Yield Management for your Spa business

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 work for a hotel spa business too? Maybe.

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 scarce commodity, it too should demand a higher price. It’s one of the fundamental theories of economics. Supply and Demand.

Yield management can also be applied on a daily basis, not just during seasonal peaks. If you know that your spa is always busy between 4-9pm, why not charge a 10 per cent premium for treatment during this time? Assume a Balinese massage normally sells for US$50 (E39 or P26). The price from 4-9pm then should be US$55 (E43 or P29) – 10 per cent more. Of course, the smart thing to do is make US$55 (E43 or P29) your ‘normal’ price and offer a 10 per cent discount before 4pm. Nobody like a premium but everyone like a discount.

Another way to apply yield management is only to offer the treatment with the highest profit margins during busy periods. Let’s assume your Balinese massage sells for US$55 (E43 or P29). The cost (such as oil, labour and loundering linen) are US$40 (E31 or P21) so your profit is US$15 (E12 or P8). Now let’s assume your reflexology treatment sells for US$50 (E39 or P26), but because you use less oil and less linen, the costs are only US$25 (E19 or P13) and the profit is USD25 (E19 or P13). So financially you want to sell more reflexology treatments than Balinese massage.

If a customer asks for Balinese massage, you receptionist should say: “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 10 per cent cheaper than the Balinese massage.”

If you’re still having trouble convincing the customer, you can offer them a 10 per cent discount to come back tomorrow for a Balinese massage. The customer sees you have offered them cheaper alternative, plus they get a US$5 (E3.90 or P2.60) discount tomorrow for not getting what they wanted today. You make higher profit on today’s treatment and, even after you give the guest the discount on tomorrow’s treatment, you’re still US$5 (E3.90 or P2.60) ahead of where you have been.

Ultimately, yield management can be great tool, if used correctly. Give it a try. You might be surprised how well it works