Spa Revenue Management: Can it Boost Resort Revenues?

Kavita Mehta, Undergraduate Student,

Oxford Brookes University

“The emergence of the global spa industry can be understood as a natural response to the human desire for wellness and viewed in the context of the evolution of consciousness, globalization and the many crises the world is now facing,”

(Cohen and Bodeker, 2008, p.5).

The Spa Industry

The Spa Industry

• The spa industry is the fourth largest leisure industry in the US with more than 150 million active spa goers worldwide and is considered as the fastest growing sector in the tourism industry.

• A relaxing and healing environment distinguishes spas from standard beauty salons and clinical medical centres that are not promoted as spa businesses.

• Spas must employ qualified personnel who have successfully completed professional external training courses on treatment procedures required of a professional spa business.

Spa Classification

• Stand alone day spas

• Hotel and resort spas

• Medical spas

• Club spas

• Mineral spring spas

• Destination spas (71 locations, 0.5%)

• Beauty, hair and skin salons are starting to offer spa services and calling themselves "Day Spas" which are starting to offer medical services

Clusters of Spa Goers

Cluster Group Benefit Variable

Escapists Relaxation Interested in experiencing ways to

improve health and Rejuvenating oneself

Neutralists

Relaxation Stress relief Not interested in socialized while

receiving spa treatments

Hedonists

Amusement To experience the spa experience

with family or friends To be pampered Escape from daily life

Benefit Factors of Spa GoersFactors Variables

Social

To enjoy with family To enjoy with friends To enjoy a special occasion To have fun To experience adventure To meet other health conscious

people

Relaxation

To feel relaxed To be calm To relieve stress To escape from daily life To be pampered

Health Reasons

To improve physical health To feel healthier To improve mental health

Rejuvenation

To feel refreshed To enjoy To improve ones appearance

Contribution to Resort Revenue

• A Resort hotel spa is a spa owned by and located within a resort or hotel providing professionally administered spa services, fitness and wellness components, and spa cuisine menu choices.

• Resort spas are typically larger and offer more services• The perceptions of spas have changed over the years, in the 1980’s

having a spa in a hotel was considered a luxury deemed more of an amenity than a profit generating centre for the resort

• Now, however, resort managers are realizing that having spa is essential to meet guest expectations and to enable resorts to remain competitive in the leisure market

• In resort hotels, spas are becoming increasingly important for achieving a healthy bottom line

• Building a spa is one way hotels and resorts can increase revenue from reaching hotel guests, as well as the local population. If built and managed correctly, a spa will add revenue to a hotel bottom line by allowing an increase in room rates which in turn increases REVPAR

Contribution to Resort Revenue

• Hotels have seen the increase in demand for spa services and have in turn extended or added spa facilities

• Spas have proven to be significant profit centres capable of generating additional revenue for hotels

• Resorts with full service spas have a higher and a high percentage of customers surveyed said they would choose one resort over another because of the existence of a spa

• Resort managers must understand a spas potential to their revenue and harness this so as to obtain the most profit attainable.

Revenue Management Strategies

• Pre-arrival processes • Could be used to inform the guest of the spa services

prior to their arrival so they may be able to book the service they want, but also to promote interest in the spa services and facilities.

• Calling a customer to communicate a special offer or service so they are able to obtain the time slot they want.

• Empowering reservation staff to fill holes in the schedule in advance as this will lead to higher profits

• The use of the telephone is a vital tool used in the implementation of the chase strategy as it is used when customers will not wait long for the service and there is an immediate need at least to get the process started

Time Management

• Balance keeping the customer is satisfied and the business is profitable.

• Offer different lengths of treatment or asking customers to book multiple treatments during busy periods

• If an appointment is not filled, a dual loss is suffered; both the space and the therapists time.

Arrival Management

• Key to organizing time and ensuring there minimal cancellations.

• To decrease the uncertainty of guests’ arrival, ask for a deposit, reservation guarantee or remind customers of their appointments

Overbooking

• Can save time and money, as if there is a last minute cancellation, there is always another customer to fill the slot.

• OB levels need to be set first, and this requires the gathering of accurate information on no-shows, cancellations and walk in guests.

• Contingencies should be in place: 2 customers could arrive for the same treatment time slot. This can be solved by perhaps asking one of the customers to switch their treatment to another time, whilst also offering them an additional, complimentary service.

Time & Price• Look at trends, most requested services and establish a

price based on the demand of these. • Time and price are deciding factors for woman, as

offering them a way to save money and their appointment time of choice can be of high value .

• Price sensitive customers may be willing to pay for treatments at a less attractive time or in a less desirable room if they can obtain a discount.

• Price insensitive customers are prepared to pay a premium price to secure the perfect time, room or therapist

• Spa customers can be segmented by their usage, a leisure day user would be able to visit the spa anytime during the days, whereas, a corporate user would one be available for set times during the day

• Both forms of customers can be accommodated, but they need separate strategies.

Rate Allocation & Inventory Control• Need information on local and visitor demand, leisure

day and corporate customers and evening and weekend demand

• Rate fences could include peak and non-peak pricing, or weekend and weekday pricing, two for one specials, special prices for local customers and frequent customer programmes.

