I have mixed emotions when I’m flying and the seat next to me is empty. The traveler in me is happy for the extra comfort.
But the revenue manager in me wonders, “What went wrong?”
I learned pricing and revenue optimization in the cruise industry, where the most profitable companies have a creed: zero tolerance for empty cabins. Which means that by 5 p.m. the day before a cruise departure, every single cabin is to be bought and paid for. No exceptions. Even one unsold cabin is a failure to be analyzed, diagnosed and remedied for the future.
So, while I joyfully spread out across two airplane seats, I feel badly for the revenue manager who has some explaining to do.
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This full-ship mentality that permeates cruise industry culture requires three things. The first is a detailed understanding of customers: what they buy, when they buy, and what they are willing to pay. The second is effective passenger sourcing machinery and a mechanism for setting dynamic prices. The third, and most important, is a passion for playing a full-court press to maximize revenue.
These techniques have important lessons for virtually any business, including hair salons, restaurants, fitness centers, performance venues and even professional service companies such as law practices and accounting firms.
The first step is to segment your customers according to what they value and how much they’re willing to pay. For example, cruise lines know that for a European, the Caribbean is an exotic destination of sunshine and sandy beaches. But to a Floridian, the Caribbean is a quick escape from the drudgery of I-95.
The European plans far in advance for a dream vacation and will pay accordingly. The Floridian will go on a moment’s notice, but only if the price is right. Cruise lines succeed by artfully balancing this mix.
The same willingness-to-pay principle applies to all businesses — even barber shops. Weekends are packed with busy people who work Monday through Friday. They’d be willing to pay more for a must-have time slot and the convenience of shorter lines. On the other hand, people with flexible schedules would take empty slots on weekdays at a lower price.
The second step is to put the right machinery in place, including mechanisms for charging dynamic prices.
Customer relationship management systems are one type of machinery cruise lines use to keep in touch with their millions of guests. Past cruisers receive a stream of email and printed invitations to try a new ship or a different destination. Similar relationship marketing program can work for any size business.
Distribution systems are another part of the machinery that cruise lines maintain. If you’re a travel agent that sells cruises, you’ll get commissions, training, free cruises and incentives to make even more money by exceeding your targets.
Cruise line reservations systems have a price point for every customer’s willing-to-pay profile. Fares vary by destination, time of year, cabin size and included amenities. And these fares move up and down based on demand. Prices go up on popular cruises booking toward a sellout. They go down on cruises needing extra stimulation to fill every cabin.
Finally, make the top line as important as the bottom line. Study it and manage it in minute detail. Cruise line revenue managers strive to achieve the most revenue the marketplace allows. They’re not satisfied until they’ve sold every cabin.
If your restaurant has empty tables, if your hair salon has empty chairs, if your fitness center is slow in the afternoon, or if your firm’s accountants experience a post-April 15th lull, you too should implement a full-court press on revenue.
Adam Snitzer is a revenue strategy expert and president of Peak Revenue Performance, a consulting firm that specializes in designing and executing innovative pricing strategies. He can be reached at firstname.lastname@example.org, or via the company’s website at PeakRevenuePerformance.com.