The Truth About Yield Management Pt. 6 – Demands & Solutions

Demands & Solutions

One of the concerns that I have heard around yield management, particularly around last minute deals and reduced rates, is that other guests may learn of it and demand the same offer, thus reducing the amount of total revenue earned even further. While it has been my experience that this doesn’t happen nearly as often as one would think (it requires the customer to monitor your rates and offerings after they book with you, which the majority don’t have the time or inclination to do), it’s a valid concern none the less. There are those handful of guests that continue to shop around even after their stay is booked.

I don’t believe that there is one right or wrong answer for this situation. In my experience the best option for any situation like this comes down to considering the various factors involved and then making the best decision that you can based on the information that you have.

The various factors that can play into this are;

The Guest: Who are they and are they worth keeping as a customer? If they are a loyal customer that always writes positive reviews about their stay and has recommended your company to their friends and family, I would be inclined to give them the deal, or at least some kind of reduction. Particularly if the difference is small.

On the other hand, if this guest is always a pain to deal with, complains about everything, and leaves the unit a mess, I would be inclined to hold my ground on the price. Why lose money on a guest that you really don’t care to have back and probably isn’t saying nice things about you anyway?

The Unit: Is it a high end unit that rents for a premium? Is the unit comparable to other units where a deal has been given? If the guest is staying in a high end unit and asking you to match a deal that was offered on a more economical unit, you could offer the deal but in a different unit that is more in line with the price they will be paying. (Assuming there is one available.) You could also offer to split the difference, give them an extra night for free, or a discounted or complimentary activity (jet ski rental, movie tickets, etc.).

The Owner: Will the owner of the unit mind you offering a reduction? Will they ask 20 questions and critique your reasons for price matching? Is making this guest happy worth the tradeoff of potentially upsetting the owner? Perhaps offering the guest a price match in a different unit is the way to go.

The Cost: Will offering a deal reduce the stay to a loss for your business? Will you be setting a dangerous precedent with this guest that will teach them to expect reductions in the future?

The Season: Is this the high season when you are booked nearly to capacity and what is still available is going for a premium? Or is this the low season where quite a bit is available and you can afford to wiggle on the price a little?

Again, I don’t think there is one right answer to this kind of situation. I think it’s wise to weigh all of the factors and make the best decision that you can. I also don’t think it’s right to cave in to the customer just because they ask for a deal, but if a win-win-win solution can be found that keeps everyone happy (the guest, the owner, and you) then that is the best option for everyone.

If you decide to say “no”, for whatever reason, don’t apologize for it. You can simply explain that particular deal is no longer being offered, or is only for certain units, or their stay does not meet the criteria (assuming that all of these things are true), but you would be happy to offer them a reduced rate on their next stay if they book before they check out.

But that’s not all!

There are other factors that play heavily into customer satisfaction that could encourage them to ask for a discount, prevent them from coming back and/or recommending you to their friends and family.

The Center for Hospitality Research at Cornell University found the following issues had the most impact on customer satisfaction.*

#1 Problems experienced during the stay – whether it was the hot tub not working, the internet being down, or the unit being dirty, this was the biggest factor that negatively impacted customer satisfaction.

#2 The Reservation details were inaccurate – incorrect dates, party size, etc.

#3 Billing errors – incorrect amounts, showing outstanding balances when they guest was actually all paid up, etc.

#4 Check-in took longer than 5 minutes – this may or may not apply depending on the type of units that you have, or whether the guest needs to check in at all. Regardless, it does have an impact on customer satisfaction.

Here’s why this is all relevant, delighted guests spend much more than dissatisfied guests. In this particular study, delighted guests spent almost 50% more on ancillary offerings than dissatisfied guests did. Great customer satisfaction directly translates into more revenue.

I think it’s important to remember that in trying to grow your business, maximize revenue, create new revenue streams, enhance your offerings, etc., it is easy to forget that the guest experience still has to be positive in order to turn them into a repeat guest and/or an advocate for your business. Losing sight of this will undercut your efforts in those other areas.

