Understanding how to create and implement a coherent spa pricing strategy is essential for maximising yield.
There is no doubt that implementing a coherent pricing policy is one of the key factors for ensuring optimum revenues and higher profits. But what constitutes a ‘coherent pricing policy’? What are the important variables that need to be considered in order to maximise yields? It is not uncommon for spa operators to consider their cost base (mainly cost of labour and product) and add on a profit margin of what they find a ‘reasonable percentage’, especially when entering into new markets with limited competition. However, there are a number of other important variables that must be considered in order to maximise yields, such as:
- Type of spa: are you a day spa or a spa within a leisure resort? Are you a luxury five star spa or are you a four-star or more economic spa? Day spas will need to be more price competitive and price sensitive as consumers here expect more ‘value for money’, whereas spas within luxury five star hotels will have a higher margin to play with as their consumers are more predisposed to spend money on pampering themselves and trying out new spa experiences. The price point, therefore, for a day spa will vary considerably to that of a spa within a luxurious leisure resort or a spa within a four star hotel.
- Target market: what type of spa-goer is your target market (periphery, mid-level or core-level)? Depending on your target market and type of consumer, your treatment menu offering will differ. A more periphery consumer will dictate more of the ‘bread and butter’ treatments like massage, whereas a more assiduous spa-goer will demand more relaxing facilities, such as hydrotherapy pools, steam rooms, saunas and private relaxation areas. Less labour and product intensive treatments will obviously call for higher profit margins, though the price point will be slightly lower.
- Type and duration of treatments: Treatments with lower labour and product costs will yield higher profit margins, than for example authentic signature treatments. However, the spa operator should also consider the duration their therapist and treatment room are occupied. The most common treatment on your menu will tend to be massages, where though the product cost is relatively low, your therapist and treatment room are booked for the entire duration of the treatment. Hence, time needs to be considered as an important factor for yield maximisation, and that is why some five star spas are adopting a pricing strategy that sell spa experiences as a measure of units of time, instead of type of treatment. This in turn allows operators to maximise treatment room and therapist occupancy whilst giving the guest a more personalised treatment.
- Extra services or facilities that can be added-on to enhance the spa experience offered: Does your spa offer private relaxation areas, steam rooms and saunas, welcome and farewell rituals, unique giveaways for special occasions like birthdays, wedding anniversaries etc? If your spa does offer these little extras then you can justify setting higher prices for your treatments as you are selling more of an experience than a mere treatment. The extra personalised approach, though adding to your cost base, justifies the higher treatment price. However here the balancing act would be the cost of the ‘extras’, the personnel required to ensure the personalised and memorable guest experience versus the reasonable treatment price that can be set and what consumers will perceive as good value for their money. Note: most spas now do offer these rituals and if one goes to a five star spa they now expect these gestures as part of their experience.
- Geographic location of the spa: Business and operational costs vary according to market conditions and economic factors across different regions. Labour costs, one of the most significant costs in a spa, are far higher in Asia than for instance in the Middle East or Europe. This increase in cost will therefore have an impact on treatment costs leading to higher treatment prices in regions where labour costs are higher.
- The average market rate: If you are a spa operator in a location with a high supply of spas, catering for both local and foreign tourist clientele, you will need to take into account the average market rate. Your clients will compare price and quality with other spas. In this case it will be seen that spa operators keep within a 10 – 15% price range from their competitors in order to maintain a competitive position within the market.
- Your consumers´ acceptable perceived ‘value for money’: Your consumers’ spending pattern will be very important at the moment of setting prices. At what range of the spending spectrum are your consumers? The more spa savvy consumers are getting and the more competition that is out there, the more demanding is today´s spa-goer. They already have preset expectations of what to experience and at what price. For instance, a consumer travelling to Asia from the US or UK will be less willing to pay the same price for a massage than in a day spa in their home country primarily due to the fact that consumers already have a preconceived expectation that services cost less in Asia than lets say Europe.
These are just a few of the additional factors that need to be considered before pricing your treatments and services. As the spa industry matures and spas better understand the idea of yield maximisation, we will see more advanced revenue management schemes being adopted where perhaps peak and off-peak rates, such as those in the hotel and airline sectors, will be considered.