• Spa managers have a number of aspects they can charge different prices for; physical products such as room size, location or type, the therapist, treatment type and amenities and intangible aspects such as group membership or affiliation, time of day or week, treatment duration, presence or timing of the reservation and whether the reservation is guaranteed

REVPATH

• Revenue per available treatment hour integrates of price and duration of the treatment as factors in revenue calculation, producing a time related measure crucial in indicating how effectively a spa is using its capacity productively

• Low demand: Managers can either try to attract more customers and increase use or rely on suggestive selling to increase the average expenditure.

• High demand: Reduction of amount of time between treatments or offer only premium treatments

Other Revenue Generating Products

• Can vary between 10% to 50% of total treatment revenue: retail sales, spa food and beverage sales, general health and wellness services, facility day access, fitness services and spa membership programmes, sale of products used during treatment so as to recreate the spa experience at home.

• Consider: In house, incoming guests, staff, the local community

Conclusion

• Revenue management strategies in spas in resort hotels can contribute to the resort’s profit as help meet guest expectations and enable resorts to remain competitive

• Strategies include using capacity management, understanding REVPATH and harnessing the potential of using other spa products to generate additional revenue.

Main Sources

• Brezina, S. and Madanoglu, M. (2008) ‘Resort Spas: How Are They Massaging Hotel Revenues?’, International Journal of Contemporary Hospitality Management, Vol. 20, No. 1, p.60-66.

• Cavallari, R. (2008) “Spas – They’re More Business Than You Think”, Hotel World Network. Available at www.hotelmotel.com

• Cohen, M. and Bodeker, G. (2008) Understanding the Global Spa Industry: Spa Management. Oxford: Butterwork-Heinemann.

• Foster, A. and Mandelbaum, R. (2005) “Hotel Spas: The New Recreational Vehicle for Hotel Profits”. Available at: www.pkfc.com/common/industry/october 2005.aspx.

• Haden, L. (2007) Spa Tourism-International. London: Mintel International Group Limited. • Kimes, S. and Singh, S. (2009) ‘Spa Revenue Management’, Cornell Hospitality Quarterly, Vol. 50,

No. 1, pp. 82-95. • Koh, S., Yoo, J., and Boger, C. A. (2009) ‘Importance Performance Analysis with Benefit

Segmentation of Spa Goers’, International Journal of Contemporary Hospitality Management, Vol. 22, No. 5, p.1-20.

• Leavy, H. (2009) “What is a Day Spa?”, Available at http://www.spamanagement.com/day_spa/definition.html. (Accessed April 15 2010).

• Monteson, P.A. and Singer, J. (2001) “Spas: a Tangible, Intangible Asset to Resorts”, Avalable at: www.hotelinteractive.com/index.asp?page_id=5000%article_id=1154. (Accessed Feb 24 2010).

• Monteson, P., and Singer, J. (2004) ‘Marketing a Resort-Based Spa’, Journal of Vacation Marketing, Vol. 10, No. 3, p.282-287.

• “Spa Definitions” (2010) Intelligent Spa. Available at: http://www.intelligentspas.com/main/MediaCentre.asp#Spa_Definitions. (Accessed April 15 2010).

Other References

• Armistad, C. G. and Clark, G. (1993) ‘The Coping Capacity Management Strategy in Services and the Influence of Quality Performance’, International Journal of Service Industry Management, Vol. 5, No. 2, p. 5-22 .

• Chiang, W-C., Chen, J., and Xu, X. (2007) ‘An Overview of Research on Revenue Management: Current Issues and Future Research’. International Journal of Revenue Management, Vol. 1, No. 1, p. 98-128.

• Clifford, L. (2001) ‘Spa Wars’, Fortune, Vol. 124, No.11, p.211-213. • Dubow, C. (2006) “America’s Best Resort Spas. Resort Spas are Becoming More Popular. Which Ones Are

Worth the Trip?” Business Week Online. Available at: www.msnbc.msn.com/id/12647733/ (Accessed Feb 24 2010).

• Fontanari, M. and Kern, A. (2003) ‘The Comparative Analysis of Spas: An Instrument of the Re-positioning of Spas in the Context of Competition in Spa and Health Tourism’, Tourism Review, Vol. 58, No. 3, p. 20-28.

• International Spa Association. (2004) The ISPA 2004 Spa Industry Study. International Spa Association, Lexington, KY.

• Kimes, Sheryl. (2008) ‘Hotel Revenue Management: Today and Tomorrow’, Cornell Hospitality Report, Vol. 8, No. 14, p.1-15.

• Lomanno, M. (2005) “US Lodging Industry Overview”, paper presented at the Fifth Resort Management Conference, Phoenix, AZ.

• Sasser, W. E. (1976). ‘Match Supply and Demand in Service Industries’. Harvard Business Review. November-December.

• Smith, Barry A., Leimkuhler John F. and Darrow, Ross M. (1992) ‘Yield Management at American Airlines’, Interfaces, Vol. 22, No. 1, p.8-31.

• Vinod, B. (2004) ‘Unlocking the Value or Revenue Management in the Hotel Industry’, Journal of Revenue and Pricing Management, Vol. 3, No. 2, p.178-190.

• http://www.4hoteliers.com/4hots_fshw.php?mwi=2735• http://www.entrepreneur.com/tradejournals/article/193406680.html• http://www.youtube.com/watch?v=s1Mqmm1sJjs (Spanish video)