By Steve Murch, Escapia Chairman
"Yield
management is the single most important technical development in
transportation management since we entered deregulation."
– Robert Crandall, former Chairman/CEO, American Airlines
Yield
management, now a pervasive and accepted practice in nearly every
segment of the trillion-dollar worldwide travel market, has recently
generated considerable interest and varied opinions within the vacation
rental industry.
I wanted to take a minute to share some of my
thoughts on why we here at Escapia think it’s such an important topic, and why, even
though we've got a pretty good lead in the industry for yield
management tools today, we'll continue to invest and innovate in for
you.
What Is Yield Management?
Yield
Management, broadly defined, is the practice of influencing consumer
behavior, generally through pricing, in order to maximize the overall
profit (or yield) from a fixed, perishable resource over time.
Wikipedia notes that three critical ingredients for yield management to work are:
- Fixed resources
- Perishable inventory
- Customer willingness to pay different rates at different times
For all practical purposes, I'd add a fourth:
- Tools to easily manage rate changes and updates throughout the
distribution channel and product lifecyle – from the internal
backoffice through all sales channels used.
This is because it's
simply not manageable to constantly adjust rates based on supply/demand
without some degree of automation.
We've certainly got the first three elements in the vacation rental industry. And with EscapiaONE's IntelliRate engine, you have the fourth.
I believe the stage is set for more sophisticated yield management to start gaining more and more adoption in the vacation rental industry; this is due to a variety of market factors.
Consumers Expect It
From
the consumer’s point of view, it’s become not only logical but expected
that the premium beachfront lodging on Maui booked for April should carry a premium, especially if it's the last one left. And it's also
expected that the inner cabin on a cruise that’s only 60% booked and
sailing tomorrow should be a steal of a deal. It's expected that those rates can (and often do) change, right up until booking is confirmed.
Even in most
grocery stores, it's expected that seafood is more expensive when it is
fresh off the truck than when there are too many to sell-out and they
are nearing their perish-point. At hotels, deals are expected when
occupancies are low, and premium pricing is expected when demand is
likely to outstrip supply. (The Hotel Marketing Association's perspective on yield management indicates that they, too, believe its time has come, as indicated by their widespread adoption of REVPAR, revenue-per-available-room, and not occupancy, as the primary financial performance statistic.)
In fact, yield management is now so common in the
travel industry that the converse -- that is, static pricing for
airline seats, rental cars, or lodging throughout the year, regardless
of demand or availability -- now would seem somewhat absurd. Can you imagine United
Airlines issuing a yellow-pages-thick printed directory of their prices every January?
These consumer expectations carry over into the vacation rental industry.
Yes, there was a time, last seen
about the time JFK was in office, when static pricing ruled the day in
all segments of the travel industry. But even when it was the norm, I'd argue that it wasn't because
it was the best economic strategy to maximize profits and also customer
satisfaction; it was simply a product of necessity.
Today, those constraints are gone, and new opportunities are presenting themselves.