*Data taken from the report “Making Customer Satisfaction Pay: Connecting Survey Data to Financial Outcomes in the Hotel Industry”, Cornell Hospitality Industry Perspectives, No 5 July 2010.



Travel & Lodging News from Around the Web – The Economy and Mobile Payments

News & Information
News & Information

The US dollar has hit an eleven year high, with forecasts and data saying that the economy is coming back in full force. This is great news for the travel industry as Airlines for America (an advocacy group that boasts such members as Alaska, Delta, and Southwest Airlines, along with UPS, Fedex, and many more) reports that Spring 2015 air travel is the highest its been in 7 years. This is great news for vacation rental companies, and a perfect reason to reach out to past guests about why they should include you in their Spring and Summer travel plans.

Speaking of the dollar and airlines, UATP (a payment network for airlines) announced that it will begin offering its members the ability to accept Bitcoin as payment for flights.  (Bitcoin is a digital currency that is more secure and efficient than credit cards and other forms of online payment.)

Facebook also threw its hat in the ring saying that it will soon allow its users to send money to each other over the Facebook instant messaging app. Imagine if Facebook becomes a viable booking channel for vacation rentals with the ability for the guest to pay for their stay, write reviews, upload pictures, and share it all with their friends. Which vacation rental software company will be the first to integrate with Facebook?

And speaking of mobile payments, airlines, travel companies, and some hotels are already starting to gear offerings and integration with the Apple Watch. The Apple Watch uses Apple Pay which is already accepted by many banks and stores as a method of payment. (As of March 3rd there are over 100 banks, credit unions, and credit/debit cards partnered with Apple for Apple Pay. Including Visa, Wells Fargo, Bank of America, and Chase.)

Why is this relevant to vacation rentals? Without knowing how it will all shake out, I feel pretty confident in predicting that in 5 years, 10 at the absolute outside, a significant portion of customers will expect to be able to pay for their travel and lodging via mobile devices, using some form of digital currency like Apple Pay or Bitcoin.

Think I’m dreaming? Consider this; the first generation iPhone was released on June 29, 2007, almost eight years ago. In that eight years, smartphones have completely revolutionized our day to day lives. How we communicate, how we interact with the world, how we get our news, find places to eat, and even read books. (I have a Kindle app on my iPhone so that I can read a book anywhere I find myself with time to kill.) Both the Dept of Justice and former chairman of the Federal Reserve Ben Bernanke have commented on the legitimacy, increased security and efficiency of digital currencies like Bitcoin. Time will ultimately tell, but mobile devices, mobile payments, and digital currency aren’t going away. They will become more and more integrated into our lives, and those companies that profit the most will be those that recognize this and use it to provide value and ease to the customers. They don’t have to be the first, just the best.

Until next week.

The Truth About Yield Management Pt. 5 – Customer Segments


There are numerous ways that customers can be segmented (geographic region, demographics, psychographics, etc.) but for the purposes of yield management and maximizing revenue, we want to segment them by purchasing behavior. What this really translates into is profitability. It can feel like a sin to say that not all customers are equal (I.e. some are more profitable than others) but it’s true none the less.

Ideally, you want to have offerings for all of our customer segments in order to capture the most amount of revenue possible. This can be difficult to do, but yield management and price elasticity make it easier.

If we segment customers into purchasing behavior we get 4 groups; (Note that these groups can overlap a bit, and there are many nuanced subcategories. For the purpose of simplicity we’ll stick with these four general groups.)

The Bargain Hunter; these folks are mainly interested in the best deal that they can find. That doesn’t mean that they don’t have standards, but they are willing to give up certain things in order to get a great bargain. For this group it’s all about the best value and how much they saved in the process.

The Planner; this group’s main focus is getting everything set for the family vacation/event that they are putting together. They can be very budget conscious (I.e. overlap into the Bargain Hunter category) but their goal is to have all of their ducks in a row well in advance of the trip, with as few surprises and hiccups as possible.

The Jet-setter; this group isn’t looking for a bargain, for them it’s all about the experience. Money is not nearly as big a concern as it is for the other two groups. They are willing to pay top dollar for convenience, privacy, and whatever else they feel they need.

