So if commitment is the key to successful yield management and price has the biggest impact on conversion, what is the future for yield management in the ski industry?
Remember yesterday how we saw that commitment in the current model was based on two pieces? The first was a fixed date and the second was one, non-refundable price. When those two things are firm, you’re bound to lose people who won’t shoulder that specific type of risk.
But when you give yourself a chance to add tiers to this commitment, when you add options to date flexibility and price, new doors quickly open.
A long time coming, this is the brainchild of Liftopia CEO, Evan Reece. Wanting to understand it a bit more, I asked a few questions.
Gregg: Talk to me more about those Value Plus and Flexible options. Where are those prices coming from?
Evan: The goal of the Value Plus and Flexible price options, as is the case with much of what we work on at Liftopia, is to yield maximum revenue return to our resort partners at all times. The algorithm used to generate Value Plus and Flexible pricing is constantly gauging the distance between the then-available Value rate and the window rate for that date, balanced against revenue return for the resort to yield additional prices when appropriate.
Measuring revenue results across hundreds of resorts and millions of instances of consumer demand mean accelerated efficiency gains as the inputs are from the entire platform.
Among other things we will be measuring instances of up-sell, overall revenue maximization and influence of adjacent price points on absolute conversion rates. To maximize long term revenue for our partners, we also will measure the frequency of and service the instances of customer date shift to fine tune pricing.
Gregg: I’ve seen something similar on Hotels.com and Avis.com where I do occasional booking. Embarrassingly, I’ve never even considered that idea within the context of skiing. How does this differ from what I’m seeing from companies that have a limited inventory?
Evan: These projects are an amplification of core pricing and yield management principles we are applying to a very unique industry. When I think about yield management, I think more generally about how companies use goals, data, and tools to maximize the efficiency of systems. This means that in addition to yield management of hotels and rental cars, we can also think about other systems that maximize return, like dynamic pricing of baseball tickets, Google’s automated SEM bidding tools, and even snowmaking systems.
In each instance, goals, data and tools are used to best maximize the efficiency of each system (for snowmaking think wet bulb temperature, wind speed/direction, snow coverage, energy costs to run compressors etc). This requires that the pricing approach for ski ticketing is different than for hotels as the goals/data/tools are indeed quite different.
Gregg: And what are some of those differences?
Evan: Clearly a key difference in ski is the unique capacity constraints, but we also consider other variables like high fixed cost structures, low/zero variable cost structures, high demand variability due to weather, hangovers, altitude, road conditions, etc. Fortunately, every ski area offers a truly unique value and therefore can price its products accordingly (as opposed to a Sheraton across the street from a Hilton in a competitive metro market).
Value/Value Plus/Flexible allow resorts automated appropriate price options for different customer segments with different trip identities. This means resorts are most likely to sell the right product to the right customer at the right time, and maximize overall revenue.
The options are intended to shift customer mentality from “should I buy the price in front of me” to “which price in front of me is the one I will buy”. The options represent a great step forward for resorts to push yield up by pricing products appropriate to their value, as opposed to overpricing a lower value product to drive yield which, in most, cases sacrifices overall revenue.
Gregg: How soon does this go live and, in the first winter, what can we expect to see in terms of testing and results?
Evan: This product is already live and is in beta testing on both Liftopia.com and on resorts’ Cloud Stores. It will be fully launched across the platform in the next few weeks. As with everything else we build, we know that this product will need continuous improvement, so this is the start of what will be an ongoing, long-term optimization cycle.
The data the system generates will inform the Commitment Segmentation algorithm while also improving on the underlying Automated Pricing tools that our partners have access to.
It’s a Wednesday, so perhaps the way I’ll end this is fitting, but if I were you I’d get on the beta list for this feature asap and get the 411 from the horse’s mouth:
Everything I learn about this new platform makes sense. The data-driven prices, the automation, the tiered commitment. I think it would be a huge mistake not do anything but try it.
That’s what I’d do.
Published August 1st, 2014 by Gregg Blanchard.