5 tested methods (+ bonus) to do revenue management with regular clients, without letting them get away
Among the most frequent nightmares of those who want to do revenue management, is surely managing the rates of that loyal customer, who has been coming for 25 years and is basically a piece of furniture.
A cross and a delight.
Delight because his arrival constitutes a certainty, and certainties, especially these days, are a rare and precious commodity.
Cross because being stuck with the 2005 price list, our very faithful friend risks making you give up a bigger profit.
How then do you deal with these kinds of clients?
How can you keep them coming back to you without demanding bargain prices that erode your profit margins?
We'll explain in the next few lines, but first there is a premise.
And if you are totally new to revenue management issues, we suggest you first read our quick guide to revenue management for hotels.
How important is it to have regular customers?
To talk about loyal customers is to talk about retention.
Loyalty means taking a series of actions with the goal of having your guests return periodically.
A regular, therefore a loyal customer, who books with you every year brings in regular revenue, and you don't have to take marketing actions to convince them to book.
The first tells how much it costs you to acquire this or that type of customer in terms of marketing and sales actions.
The second expresses how much a customer spends on average over time at your facility (subsequent purchases).
What you generally get from this data is that:
- a new customer always has an acquisition cost, usually at least 10-20% of gross sales
- the acquisition cost of an old customer, who compared to a new one has had many opportunities and time to return the initial investment to the hotel, is much lower in percentages and as you go along tends to be almost irrelevant
Having understood these two concepts, here is a precise criterion for determining when a retained customer is better than a new one.
How to decide whether to keep a customer
Think about one of your historical customers and answer these questions:
- How much does he or she spend overall in the year?
- After costs, including acquisition costs, how much profit does he or she bring you?
- Would you be able to make the same (or even more) profit if you tried to attract new customers?
At this point, there are two cases.
If you answered no to the last question, the customer in question brings you more benefit than disadvantage and, in some cases, you would be better off making some trade-offs with him.
If you answered yes to the last question, then the recurring customer represents a loss, and you should think about upgrading the prices you reserve for him.
Below we have listed 5 methods to make you earn more margins from incumbent customers without necessarily losing them, let's have a look them.
1. Adjust prices periodically
Price adjustment is what the British call "old but gold," an evergreen classic.
Before the Internet, when facilities in resorts worked on a fixed price list and 90 percent with direct, recurring customers (good times eh?), they used to practice an annual percentage price increase that almost everyone accepted without much fuss.
We're talking a few percentage points, 2-3%, but applied systematically they represented a major contribution to the facility.
If you can think of no other methods, and you are dealing with somewhat "agée" clientele, adjusting prices can be an effective and easily applied solution.
In addition, in the face of soaring energy costs, it also becomes easier to justify increased rates to guests.
2. Apply discount codes
If, on the other hand, your recurring customer base is young and tech-savvy, or you would simply like a loyalty tool that combines with dynamic pricing, a discount code may be for you.
How does it work?
In order to use discount codes you must have a booking system (booking engine) connected to your management system (PMS) and this must allow the creation of Discount Codes (sometimes they are called Coupons).
If you have this possibility, all you have to do is to decide, as if it were a promotion, the parameters of the discount code.
- the type of discount you want to offer (percentage, fixed value etc...)
- the period of validity (to be used by a certain date for example)
- the period of application (valid for specific periods or types of service)
For your regular customers, you can create an ad hoc discount code that they can use each time they make a new reservation.
This way you can manage prices dynamically and continue to offer favorable terms to your incumbent customers.
3. Adopt a secret price list
A close relative to the discount code is the "secret list", a price list reserved only for certain people.
Big comparator portals and theme sites such as Kayak, Secret Escapes and Booking itself with its much-controversial "Genius" program do business with the secret list.
Although declined in different ways, both the discount code and the secret list offer advantageous conditions, to which not everyone has access.
However, while the former leverages convenience, and thus is perfect for an audience that looks mostly at price, in the case of the secret list you leverage exclusivity, and thus it is better suited to an audience with broader purchasing power.
4. Open an exclusive club
Another method of breaking free from the shackles of incumbent customers is to remove the "price" component of loyalty policies, shifting the focus to the exclusive "benefit."
When one speaks of an exclusive club, the mind immediately goes to iconic brands such as the "Alitalia Millemiglia Club."
Being a part of it was primarily a matter of pride rather than affordability.
Creating exclusive clubs that shift the focus to "status" and perceived value rather than staying within the price range has multiple benefits:
- it is more effective with a less price-sensitive clientele (usually the high spenders)
- it is more difficult to make an objective comparison with competitors
- it prompts people to tell others about their experience and provides a better corporate image
- an effectful benefit (such as a free bottle of wine) may cost less than offering a discount
5. Start a loyalty program
The loyalty program differs from the exclusive club because instead of rewarding "status," it rewards "behavior." In fact, it is a system that incentivizes repeat customer purchases by offering progressive rewards as you go along and make reservations.
Like all other methods, it allows you to work unconstrained with dynamic pricing.
Plus, it is significantly easier to activate than an exclusive club because of the many software programs that make it easy to set up.
However, for a successful loyalty program, you need to develop a real strategy and define specifically:
- the target audience (all your customers or a specific segment)
- the goals (what concrete results you want to achieve and in how much time)
- the budget (which includes the purchase of rewards, promotion and management of the program)
- operational marketing plan (how, where and when to promote the loyalty program)
Not exactly a piece of cake, but if you already have someone on hand to follow the marketing, they can certainly help you implement the plan and monitor the results.
Some examples of loyalty programs are supermarket "points cards" or cashback programs tied to specific brands and digital payment systems.
Bonus tip: change strategy based on the period
There are indeed many tools and new ones are born every day, but the mechanism is always the same: untie loyalty from price as much as possible, focus on perceived value!
But don't forget that value is subjective, and the same product has different value to different people.
When you want to revise prices for a very loyal customer, effectively selling them something new, communicate with them and focus on what you know they perceive as high value.
If, on the other hand, you have a lot of fairly recurring customers, here are two small tips for choosing what kind of strategy to adopt:
- in periods when price sensitivity is very low (high season, fairs and events, very low season), aim for value (so no discounts but exclusivity and incentives such as room upgrades, extras included etc.);
- during times when price sensitivity is higher (mid and low season) an initiative involving a bargain price is usually more effective, but keep in mind your target clientele.
Be prepared for the fact that some "die-hard" customers will still struggle to adapt.
It is normal that some will turn up their noses, but if you can improve the conditions of most repeat customers, then you can be satisfied.
With stubborn guests, be patient: they are unlikely to bring you major financial damage, but they may bring you reputational problems if you deeply disappoint a loyal customer.
By applying one or more of these strategies, you can do revenue management and increase profits with even your most steadfast legacy customers.
To have the confidence to always choose the right price at the right time, try Smartpricing, the revenue management software that makes your life easier and breaks down uncertainty.