#4: How to rent a gîte using Revenue Management?

This week, I have the pleasure of sharing a business case, as part of my crazy challenge, proposed by the company Gîtes de France concerning the performance of one of their gîtes during off-peak periods: or how to rent a gîte when demand is very weak?

The proposed case is the following: improve the sales of a gîte which sells very little (with some months completely empty) and which has a declining turnover over the last two years.

In a case like this, as a manager or owner of the establishment, it is legitimate to think that everything has been tried . We must not neglect the psychological wear and tear that the absence of sales produces, despite a significant amount of energy deployed on a daily basis to improve performance. Who would not be tempted to conclude that there is nothing more we can do?

So in this context, there is nothing like an outside eye (and if possible an expert in revenue management, obviously) to give a helping hand, provide new elements for reflection, and maximize the establishment's turnover.

I am therefore delighted to help this lodge review its revenue management strategy. We will see in this article:

• My method of analysis to understand the origin of the problem and find solutions
• Ideas and proposals for a new revenue management
• Why revenue management and operations are very linked. In this case the points which seem to me to be blocking operationally.

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Please note: this article is part of my 52 week challenge . This case is real but for reasons of confidentiality the name of the gîte and the city are not mentioned.

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First of all, here is a description of the gîte we are going to talk about. It is atypical, because it has a very small surface area (16 m2 – it can accommodate 2 adults and a child). It is a thematic trailer-type gîte (the experience is similar to a small mobile home.). It is located in a magnificent green setting on a farm and a few kilometers from the sea. 

The performance of this gîte is as follows:

– in 2017, 37% occupancy at an average price per night of €68. During the high season (July & August) the gîte is rented at 100% occupancy rate with an average price of €80.

– in 2018, 23% occupancy at an average price per night of €74. During the high season (July & August) the gîte was rented at a 75% occupancy rate with an average price of €82.

The first point that stands out when reading these figures is the occupancy rate of the gîte throughout the year . From a macro perspective, this establishment achieves a large part of its performance in July & August then survives the rest of the year thanks to a few one-week stays, but mainly short stays. Finally, the establishment experiences a total absence of reservations between December and March.

Spoler alert: you will have noted a significant growth in the average annual price between 2018 and 2017 of +8.8% and a drop in occupancy of 14 points. The first instinct might be to conclude that the price increase has led to the drop in occupancy: but this is false.

For what ? Taking a closer look at the pricing: we note that the price increase was very reasonable (and less than 8%) and that this increase in average price is only the result of the loss of a certain number of sales in low season ( cheap). The loss of these stays has the (statistical) effect of increasing the average price in 2018 compared to 2017.

In summary: this gîte experiences very low occupancy all year round except in July and August. In 2018, sales are decreasing, even if prices have not particularly increased compared to 2017.

1 – Analysis method to understand the problem and find how to rent a gîte out of season

The analysis method used here is simple and easily applicable to other contexts. It is not exhaustive, but in this case these four steps were enough to give a clear vision of the problem and possible solutions.

Point 1: Study current performance in detail

The first point is obviously to study the past figures in detail . On the sales list sent to me, I calculated and studied: the length of stay, the occupancy rate, the average price , the reservation times and the sales prices for each reservation.

I subsequently established a summary table of sales per week which allowed me to have a macro vision of performance and to draw the first conclusions on the problem to be resolved.

In this case, it would probably be possible to optimize the summer strategy (period with the most demand) but the economic potential is much greater if we work here, initially, on filling empty weeks.

Point 2: Live the online booking experience

Secondly, I put myself in the client's “shoes” and test the booking experience on the Gîte de France website as well as on the gîte website itself.

Thanks to this method we can clearly see the offer proposed to the customer and in what way; for our establishment and that of competitors. Is it easy to understand the offer? What is our position in the results? etc

It is at this stage that certain blocking points may already appear, both from a pricing and operational point of view.

Point 3: Study the current price list

Another crucial point: take stock of the nightly pricing, by type of period and by length of stay.

The pricing of the establishment concerned has the specificity of being different depending on the number of nights of the stay. This method is only rarely applied (usually we restrict the possibility of reserving certain lengths of stay without going so far as to price differently). However, it is an excellent method that you simply have to use at the right times.

If this is the case, remember to only compare what is comparable by relating all prices to a price per night.

Point 4: Conduct a study of competing prices

Finally, it is essential to do a study of competitors’ pricing and services . The two big points to keep in mind are:

• cover the entire offer available to the customer (hotel, guest room, gîtes, apartment rental, etc.) and know if the proposed offer is more or less qualitative than yours (refer to online reviews, to the stars or ears for gîte de France, as well as to the descriptions)
• and what is the price offered depending on the number of people accommodated

2 – What action plan to improve sales

During my analysis, I was able to identify:

• on the one hand several points to improve and which should be tested to allow sales growth
• and on the other hand, sales constraints which must be completely removed , because given the sales figures, they have no place at all in the establishment's revenue management strategy and they block sales!

