Dynamic pricing is defined as a process that adjusts prices several times to maximize revenue opportunity. For example, presenting the right price to the right customer at the right time. In the private accommodations industry, the dynamic pricing process adjusts vacation rental rates based on two things:
1) supply and demand
2) comparable rates in the area
The process studies booking information and trends, and increases or decreases pricing to ensure rentals stay competitive and occupied. Property managers who use dynamic pricing go beyond having a higher rate during peak times and a lower rate in off-seasons. They study analytics, competitors and real-time data to decide which pricing yields more bookings, which leads to more revenue. Considering using this process? Read more about dynamic pricing and how it works.
Dynamic Pricing: How to Prepare for the Process
Know the Competition
In order to effectively know what price to use, managers should know what competitors charge for comparable rentals. This means studying current rental fees and applying a similar rate. If properties appear on listing sites, such as HomeAway, make sure to not price too high or too low because these sites will penalize the listing and push it to the bottom.
VR Pro Tip: Look at the average rate based on location, amenities, space, rooms, bathrooms and guest perks. Decide how the rental compares with others and adjust based on the results to stay competitive.
Pay Attention to More Details
Next, property managers should analyze how their rental performs and adjust based on success or lack there of. If bookings are down, price accordingly and offer special rates for last-minute trips. On the other hand, if the property is performing better than expected, adjust the rates slightly higher to help generate more income.
VR Pro Tip: Keep in mind this isn’t a set-it-and-forget-it industry. Prepare to store and analyze at least a year of data to see trends and ebb and flow.
Most property managers know their peak seasons. However, also consider holidays, events, sporting tournaments and festivals that drive tourism. Knowing when more people will travel to the destination enables managers to price rentals according to demand. Look ahead and forecast the price based on the event’s popularity and how many tourists are expected.
VR Pro Idea: The city announces an annual festival months in advance. Property managers can then price rentals slightly higher to cater to an increase of travelers. Local e-newsletters provide a great resource for keeping current on events.
Prepare for Fluctuation, Flexibility
Remember prices can fluctuate often and prepare to make those changes. Some rates may change weekly based on demand or weather. With fluctuations come the need to remain flexible in pricing. One example is considering the minimum stay requirement.
VR Pro Solution: If you typically require three days minimum, consider one or two days. This trend is becoming more important than ever as travelers ages 24-35 (Millennials) are booking more last-minute and shorter trips. The group is one of the largest travel demographics in the industry.
Make Changes Early
The rate adjustment process can become time-consuming, so it’s best to make changes before people start looking at properties. According to a HomeAway release, January and February are the busiest times for vacation rental bookings. When you think of why travelers plan during this time, it’s easy to see why. Valentine’s Day, Spring Break, Easter and spring seasonal events all occur between February through April. Users are smart and know if they book early, they save more.
VR Pro Tip: Several companies offer dynamic pricing software. Research and consider investing in one that works best. It may save you time, stress and money.
Read about Inntopia’s solution to pricing vacation rentals.
Are you a new rental owner or manager? Read more about how to price vacation rentals.