For businesses that have tapped into social media to find more customers and instead have found a lot of pain, a new twist on an old business concept may bring them what they really need for social media deals: control.
The concept is known as yield management, something already familiar to hotels and airlines, and an idea that’s getting a lot of traction through a new generation of social startups.
Most social media solutions for commerce to date have been variations of a singular theme: discounts aimed at as many interested customers as possible, broadcast through social media networks like Twitter and Facebook or through private services such as Groupon and LivingSocial – the so-called daily deals.
Though distributed in a new way, these daily deals are essentially coupons, just like the kind people used to snip out of newspapers (go look them up on Google). These discounts were designed to be loss-leaders with one goal: get customers in the door. Sure, you would lose your margin or more on that discounted item or service, but you would make that up in other goods and services purchased during the first or repeat visits. The only difference was scale and targeting. Daily deals can be delivered to just those looking for a deal your company can provide, and on a larger scale.
Yield management strives for an entirely different goal. Discounting is still presented to customers, but with a much more specific goal in mind: getting customers to buy and use a resource that might otherwise go empty.
This is exactly what airlines do for seat reservations. When a plane flies, its going to go no matter how many seats are filled. That means every empty seat on an airliner, while appreciated back in coach, represents a big loss for the airline. Better, the carriers reason, to have a passenger pay something, even if it’s less then the optimal fare, than nothing at all. This is why airlines so often charge varied amounts for seats on the same flight. Depending on when the passenger bought the ticket, the airline’s pricing algorithms will have adjusted the fare to ensure that as many seats on the flight were filled as possible.
Hotels will do this as well, using third-party vendors such as priceline.com and Hotwire to make sure the maximum amount of rooms get occupied. Even at a steep discount, capacity-constrained businesses like these will still generate some revenue, which is always better than zero.
Other social startups are working to apply yield management techniques on a more local scale.
Leloca has a mobile app for iOS and Android that enables customers in New York City to get discounts at participating restaurants throughout the city. Merchants use Leloca to fill tables that would have otherwise gone empty.
The need for Leloca and similar services, explained Leloca CEO Douglas Krone, is that every empty table represents a drag on a restaurant’s bottom line, and not just because food isn’t getting sold. Restaurants have ongoing costs, such as utilities, building maintenance, and personnel that have to be covered–costs that often amount to 70 percent of running the business.
In that environment, even getting an empty table filled is better than no diners at all.
“You may make $30 profit instead of $70,” Krone said, “but $30 is better than $0. And that $30 adds up with tables filled instead of empty.”
Leloca’s model is very specialized for its environment: a very dense city, where customers can easily get to the restaurant within the timeframe the restaurant wants them there. So if a few tables are unreserved between 5-7, merchants can quickly specify a deal to get customers to come in during that period.
This puts a lot of control into the hands of the merchant. With daily deals, there have been well-documented instances where a merchant gets flooded with new customers seeking nothing more than a deep discount. Merchants can be overloaded meeting the requests and the loss from the discount and the fee paid to the daily deal service (which can be up to 50 percent) is often not offset by additional purchases or repeat customers. Plus, regular customers can often be crowded out by the influx of discount seekers, potentially souring the relationship.
Leloca enables merchants to set a cap on the number of customers responding to a deal, so no one gets crowded out and no one gets overloaded.
Hyperlocal and merchant control are key elements of this new form of yield management used by Leloca and similar services like Savored, ScoutMob, and kgb Deals. And the concept goes beyond restaurants and merchants.
Uber, is a San Francisco-based transportation services that connects passengers with existing car-for-hire businesses using the Uber app. The app’s technology pinpoints the exact location of the ride requester then sends a ride, utilizing the cars and drivers that would otherwise be idle.
Then there’s Airbnb, which provides hosts with the chance to rent out on an otherwise open space and provides travelers with the opportunity to stay in apartments and houses around the globe for less than the cost of a hotel room, as digital nomads like Mike Elgan have found to their delight.
Yield management isn’t for every company, since it’s ideally suited for businesses that manage fixed-capacity resources or services. But for spas, salons, and other businesses that need to get spaces filled in a timely manner, this new type of service can be a big help for the bottom line.
Image courtesy of Juan Camilo Bernal / Shutterstock.
