What is yield management?
Yield management is inventory specific revenue management which is focused on anticipating consumer behaviour in order to maximize profits. It was first used by airlines after deregulation and has been referred to as one of the most important technical developments to affect airline profitability. Since it was introduced, yield management has become common place with not only airlines but hotels, car rental companies, and most recently even restaurants.
There are conditions that must exist in order for yield management to be applicable:
- That there is a fixed amount of resources available for sale.
- That the resources sold are perishable (there is a time limit to selling the resources, after which they cease to be of value).
- That different customers are willing to pay a different price for using the same amount of resources.
For many tour and activity operators, all three of these conditions exist. Although many would argue that customers are not willing to pay a different price for the same tour or activity, many already do by using coupons, daily deals, or other promotions.
But for small business tour or activity operators the idea of yield management is something that is generally considered outside of their comfort zone. Small businesses very seldom have the technical ability to take advantage of yield management techniques for their businesses because it is often considered something that can only be handled by complex reservation systems.
Luckily, however, the Rezgo rules engine is a powerful tool that can handle a large variety of yield management scenarios for even the most simple tour or activity operation. Let’s take a look at some simple yield management scenarios and how you can accomplish them using Rezgo.
Seasonal Pricing
The first and most common yield management technique for many tour or activity operators is to set seasonal pricing. For example, in the peak season, the operator may offer their tours at a premium. In the off-season, the operator may reduce the price of their tours as well as reduce capacity. In Rezgo, this is easily accomplished by setting the base price of the tour option and then creating two rules, one for each season.
In this rule, we set the start and end date of the to the beginning and end of the high season. If the rule will affect all your tours and pricing equally, then you can select the rule to affect all your inventory items. In this case however, I have set the rule to only affect my river rafting inventory. I have set the pricing levels to increase accordingly.
In this example of a low season pricing rule we set the start date and end to correspond with the low season, select the inventory that will be affected by the rule, and make the appropriate price adjustments.
If the year consists of multiple seasons, the same logic can be applied to additional seasonal pricing. The benefit of using dynamic seasonal pricing is that you only ever advertise your starting from price. The system will automatically adjust and display pricing based on the booking date selected by the customer during the booking process.
Peak Time Pricing
Another simple way to maximize your yield on tours that run multiple times a day is to charge more for your peak times and less for slow times. Peak time pricing can actually be accomplished without a rule simply by setting the option pricing for your times differently. In the case of the River Rafting Demo, I could set my busy 12:00 PM time slot with pricing that is higher than my less busy 10:00 AM time slot.
The benefit of using a rule, however, is that you can adjust the pricing for multiple time slots at the same time. This also has the affect of allowing you to adjust them on the fly without having to adjust your base pricing.
In this example rule, you can see that I have selected my busy times and increased pricing accordingly. This rule will be in affect all year round, which means that pricing for peak times will be higher during low season as well as high season.
Busy Day and Slow Day Pricing
Most operators have days that are busier than others. By creating day of the week pricing rules, you can automatically adjust your pricing so that you are maximizing your revenue on days that busiest. For example, if you know that the majority of your customers book on Weekends, you can automatically set your weekend pricing to be higher than your weekday prices.
In this example, my River Rafting Demo inventory pricing will increase by 5% on weekends. Since this rule is in effect all year round, weekend pricing during the low season will also be higher than low season weekday pricing.
Early Bird Pricing
Early Bird pricing is one of the most common ways to drive advance bookings, especially for tours where you need early commitments in order to guarantee the tour will run. Although this is not as common for activity operators, it is frequently used by tour operators who offer guaranteed departures for multi-day tours. The early bird pricing is an incentive to customers to book and pay early in order to guarantee their space and to provide the operator with advance payment so they can book the necessary resources.
In this example, we have a multi-day tour with two departure dates. The rule, which will trigger if the customer makes a booking between Sept.27 and January 31, reduces the price by $100.00 USD. If a tiered early bird discount is required, additional rules can be created to reduce pricing based on specific current date range criteria. For example, if the discount in February is only $50, then an additional rule could be created to do just that. The benefit is that once the rule is in place, no other work is required to manage the pricing.
What the Customer Pays
The end result of these rules is simply that customers will pay different prices for your tours depending on when they book, how far in advance they book, and which tour. A customer, for example, who books a tour on the busiest day of the week in the high season is going to pay more than a customer who books your slowest day in the low season. The challenge that many operators have however is what to display on brochures, rack cards, ads, and even their website. The safest bet is to display your most common starting price and add the disclaimer that prices vary seasonally and to check live availability for up to date pricing. Once the customer enters their preferred dates in to Rezgo, they will be presented with up to the second pricing that is dynamically generated by the system and is based on your specific rules.
To get started with creating rules, take a look at these available resources:
Reference: http://en.wikipedia.org/wiki/Yield_management
Written By | Rezgo