The Procrastinator; these folks have left their planning, or their decision to travel, to the last minute and now they are scrambling to get it all together.

Sound familiar?

Now let’s look at these groups in order of profitability and how yield management (the right service to the right customer at the right time for the right price) can help us meet each of their needs and capitalize on the revenue potential in the process.

The Jet-setter: These folks have the most to spend and are willing to spend it in order to have the kind of stay they want. Progressive pricing (increasing the daily rate as occupancy goes up) is the best way to capture additional revenue from this group.

The Procrastinator: This group can be willing to pay a premium for their stay due to their lack of planning. They know they left everything to the last minute and therefor aren’t going to have many options. Progressive pricing works well here too. If occupancy is on the lower side, then a reduced rate or last minute deal can capture their revenue and likely turn them into a repeat guest. (Assuming they have a great stay with no headaches.)

The Planner: These folks are a bit harder because they tend to plan quite a ways out where occupancy may not be all that high. Incentives to stay longer or upgrade to a better unit can come in handy here. For example, we could offer this guest a slightly reduced rate if they are willing to stay at least a week. Let’s say our daily rate is $350 and the average length of stay is 3 nights. That comes out to $1,050 in rent. If we make the offer that the daily rate is $300 if they stay a minimum of 5 nights, that brings in $1,500 in rent and also helps drive up the occupancy percentage so that our progressive pricing (daily rate increases when we hit 70% occupancy, again at 80%, etc.) kicks in. The guest also received a deal on their stay which tends to make them feel good.

The Bargain Hunter: While this group is our least profitable in the short term, if we can turn them into repeat guests, their lifetime value goes up. While this group is always looking for a deal, they want to get the best value possible, not necessarily the lowest price. If they can stay in a penthouse for $350 a night (normally $500 a night), instead of a bungalow for $200, that’s a great bargain for them. Offering last minute deals helps capture this market, and even though we’re dropping our price to accommodate them, their stay increases occupancy which helps our progressive pricing plan and drive up rent overall.

The most effective pricing plans will have options for each of these buyer segments. I know that “discount” is a dirty word for some, but keeping the long game (or losing the battle to win the war, if you prefer) is the key here. Offering a discount can still bring in more revenue than it otherwise would have if the stay is longer, it increases occupancy allowing other yield management strategies to kick in, and we can turn the guest in a repeat customer.

Next – Demands & Solutions

Travel & Lodging News from Around the Web

News & Information
News & Information

TripAdvisor reports that 59% of U.S. travelers plan to say in a vacation rental this summer. This is great news for vacation rental companies.

This is also interesting to compare to this report that hotel rates are probably going up, and expected to be the highest they’ve been in 20 years. I think this is good news for vacation rental companies. Increased hotel rates will lead some hotel travelers to look at vacation rentals as a more economical option, particularly with more awareness around the category.

Google is throwing it’s hat in the ring for hotel bookings. How far behind are vacation rentals? I thought this quote was particularly interesting, “Compared to other search formats, Google Hotel Ads has delivered a 45% higher conversion rate. It reaches a massive audience and the distribution cost has been good,…” There’s no doubt that Google is the 800 lb. gorilla when it comes to search and traffic. If HomeAway or TripAdvisor could ink a deal for vacation rentals, it could be a huge boost for category awareness. Historically, vacation rentals haven’t done too well on OTA’s like Expedia and Travelocity, so Google may be hesitant to dip their toe in the water too soon. Time will tell.

Here’s an interesting tidbit from, “According to data, almost half of reservations worldwide are made within 48 hours and are booked on a mobile device.” This data is in regards to hotels, but I think it is applicable for the vr space as well. The trends are definitely heading towards shorter lead times and bookings done more and more on mobile devices.

