Campsite math – set your prices… the game’s over!

Not everyone can count themselves lucky enough to have spent an evening in the company of Jean-Luc Mélenchon at a campsite. That was back in 1985, near Mont St Michel. I was 20 at the time, revising algorithms under canvas. Since then, Jean-Luc appears to have converted to word-crunching. As for me, well I admit I’m just as keen as ever on washing up, but now prefer mobile homes to tents, and primarily concentrate my math drills on working out prices for about 400 French and Southern European campsites.

Smiles spread across faces when I say that I do campsite math. Tourism seems to generate fewer math careers than the finance, energy and telecoms sectors. There’s a reason for that, but it’s a real shame, because we accommodate more than 80 million visitors who come to our beautiful country every year and it would be no great luxury to apply rational management methods to our service offer. There are about 9000 campsites in France that sell some 113 million overnight stays every year. Their combined sales are worth more than 2 billion euros. The sector is doing well, but it could be in better shape still – as the occupation rate at 5-star campsites is more than 50% whereas 1-star campsites only manage 25. 

This article sets out to illustrate the kinds of problems facing campsite owners when setting their prices. We will attempt to describe the optimization levers that can be applied using a few mathematical tools or common sense marketing, preferably both.

The economic context is conducive to Pricing

For a little under a decade we have witnessed a sea change in the camping and caravanning industry. Gone are the days when twisted tent pegs were used to pitch tents on stream banks as night fell. Campsites have invested in more and more facilities – pool(s), restaurant(s), convenience stores, spas, outdoor cinemas, and of course, huts, mobile homes, chalets, yurts, organic bungalows and similar “treehouses complete with winches for hauling up the breakfast hamper”. As campsites soar up the category range, they become de facto increasingly capital intensive. Investment implies return on investment and that now means turning assets into profit. Campsite groups and chains are forming and merging in a market that is in the throes of consolidation. Nowadays, these groups generate almost 50% of campsite revenues in France. The distribution function is developing on Internet, while the “pricing” function is emerging to distinguish properties to let so that their revenues can be optimized. Distribution windows are now open across the whole of Europe and 4-star campsites commonly achieve 70% fill rates with foreign customers: Dutch, Irish, British, Belgian or German, to start with.

The challenge of setting prices is a tall order for small independent campsites with 110 bays (the national average), located in the same tourist area as say ten group-owned campsites. Prices can range from € 96 per week (off season) to more than € 2000 in the high season, in popular, well-equipped locations.

The curse of scheduling gaps

Say you have ten brand-new mobile homes in the Cantal, with 4 rooms, two bathrooms, complete with a very stylish canvas awning protecting the deck from the sun. Your mobile homes have been fully-booked in August for several years – despite the snow – and a number of your customers (let’s say 10%) ask you if they can book a stay from Wednesday-to-Wednesday instead of from Saturday-to-Saturday so that they can travel in more comfort. What would you decide?

This is an example of a recurrent quandary for campsite operators, which pitches business against finances. From the operator’s standpoint it can be convenient to even out arrivals to avoid bottlenecks on Saturdays. Unfortunately, the urge to please (Wednesday) customers generally leads to a loss in sales. As it stands, you need to be sure you will have a succession of customers keen on the Wednesday-to-Wednesday slot in mobile home #7 throughout the summer. Otherwise, you will mechanically generate a “scheduling gap” from Wednesday (evening) to Friday (evening) or as many as two or three gaps in the season. Over 8 weeks of a well-filled summer, a single gap can amount to a 5% monetary loss or 300 euros in lost income per mobile home. In the vast majority of cases, the dearth of requests for the Wednesday-to-Wednesday slot means that the capacity is under-filled. Naturally, you need to check previous years’ bookings before making up your mind.

We have applied three different remedies to campsites riddled with holes in the high season by:

• putting a blanket ban on arrivals other than on Saturdays. In the beginning this is a little hard to absorb commercially, but there are as a rule ten happy Saturday campers for every unhappy Wednesday camper
• applying a quota of a few mobile homes “set aside” for Wednesday-to-Wednesday, while the others are “set aside” for Saturday-to-Saturday. This may be hard to implement with planning management tools, but it is a way of keeping the number of scheduling gaps in check
• applying special (higher) pricing for, let’s call them “out of sync” stays. It constitutes a service performed for the customer, and the service is invoiced… for instance by a 7% rise, depending on the gaps it makes.

Tour operators… are they wolves in sheep’s clothing?

