Sightseeing tour yield management – where are we at?

October 7th, 2019

Alex Bainbridge

With conference season around the corner, and yield management likely to be on the list of discussions, it is worth writing an update as to where we are at on this topic:

What is yield management?

According to Wikipedia,

Yield management is a variable pricing strategy, based on understanding, anticipating and influencing consumer behavior in order to maximize revenue or profits from a fixed, time-limited resource

What makes yield management different in our sector is:

  • We can create variable availability, not just variable pricing
  • Our resources can be variable too, not just fixed
  • We are not a “must buy” product, we are competing with “I can’t be bothered, lets go to the shops”

i.e. yield management within the sightseeing tour industry is slightly different than e.g. the hotel industry (a “must buy” product if you are travelling).

A side note about attractions

Attractions yield much more like hotels do. This is due to:

  • Whatever price a customer pays, each customer will receive the same product
  • Attractions tend to be singular – e.g. if you are a museum – if the customer wants to go to that museum – the demand is specific to that museum. With a tour you may find something very similar (e.g. a mountain bike tour) from another company i.e with tour yield management you have to care more about the relative demand vs competitive products than you do as an attraction.

Tours do not yield manage like attractions. This article is primarily about supplier side tour yield management πŸ˜‰

Two types of yield management

Important to understand the two key yield management approaches from a theoretical perspective before we discuss further:

Price based

  • Bucket pricing – used on some tours where as a booking is received, subsequent bookings will be at another price (generally more expensive). Incentivises people to book earlier like they do with low cost flights
  • Weather based pricing – if it is forecast to rain tomorrow afternoon, automatically reduce your prices for your outdoor tours by 20%
  • Classic special offers – a group booking for next Wednesday has cancelled, put the tour back into general public sale but on a 20% discount to drive demand to that slot
  • Demand based pricing – maintaining a certain position in the market based on product demand. More common if you have a product that sells out regularly rather than if you have a low demand tour

Fundamental challenge with price based yield management is that you can’t operate this type of yield management AND have

  • Free cancellation
  • Booking with partial name / identity information

Otherwise you just reduce your tour price and everyone who has already booked will cancel and rebook at the lower price. Startups will form to help customers do this with low friction. Some retailers do not send full customer name details, or only the lead customer, so if suppliers think that they can spot cancel & rebook, they wont be able to.

Conversely, if you have price based yield management where prices increase nearer the travel date, retailers could put in a “fake booking” early, hold the lower price for a subsequent customer, and cancel during permitted free cancellation period if they have not sold the tour. (I appreciate this is unlikely, however it would be possible)

Additionally, do we want to remove prices from in-destination leaflets and train customers to look on their phone for the latest price? This is an interesting discussion point! Perhaps we do want to train customers to do this actually…

Class based

e.g. say you have two mountain bike experiences – one standard with regular margin, one luxury with a higher margin. You take the standard one off sale at 5 days to go because you want everyone booking last minute to book the luxury version. This you can do on your own website fairly easily.

This is an easy strategy to apply locally if you publish prices in leaflets. Your prices are not changing, just your availability, so you can keep distributing printed leaflets to e.g. hotel lobbies.

Its a particularly good strategy when e.g. you have one bus and it can carry customers for two or more different tours. If your resource limit is set by the bus capacity, take the lower margin tour offsale before your higher margin tour. (This is where you need to understand customer behaviour – will sufficient customers book the higher margin tour if you take the lower margin tour off sale earlier?)

From a distribution perspective, the fundamental issue with class based yield management is that retailers do not support the concept of natural alternative tours.

E.g. by the time your two mountainbike tours feature on a retailer’s platform, if you take your standard mountainbike tour offsale at 5 days, the retailer will just push someone else’s standard mountainbike tour. I have not seen any retailers even attempt to assist suppliers to show alternatives from the same supplier rather than alternatives from the entire market in that locality.

(Compare this to hotels, if the budget room is offsale, the luxury room is visibly on sale to that customer when the customer is looking at the booking flow. i.e. alternatives from the same supplier are nicely handled in that sector)

As an interesting side note, it is very hard for a retailer to tell if they ARE being yield managed via class based yield management. To the retailer it just looks like an unavailable product. The only way they could possibly tell is if they have access to the core platform the supplier is using to run their business. Luckily retailers don’t own supplier reservation systems…… oh hang on πŸ˜‰

Other related approaches

Probably not yield management in the true definition, but keep in the back of your mind while thinking through this whole topic:

  • Larger last minute bookings – you would take a 2 person booking for a tour in 3 weeks time, but not a 2 person booking for a tour leaving tomorrow (as you may need 4 people to run the tour profitably). Therefore systematically adjust the minimum booking size based on time prior to trip start and existing booking numbers for that slot
  • Kite flying – advertise two tours and only run the one that looks like it will meet minimum viable numbers. Very popular in some destinations where there are hundreds of options but low visitor numbers.

