exist or ceases to have value. Third, different customers are willing to pay different prices in return for the same items

In the spa world, this perishable inventory is time and it comes attached to resources such as treatment spaces and service providers. Consequently spa definitely measures up for yield management principles, with a fixed number of hours available each operating period. In most cases the number of treatment spaces and service providers available for sale are also fixed. It is perishable Inventory; once the hour has passed it cannot be recovered or reallocated for sale. Each available time slot that passes without booking is a missed revenue opportunity and in some payroll systems an uncovered labor cost. Therefore as with airlines, hotels and rental cars, a spa must achieve an average level of revenue in order to break even. While the spa industry certainly meets the first two criteria for effective application of yield management practices. The big question surrounds the third condition. Will spa guests pay a different price to receive the same service as another guest?

The answer to this question is, they already do! Variable pricing already occurs in the spa and salon industries where certain service providers or certain treatment modalities are priced at a premium though the facility and general service are the same or nearly the same as lower priced options. What this tells us is that the spa and salon guest is open to paying a premium charge for a specific experience or service provider that they desire.

This leads us to believe that some spa guests are in fact willing to pay more for a service in order to receive exactly what they are looking for in their spa experience. This suggests introducing variable dynamic pricing based on need, in a structured manner can result in increased productivity and revenue. The successful application of variable dynamic pricing in spa is based on legitimate reasoning and reasonable variances. The spa must convey the highest prices on the menu are the true value of the entire menu. Guest flexibility is then rewarded with special pricing and guests who have specific needs can get exactly what they want for a reasonable premium. Premium services and premium times are reasonably priced above standard services and times.

Choose a Social Network!

The social network you are looking for is not available.


Hotel Newswire Headlines Feed  

Coming up in May 2019...

Eco-Friendly Practices: Corporate Social Responsibility

The hotel industry has undertaken a long-term effort to build more responsible and socially conscious businesses. What began with small efforts to reduce waste - such as paperless checkouts and refillable soap dispensers - has evolved into an international movement toward implementing sustainable development practices. In addition to establishing themselves as good corporate citizens, adopting eco-friendly practices is sound business for hotels. According to a recent report from Deloitte, 95% of business travelers believe the hotel industry should be undertaking “green” initiatives, and Millennials are twice as likely to support brands with strong management of environmental and social issues. Given these conclusions, hotels are continuing to innovate in the areas of environmental sustainability. For example, one leading hotel chain has designed special elevators that collect kinetic energy from the moving lift and in the process, they have reduced their energy consumption by 50%  over conventional elevators. Also, they installed an advanced air conditioning system which employs a magnetic mechanical system that makes them more energy efficient. Other hotels are installing Intelligent Building Systems which monitor and control temperatures in rooms, common areas and swimming pools, as well as ventilation and cold water systems. Some hotels are installing Electric Vehicle charging stations, planting rooftop gardens, implementing stringent recycling programs, and insisting on the use of biodegradable materials. Another trend is the creation of Green Teams within a hotel's operation that are tasked to implement earth-friendly practices and manage budgets for green projects. Some hotels have even gone so far as to curtail or eliminate room service, believing that keeping the kitchen open 24/7 isn't terribly sustainable. The May issue of the Hotel Business Review will document what some hotels are doing to integrate sustainable practices into their operations and how they are benefiting from them.