An allotment is a block of mobile homes or pitches that tour operators book in advance to sell to the general public over the season. So for the campsite owner, selling an allotment entails allocating part of the inventory to a Tour Operator customer at a significant discount on the unit price, generally at the start of the season. 

These allotments can be a boon for owners as they guarantee sales and filling from the start of the season. When faced with many demands from tour operators looking for high quantities (it is not uncommon for them to book up to 30% of the inventory in advance), campsites must nonetheless be forewarned against contracting out too much of their capacity, as this may result in lost sales to individual customers who would have generated significantly higher profits. Furthermore, these allotments are often subject to reassignment dates – i.e. if the tour operator has not sold all of the allotted inventory by the agreed date, campsite owners have to have their wits about them to sell these unsold slots (and sometimes in a hurry). So to maximize hope of being profitable at the end of the season, hotel or campsite owners have to adopt the right allotment optimization strategy.

Deciding boils down to choosing from the list of Tour Operators’ offers for 20 or 30 mobile homes, for example, which entails:

• having a good forecast of the individual demand that could materialize before and after the reassignment date. In the absence of a forecast, an analysis by pessimistic/median/optimistic scenario is reasonable at this point in time because the sales season has hardly commenced
• also understanding individual customers’ behavior in reaction to promotions the owners might be forced to trigger in the event of low demand after the reassignment date
• taking the best combination of decisions on allotments, which maximize the income raised from allotments and individual sales (with or without promotion).

We arrive at the classic Segmentation/Forecasting/Optimization triad that is the key to revenue management.

The enthusiasm for "open air" workshops

Workshops are popular with campsite managers. They are good business in June and September if a group of 30, 50 or 300 workshop participants want to have use of your campsite, or even take it over for a few days. They are somewhat flat periods of the year and earnings can be considerable, especially if you add meals and other supplementary services such as room hire.

However there is a great temptation to offer the workshop organizers a huge discount on the list price and that will pose a few problems:

• the workshop seldom runs for a full week and so its per-night rate should be put into perspective, because in all probability it will be hard to sell the adjoining days. So if it takes up 5 days, its per diem rate should theoretically be more closely scrutinized to take into account its consequences on the whole week. That is the “displacement” notion. You could consider that the workshop could potentially drive away “anticipated” customers. If the campsite is usually half full (50 out of 100 bays), and the workshop fills 70 of them for 5 days, you could consider that it has driven away 20 list price weeks, only to replace them by 70 discounted 5-night stays.
• what is even more annoying is that workshop participants are masters at disappearing into thin air. Often only 65 or 62 actually turn up instead of the promised 70. A broken leg, change of duties, all lead to cancelling attendance, while 30–40% “shrinkage” is commonplace, as are stays that don’t actually happen on D-Day. Workshops can of course be cancelled simply because the company is filing for bankruptcy. The sales terms must factor in these no-show possibilities, and therefore, revenue management must incorporate this likelihood of failure to materialize.
•  the same type of rationale applies to calculating the discount that can be given to a group of 12 Dutch camper vans that turn up on the drive. The group will displace the “potential” demand (estimated by demand forecasts by tariff level), and you must establish that the profit made will offset any income lost by being virtually driven away.

Selling Pokemon cards to a second-hand dealer

A price on a mobile home for the second week of August makes no sense. There’s one price for a mobile home for the second week of August for customers booking in January and another price for the second week of August for customers booking in July.

We have observed customers’ behavior over several thousand campsites and quite naturally their price sensitivity (elasticity) differs. In January, they scour the prices, they have time to browse around and look for bargains. In July, it’s very late in the day; the childminder has booked her vacation, time is of the essence, it’s been a hard year, and we deserve a nice mobile home in a campsite with full amenities. I’m being facetious here, but you have to realize that a 10% increase in the price in January will cause sales to drop by almost 30%, while the same variation in July will only lead to a 10–15% drop in sales. Place your bets.

Let’s draw a parallel with your 8 year-old nephew who has decided to sell his Pokemon cards to a second-hand dealer (yard sale). He has around a hundred cards and wants to buy video games with the proceeds of his sales. It’s very exciting. If you see him return at 8:30 a.m., just half an hour after he left, strutting with pride because he has sold them all, then you can be sure that he has sold himself short. Verdict: he’s carved out to be an engineer. Firstly, he hasn’t had enough time to negotiate properly (he no doubt sold all his cards at once) and secondly, at this early hour of the proceedings, he came across a shrewd buyer, who has beaten him down on price in order to make a good profit later. Your nephew should have separated the special cards (rare ones and those with high “life points”) from common cards, got rid of the common cards by 8:30 a.m. and hung around until 11:00 a.m. to offer his VIP cards to fathers dragging along screaming kids out on a spree, as the bargaining skills of these targets are not so good.