With all of the recent press that Airbnb has been getting (here and here, for example), it’s interesting to hear that they are the least favorite option for Millennials, despite the fact that almost half of those surveyed say they use the service often or regularly. Here’s why I think this is relevant for the vr space. The Millennial generation is becoming the most coveted in the lodging industry. (Even The New York Times covered this a few years ago.) There are 74 million of them, they have a growing disposable income given that they don’t tend to own homes or have children, and they are big on social media. This means that not only are these folks becoming a predominant force in the market but they’re sharing their opinions and experiences way more often, and to a larger degree, (via social media) than other groups.

The Truth About Yield Management Pt. 4 – The Numbers, Continued

The Numbers
The Numbers

Let’s look at another yield management scenario, this one around increasing rates as occupancy increases.

As a general principle we want to charge more per booking as our calendar fills up. This is just basic supply and demand. The more scarce or unique something is, the more valuable it is. Obviously we want to stay within what the market will bear, while capturing as much of the revenue as we can.

Let’s say our base rate is $100 a day for a given unit. (That’s just rent, no charges.) The most revenue we can bring in during the month for that unit would be $3,000 (30 days @ $100 dollars a day), which would require having every day booked. Not impossible, but not easy either depending on time of year, the specific attributes of that unit, etc.

What happens to the revenue if we implement a yield management strategy based on occupancy? We’ll keep it simple and raise the daily base rent by 15% once we hit 60% occupancy for the month, and then raise the daily rate by another 15% for each 10% occupancy gain thereafter.

When we hit 60% occupancy the rent becomes $115 a day. (A 15% increase over the $100 rate.)
When we hit 70% occupancy the rent becomes $130 a day. (A 30% increase over the $100 rate.)
When we hit 80% occupancy the rent becomes $145 a day. (A 45% increase over the $100 rate.)
And so on up to 100% occupancy.

So what does this do for our revenue potential? If we manage to book 100% of our availability we take in $3,450 in rent, a 15% increase over what we would have otherwise received. Further, we only have to hit ~90% occupancy in order to make the same amount of rent revenue that we would have needed 100% occupancy for with the original model. This also suggests that booking up all of our inventory too soon prevents us from maximizing the revenue potential on that inventory. (Ex. If we are at 100% occupancy 4 months out, we have no inventory available for the traveler that decides to plan their trip 30 days before the arrival date and is willing to pay a higher rate to make their stay happen.)

The bottom line is that if you rent a unit at $100 a day and a customer would have paid you $115 a day, you lost $15 a day. Yield Management strategies can help prevent this from happening by taking advantage of supply and demand to help ensure you get the maximum amount of revenue for your inventory. There are all kinds of adjustments that could be made to the above scenario to maximize revenue. (Ex. We could have increased the rate by 20% when we hit 60% occupancy, and then 50% when we hit 80% occupancy, and done this across multiple units.) For this example I wanted to keep things simple and straightforward to avoid confusion.

Now let’s play devil’s advocate and say “But people always shop around online, we don’t want to lose business to someone else because our prices are too high.” True, the internet has taught people to shop around and expect discounts, but scarcity can also be a powerful motivator. In tandem to a strategy like the one above, you would also want to make sure to keep an eye on your competitions inventory and possibly adjust the strategy based on total market demand. But, just because your competition has quite a bit of availability doesn’t mean you can’t charge a higher rate for yours. They may have lower quality units, their prices may be too high already, they may not be doing a great job at marketing or showcasing their inventory, or a number of other things that would contribute to a lack of occupancy. If you slowly raise the rates as demand increases, you have a better chance of not pricing yourself out of the market.

Next – Customer Segments

Travel & Hospitality News From Around the Web

News & Information
News & Information

I’m a bit of a futurist in that I love to read about new ideas, technology and trends. It’s fun to imagine what it could mean for the future, but it can also provide a competitive advantage if you can be an early adopter of new technology and services. A wise person once told me that “Knowledge is ultimately never wasted.”

Here’s a grab bag of links from around the web that specifically relate to the travel and hospitality industries that I thought were interesting or though provoking. Enjoy.

Interesting article by Peter Greenberg on new Travel Insurance offerings. Some TI companies will now pay travelers $1,000 if their plane sits on the tarmac for more than 2 hours, or if their luggage is lost or stolen. Crazy that plane delays have become common enough that you now may want to buy insurance for it.