Cross industry

Yield management is now a cross-industry discussion. A supplier can’t yield manage on their own website and not yield manage those same products when sold via retailers. (Mainly because retailer agreements mandate that suppliers do not do this!)

From a connectivity perspective:

  • All distribution APIs support availability transfer from supplier to retailer so can be used to apply class based yield management today
  • A few support pricing transfer from supplier to retailer. i.e. price based yield management not really possible with today’s tech for all retailers
  • None (as far as I am aware) support variable commission on a per date / slot basis (will come back to that in a minute!)

For yield management to be adopted cross-industry, we need to look at motivations:

  1. Suppliers can introduce class based, without retailers, but why would they do that if there are no natural alternative tours shown on retailer platforms. They would be shooting themselves in the foot if there are local competitors with similar products
  2. Suppliers can only introduce price based yield management if the retailers, who control the distribution API specs, permit prices to be distributed automatically
  3. Suppliers won’t introduce price based yield management without increasing cancellation terms, which retailers won’t agree to
  4. Retailers won’t support price based yield management because they don’t want a metasearch layer between themselves and their customers. TourScanner or perhaps even Reserve with Google are standing by able to shift consumers between retailers based on price as a factor

i.e. that is a lot of friction to make anything really great happen here on a wider scale. Probably why nothing significant has happened on this topic, ever πŸ˜‰

What should the industry focus on

If we want something to happen here we need to align motivations:

I would look at the simple problem of tours not reaching minimum viable numbers. e.g. when a tour has one person booked but four are required for the supplier to operate profitably. The supplier really does not want to cancel that one person booking so will hold that cancellation notification until the last minute, hoping for more bookings to come in, which is all they can do, but this is not a customer friendly strategy.

I would like to see the supplier able to flag this slot to the retailers and say, hey everyone, we really urgently need more bookings on this one, please help. This could be tied in with an additional commission and customer facing special offer. If normally on 20% commission, the supplier could offer 30% just on this date / slot.

  • Helpful to customers – that one person booking now operates rather than being cancelled
  • Helpful to suppliers – they get more tour slots to minimum viable numbers
  • Helpful to retailers – they train customers that its GREAT to go back to the retailer websites DURING a trip to see amazing last minute offers, rather than ahead of time when they booked their flight/hotel

This alignment of motivation is sufficient to introduce yield management and get everyone working together on a common mission.

Autoura

On our little retailer biz I have baked in that price based yield management is likely to occur in the coming years. We have made the following two commitments to suppliers that we retail:

  • We sell at the retail price they set (i.e. we do not break any yield management strategies they are operating, or may operate in the future)
  • We will not burn commission for reduced price – e.g. if someone gives us 20% commission on 100 USD tour, we sell at 100 USD. We do not sell at 90 USD leaving us only 10% commission

This is about as supplier friendly as we can possibly make it.

Further areas we could talk about

This topic goes on and on….. if you want to get even deeper, we should be talking about what the role of a channel manager could be in our industry. I am not completely convinced about the need for another layer (at least in tours, may be needed in attractions!) as the sharing of booking revenue between technology partners is already stretched. Also if class based yield management relies on knowing the capacity of an external resource (e.g. a bus that takes people to the starting point for two tours), this is much best handled by the supplier reservation system that already manages these resources.

We should probably also talk about the hotel industry and their introduction of attribute based selling. Read this Phocuswire article on attribute based selling. That could be an interesting path for our industry to go down too….. lets leave that for another post!

Final thought

I find the topic a little bit like rearranging the deckchairs on the Titanic, this really should not be the main discussion at all, the real debate tour operators should be having at conferences is about personalised delivery of sightseeing experiences at scale and how this will shift the industry from products to services, completely changing distribution, retail systems & supplier reservation systems.

If we know that tourmageddon is coming, looking at how to apply yield management in our sector is an unhelpful distraction, diverting attention from the real debate.

Anyways, hope you liked the post regardless. Will do tourmageddonΒ another time πŸ˜‰

Image: Flickr: Ben Schumin

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Comments

2 responses to “Sightseeing tour yield management – where are we at?”

  1. Alex Bainbridge says:

    If you like to comment / or LIKE (please!) via LinkedIn….. https://www.linkedin.com/feed/update/urn:li:activity:6586974785362771968/

  2. Daniel Pino says:

    Hey Alex, very interesting article! We will share this with our suppliers. However, I do want to let you know that, although small, an OTA focused on Yield Management exists! It’s called TourOpp.com and we are already offering 1,500+ tours with discounts in 86 destinations around the world. Here’s the link so that you can see a bit of what we’re doing: https://www.touropp.com/merchant-sign-up

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