Should my prices always be “in line” with the competition? This is a question that Airbnb and vacation rental owners and property managers wrestle with while pricing their properties!
Some of our customers ask if they should have their rates around the median price or some other percentile of the comparable neighborhood market.
While staying in the middle (or a certain percentage) all the time may seem like a simple strategy to implement, we’ve found that this isn’t the one that maximizes your revenue. Read ahead to find out why!
PEAK DEMAND VS. LOW DEMAND PERIODS
In almost all markets (urban, beach, ski, lakeside, etc.), there are some peak-demand days when there is more demand than usual:
- Beach/Ski markets: High season or holidays in a heavily seasonal vacation markets
- Urban markets: Events (concerts, conferences, marathons, etc.), major holidays, high season
- Drive-to destinations: Lots of weekend leisure travel but very little demand mid-week
Similarly, every market has low demand periods!
HOW SHOULD YOU THINK ABOUT PRICING BY DEMAND PERIODS
High demand periods: You can expect “most” properties will likely get a booking as the occupancy is expected to be high on these days. On such days/periods, you be at the top end of the market and still have a good chance of getting booked.
If, during such peak periods, you followed the median price as a strategy, you might sell for a small premium if everyone in the market was savvy and raised their rates. Or worse, at no premium if it was a lesser-known holiday/event driving the demand and others in your area didn’t raise their rates at all.
Low demand periods: It’s better to be priced at the lower end of the market when occupancy is expected to below to ensure you’re one of the few properties booked. You can still use minimum prices to ensure you don’t go too low.
During low demand periods, when occupancy is expected to be such that more than half the properties around won’t get booked, if you are at the median price, there’s a good chance that you go un-booked, losing potential revenue.
Shoulder season: There are also “medium demand” or “shoulder season” periods, and each day can fall on a spectrum of expected occupancy (not every high demand day is the same!). So each day where you want to be relative competition is different.
A note about last-minute pricing: While we covered low and high demand periods above, there is another factor that comes into play when you want to set rates for your listings – how much time is left to get a home booked (this is called the “lead time” or “booking window”). Even during high-demand days, if most of the demand that would have booked has already materialized, but the “remaining” demand to come is low, it might make sense to be on the lower side to ensure you are booked!
So what should you do?
The chart below (taken from our pricing dashboard’s Listing Neighborhood Data feature) helps visualize what we’ve described above – our recommended prices are around the 25th percentile in the market during low season and hover around the 75th percentile during high season. You’ll also see that during the shoulder season (medium demand), the prices range somewhere in between (except the holidays – in this case, Memorial Day in the US – right after the low demand period marked in red below!).
For the reasons mentioned above, our dynamic pricing algorithm relies more on booking/occupancy trends in the market to understand seasonal, day of week, and event/holiday trends (more on that here). We, of course, want you to provide guardrails and preferences you are comfortable with, and those are available via our customization settings).
If you have any questions about these, please reach out to our support team!