Here’s an interesting (and slightly disturbing) article at the Economist on a mobile travel app that tracks where the traveler is at any given time in order to find them the shortest route to their plane, the nearest lounge if their plane is delayed, and allows stores to ping them with offers tailored to them as they walk by. (Here’s an interesting companion article about smart phone adoption. It predicts that by 2020 80% of the adult population will have smart phones. Apps and mobile technology have gone from an interesting novelty to a mainstay of managing our lives.)

Google Flights will be integrating with RouteHappy, an online service that allows travelers to compare amenities (wifi, leg room, paid or free movies, etc.) across flights and choose the one that best matches their preferences and budget. I played around with it a bit, it’s a neat little tool that I will likely use to book my next flight.

Finally, there are some neat companies mentioned in EyeforTravel’s Start Up Awards finalists list.

  • PalPrices helps travelers book a trip on a budget. It provides a calculator that allows the user dial their expenses up or down across different areas (comfort of travel, size of car, etc.) to stay within their budget. Right now it is limited to a fairly short list of locations, but it has a ton of potential. Something like this integrated into a vacation rental companies website could be a very cool thing, and another way to take in additional revenue.
  • Wellobox is limited to hotels and only one city at the moment (it is a start up after all), but for a fee ($79) a traveler can have a box of goodies delivered to their lodging that will help them explore the area based around a particular lifestyle. (Foodie, Sightseer, Family,  or Adventurer.) The boxes include things like transportation passes, coupons and gift certificates for restaurants and activities, bottles of water, and more. This is something that vacation rental companies could easily start doing on their own, right now.
  • Tripcipe is a browser app that allows the user to save things to eat, see, and do as they browse around the web planning their trip. It eliminates the need for handwritten lists or Excel spreadsheets.
  • Tripstr is a mobile app that allows the traveler to share their travel “story” with pictures, maps, and commentary. I don’t know how unique it is given that many people already share their travels on Facebook, Twitter, and Instagram, but I do like the idea that there is a “story” for every trip that someone takes.

The Truth About Yield Management Pt. 3 – The Numbers

The Numbers
The Numbers

So far we have just talked about strategy and theory around yield management. What happens when we put this into actual practice?

Let’s look at a simple example. Below is a theoretical, though realistic, calendar for a unit. To keep the example simple we’ll say that this agency only takes 5 night stays, and the rent calculates out to $100 a night. They are not booked at 100% occupancy, but they’re doing pretty well. So far they have booked $1,500 in rent for this unit, of which they will get a percentage.


Now let’s look at the same unit where they have decided to implement some yield management strategies.


The agency has decided that they will take stays that are less than 5 nights, but they’re going to charge a premium for them. So they increase the rent to $700 for a 3 night stay and $650 for a 4 night stay. They also decide to offer a reduced rate on last minute bookings instead of letting the unit sit empty, so they grab $425 for a 5 night stay that was booked a day or two before arrival.

In this scenario they’ve increased their occupancy to 90%, and they bring in $3,275 in rent, of which they will get a percentage. (That’s just rent, that doesn’t include any money that they will make off of charges.) They have also managed to raise their average nightly rate to $121 and increase their average booking amount to $546. This is powerful information they can share with the owner of the unit as proof he/she is making the right decision in keeping their unit with this agency.

How about one more? Let’s see what could happen if they only offer a reduced rate for last minute bookings and those bookings are only for a few nights.


Even in this scenario the agency still brings in more money than they otherwise would have. Even though they reduced the rate by 15% and accepted a shorter stay than they would have preferred, they still manage to net $3,200 in rent which is $1,700 more than they would have gotten had they left things as is. They increased their occupancy to 90% so they can now charge a premium on that last 10% if they choose to, and they increased their average nightly rate to $118. Even though their average booking amount dropped slightly to $457, they still take in an additional $1,700 of which they will get a percentage.

Just to put a cherry on top, let’s see what happens if this agency has really low margins. Let’s say they only get 5% of the rent, whereas most agencies get between 10%-20%. Even at 5%, they still come out with more using yield management strategies.

