We have just recently taken on 2 youth hostels in Paris and are working on developing revenue management strategies for them. Just as in hotels yield management techniques can be implemented in youth hostels to maximize revenue and profit. Another exciting journey we are taking with our hotel management company.
It is an exciting challenge for our revenue management team to expand our horizon beyond hotels and implement dynamic pricing in youth hostels. The properties we have taken on, the Bastille Hostel and AIJ Hostel in Paris, are in a vibrant and competitive market, making it all the more interesting.
As a first step we will have to work on segmentation. It will of course be traditional hotel-style segmentation, but there are definitely behavioral patterns by which we can group the clients. We will be looking at price elasticity (willingness to pay), booking lead time (how far ahead do people book).
Besides consumer segmentation we will need to look at the physical product attributes to effectively differentiate the accommodation offer. Each category will carry different price structures; Mixed Dorms, Male only Dorms, Female only Dorms, and Private Single or Double Rooms with Ensuite Shower + WC. Product price increments will be demand-driven. People will be willing to pay more for popular preferences. Clearly, a private room with an ensuite bathroom will justify a premium over a mixed dorm room.
Going beyond the basics we will introduce dynamic pricing on the hostel rate structure. We will create different levels of prices for each product matching various demand levels. The price matrix will consider day-of-week patterns and differentiate pricing for weekends, weekdays, events, holidays, etc. An extensive demand calendar will be created to identify yield opportunities throughout the year allowing us to fluctuate prices according to the booking pace and forecast.
To be able to evaluate results we are implementing some youth hostel-specific KPIs. These Key Performance Indicators will allow us to measure the success of our yield strategies;
Overnights: number of people that stayed the night.
Bednights: number of beds used during the night.
(Bed) Occupancy: beds used as a percentage of available bed nights
ABP – Average Bed Price: Average price paid per bed for a specific period
REVPAB – Revenue per Available Bed: Bed revenue as a ratio of available bed nights
TREVPAB – Total Revenue per Available Bed: Total guest spends per overnight as a ratio of available bed nights.
Selling Bottom Up
Doing some research in this market we have gathered that hostels tend to sell from the bottom up. Meaning that the cheapest (large mixed) dorm rooms sell first, and private rooms are the last to sell or go unsold during lower-demand days. This is something that can easily be leveraged into profit maximization and yield economical bedding during high-demand times. It is purely a matter of find the balance between supply and demand.
Expanding the online reach of youth hostels is also fundamental to any revenue management strategy. Increasing distribution partnerships will lead to growing demand, allowing for better yield opportunities.
The action points above are the first steps in introducing revenue management in youth hostels. From here we will work on implementing a revenue management toolkit, just as with hotels, to monitor, measure and analyze the impact of our yield decisions and tactics.
It is truly a very exciting project for Xotels to implement into these youth hostels in Paris. We will keep you posted on the results.