Point 1: the strategy linked to lengths of stay

As mentioned above, the establishment optimizes lengths of stay by two methods : firstly by banning certain lengths of stay (no price is associated with this length of stay – the customer cannot therefore reserve them ) and by different pricing depending on the length of stay.

Let's first talk about residence bans. Two prohibitions are mainly imposed:

• ban on overnight stay
• and ban on stays of less than 7 days from May 4 to September 27

Recommendation #1 : accept overnight stays . Indeed, this type of product close to the sea which can only accommodate a couple (or even a couple with a child) is the perfect destination for a romantic weekend. By refusing one-night stays, we are depriving ourselves of this clientele. (this recommendation will not be implemented because it is contrary to Gite de France global policy)

Furthermore, regarding the ban on booking stays of less than 7 nights from the beginning of May to the end of September, this restriction is partially adapted .

From the end of June to the end of August, I am in favor of maintaining it , because the demand is really present and authorizing short stays would probably have the effect of creating orphan (empty) days between two longer reservations. So it's perfect.

On the other hand, Recommendation #2 : it is imperative to lift this ban for the months of May, June and September as soon as reservations open before the season. As demand is much lower at these times of year, we are not in a position to require long stays. And I would even say that it is even more problematic for a month like May which has the highest concentration of public holidays and therefore a high potential for short stay requests.

These 2 recommendations are therefore already an important source of turnover to improve the off-season performance of this gîte.

Point 2: The work of pricing

Let's now talk about the management of short stays through pricing (reminder: the price per night is different depending on the length of the stay: more expensive for short stays and less expensive for long stays).

Generally speaking, this method of optimizing length of stay is rather good, because it allows you to never refuse the sale to the customer (which is always preferable) but in return not to accept at any price. In summary, to compensate for the shortness of your stay with you by a higher price to help compensate for the shortfall that your stay could cause (because a short stay in the middle of the week prevents you from selling all week).

The only problem in the case of this lodge is that the demand is not there. This method is relevant if demand is greater than the capacity of the establishment. In this case, this is not what we observe.

My Recommendation #3 : is therefore not to be so drastic about the price increase in the case of short stays .

As a reminder, in January, for example, a customer who stays 2 nights pays €83 per night, while a customer who stays 7 nights pays €43 per night. This price difference, from simple to double, would make sense if we were certain to sell each week in 7 nights, but in this case, this is not the case. We therefore need to be incentivized and not increase too much for shorter stays to boost sales.

To find out at what price to establish the new prices for short stays , I carried out a competition study on the geographical area of ​​this gîte, for a 2-night weekend.

The result is obvious: the prices of the gîte are not competitive compared to what competitors can offer in terms of price and service.

And be careful, by service, I do not mean the quality of the execution on site; because obviously, I did not go to stay in each of the establishments; but rather the customer's vision of the service by consulting the Gîtes de France website or by going to booking for example.

Our gîte immediately appears disadvantaged by its small size (16 m2) and the fact that it can only accommodate one child. All competing establishments can either accommodate at least 4 people, or have recognized quality marks such as the “Epis” gîte de France label, which our gîte does not have.

And despite this challenger position, our gîte is among the 40% most expensive: 60% of competitors are cheaper.

So my Recommendation #4 is a pricing recommendation which aims to reposition the price of short stays so that they are more in line with the local market and more attractive out of season. Thus, it is necessary (at least) to maintain the price of €56 per night (price currently applied to stays of 4 nights) for stays of 2 and 3 nights (to date positioned respectively at €83 and €66) to attract a larger clientele out of season.

3 – Why revenue management and operations are closely linked to properly rent a gîte.

Finally, this case is the perfect opportunity to recall the close link between revenue management and operational reality. Only perfect consistency of strategy between these two aspects can enable good final performance of the establishment.

Here are several operational points which caught my attention and which can be obstacles to booking (therefore jeopardizing your revenue management strategy).

First of all, booking out of season requires manual re-validation from owners. In today's digital world, it remains very difficult to make the customer understand that the reservation request will take 24 hours and I imagine that this could be an obstacle for certain sales.

The subject of household expenses. This subject is a real point which deserves an analysis in its own right (and this also concerns real estate investors who place their properties on Airbnb): the big dilemma is the following: should we impact cleaning costs in addition or include them in the price. For an establishment having great difficulty selling, I would tend to challenge these costs to assess on the one hand whether it is possible to reduce them and on the other hand whether it is possible to impact them overall over the month from when reservations start to be made (thanks to the actions proposed above). But it's a step two optimization.

Another point regarding the deposit: even for a short stay (2 nights) it is necessary to give a deposit of €200 . This may seem excessive to the short-stay customer and could hinder the strategies put in place (see recommendations above) which aim to develop short-term sales.

Finally, from a purely marketing point of view: I had to search and read several sites to realize how green and pleasant the setting in which this gîte is located is, which leads me to raise the importance of the marketing value of the establishment to support the pricing strategy: the two approaches feed each other and are totally interdependent.