A price must be viewed as a sequence of prices, with a target and potential sales volume per sales bracket for every sales period. For campsites, early booking, those offers at the very start of the sales season, cannot operate as an “open bar”. They must be limited in quantity to keep back a good hand for the end of the season, when customers less receptive to promotions are prepared to buy at the right price.

Separate and wait. One of the key principles of revenue management… a bird in the hand is not always worth two in the bush.

Should you change your prices every day?

Essentially there are three main reasons for changing your prices in the camping sector. The first is due to the Pokemon effect mentioned above. You are not dealing with the same customers in January as you are in July. The former are very price savvy and are prepared to book a long time ahead to take up early bird promotions. This applies for example to grandparents who want to book the first three weeks of August to spend with their 3 grandchildren. In July, customers making bookings for August are quite different and don’t expect the same prices. They know that there are fewer quality mobile homes available and are in a hurry to book, and so are less fussy about the price.

The second reason is simply linked to the difficulty of “forecasting” demand for the campsite’s 20 mobile homes. How will the Alpine campsite be affected by the Tour de France passing through less than 20 km away? A thousand and one events, abroad (the 2012 Olympics in London had a marked effect on the campsite in the South-West), or local (a festival cancelled, flooding in June, a nasty comment on TripAdvisor, etc.) combine and interweave. They make it very hard to forecast the occupation rate of a specific category of mobile homes three months ahead. Our analyses demonstrate that forecasting the occupation rate in the South-West 90 days in advance leads to a forecasting error rate in excess of 20%. The inability to forecast properly means that prices have to be revised as a knee-jerk reaction to the type of news. The price lever is thrown to take into account the good or bad news sensed.

The third and last reason is down to action by the competition. One of our clients whom we had strongly advised to increased prices in August, recounted “but I don’t understand, demand is even higher than it was last year”. It turned out that the manager of the neighboring campsite hadn’t answered the phone for two weeks for family reasons. The competition can have reasons that are totally unrelated to good economic sense. Such as, for example, the desire to artificially increase sales in March so as to sell out to a group in May, in doing so they drop their prices to capture a larger volume of a less profitable demand that inflates their income in March… at the expenses of their July earnings.

However the best practices we observe do not force “frenzied” price changes every time Paris Saint-Germain scores a goal. Generally, 4 or 5 price changes suffice when sales open to react well to the realities of demand, but permanent monitoring is of the essence. It’s a full-time job.

Conclusion

The anecdotes and revenue optimization levers detailed above are the result of 4 years’ campsite consulting and pricing software development. I thank my clients for them, in the first place the Vacalians group (TOHAPI, Canvas Holidays, SocNat brands), the European campsite sector leader, represented by its Marketing & Sales Director, Jacques Masson. Vacalians has shared our vision of the contribution of revenue management to the campsite and backed our technical roadmap since 2012. These have been 4 stimulating years when naysaying campsite owners and hotel revenue management experts told us it would never work. It has taken 4 years to train young analysts and campsite managers to take the best decisions on price. QRUSH, our Pricing platform, seeks above all to be a decision-making tool, by providing augmented reality of rate recommendations for pricing analysts.

Price engineering in tourism is an exciting project area. It’s not uncommon for a casually dressed mathematician working on a business issue to come up against conundrums to solve that are on a par with Sudoku or a game of 2048.

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Beno?t Rottembourg graduated in software engineering at ENSIIE (1989) and has a PhD in Combinatorial Optimization from Pierre and Marie Curie University (UPMC, 1993). After an academic career in applied mathematics at ENSTA, he joined eLab, the decisional software innovation unit of Bouygues, before becoming Chief Information Systems officer of the TF1 group. He joined EURODECISION in 2010 to create its Pricing & Customer Analytics business. He heads this activity with some ten consultants and developers in the media (telecoms, internet), transport (air, rail, sea) and tourism (hotels, residences, clubs, g?tes, campsites, travel agencies) sectors. Beno?t teaches Revenue Management at ENSAI, CentraleSupélec, Télécom Lille, ESCP Europe and Sciences Po.

EURODECISION has developed the first campsite Revenue Management platform in Europe, which now manages the prices of almost 400 campsites and 50 000 rental accommodation sites.