In the first scenario ($500 for a 5 night stay, no yield management) they would net $75. (5% of $1,500)

In the second scenario (where they’ll take shorter stays at a premium, or offer a reduction at the last minute) they would net $163.75 (5% of $3,275), more than double what they would have received under the first scenario.

And in the third scenario (only offering last minute deals) they would net $160 (5% of $3,200), again, more than double what they would have received under the first scenario. It also bears repeating that this doesn’t include any money they will take in from charges (reservation fees, etc.), of which they will now have more because they took in more bookings.

These are just examples so bear in mind the specific offerings need to match your particular business dynamics. Maybe you only do this for certain units to avoid wear and tear on units where the owners are prone to complain. You may only choose to offer a last minute deal if you are less than 90% booked. The point is that you can grab additional revenue by presenting the right service to the right customer at the right time for the right price.

Finally, in order for these strategies to be effective you will need to leverage all of the avenues at your disposal to drive traffic and get your customers attention. (Distribution channels, marketing to past guests, etc.) The right service at the right time at the right price isn’t effective if the customer never sees it.

Next – The Numbers, Continued

The Truth About Yield Management, Pt 2– The 5 C’s

There are a number of strategic levers that must be considered for yield management to be most effective. You don’t want to raise or lower your rates based on a gut feeling, or pull a number out of the air. As I mentioned in the last post, I’ve often heard yield management referred to as blanked discounting. But remember that yield management is presenting the right service to the right customer at the right time for the right price.

The following data points can help you determine the best way to utilize yield management for your business.

Calendar – the time of year the booking is for plays a major role in yield management. Many businesses do this already by increasing their rates in their high season and lowering them in the shoulder and off seasons.

Clock – the amount of time between when the booking is made and the arrival date. You may choose to charge more during peak booking season where arrival is 90 days from check-in on average, and offer a reduced rate if the booking is made 3 days before arrival when the chances or renting that unit are a lot lower.

Capacity – the number of stays that are booked already. Supply and demand should greatly inform what you charge for a particular stay.

Cost – the amount that you charge based on the above three factors.

Customer – the most important C. Without customers you wouldn’t have a business. The key here is that not all customers have the same needs or characteristics. A family taking their yearly vacation is going to have different needs and a different budget than the lone traveler that decided to get away for the weekend at the last minute.

Finally, we could add another C to the mix; Cover, as in “cover your costs”. You want to make sure, especially if you are offering a reduced rate, that your costs are all covered. None of us go into business to lose money.

These factors all come together in various ways to help you determine what you should be charging a customer at any given time for their stay. Of course pricing is just one component of the customer relationship. You also have to make sure that you are providing a quality product/experience and delivering value.

Next – The Numbers

The Truth About Yield Management – What Is It?

One of, if not the topic I think is most misunderstood in the vacation rental industry is yield management. I’ve seen it spark heated public debates about discounting and margins, as well as get dismissed as “something hotels do”.

So what is it exactly?

I like how Glenn Withiam of Cornell University, a school that has been studying yield management for decades, defines it. He says that yield management is “the umbrella term for a set of strategies that enable capacity-constrained service industries (like vacation rentals, hotels, and airlines) to realize optimum revenue from operations.” (Emphasis mine.)

He goes on to say that “The core concept of yield management is to provide the right service to the right customer at the right time for the right price.”  (If you care to read the entire paper, which is very good, you can do so here.)

The right service. To the right customer. At the right time. For the right price.

So, if you charge more in the summer season than you do in the winter season (or vice versa if you are in a winter destination) then you are doing yield management. Some travelers are willing to pay a higher rate during peak travel times and you are using that to your advantage to optimize your revenue.

Another way to describe yield management would be to say that it is taking advantage of supply and demand in order to maximize revenue.

None of the above sounds like blanket discounting or something that only hotels can do. And, if you are lucky enough to have vacation rental software with the capability to handle these scenarios, you can set it up to do all of the heavy lifting for you.

Next: The 5 Cs of Yield Management