November 5, 2021
Can Dynamic Pricing Go Wrong?
3 Ways Dynamic Pricing Can Go Wrong (And How to Fix It When It Does)
Obviously, we’re pretty big fans of revenue management tools and dynamic pricing at Rented. And while we’ll talk your ear off about how good dynamic pricing is for your vacation rental management business, it can seem overly complicated or even damaging to the uninitiated.
On a recent episode of The Art of Pricing, our host Talia Lockard sat down with Matt Landau, Founder of VRMB to understand how to get the most out of dynamic pricing—even when it goes a little off the rails.
Problem 1: Maxing Out Your Rates—Without Maxing Out the Experience
Dynamic pricing in the vacation rental industry draws on several factors, including the market as a whole. So if the vacation rental market is really hot, the algorithm may recommend punching up the price to meet the demand. However, this can be a problem if the rental experience doesn’t align with the nightly rate.
What You Can Do About It: Small Changes Make a Big Difference
There are two ways to handle this kind of situation. The first is to have an actual person assess the property and reviews from guests and adjust the pricing accordingly. An algorithm can do a lot of things but it’s missing the human eye—like how modern a property is compared to the comps in the market.
You can also take the opportunity to improve the guests’ experience. This can include giving the rental a makeover (fresh paint? Some new furniture? A better oven?), adding keyless entry, or offering a special touch based on the guests’ plans (here for an anniversary? Offer flowers and a card! Coming with kids? A fresh plate of cookies never hurt).
Matt also points out that sometimes, “There’s a certain beauty in not constantly trying to maximize your profit.” While commanding top dollar in the vacation rental industry is a dream for many, it shouldn’t get in the way of a guests’ experience.
Problem 2: The Data Doesn’t Match Your Business Goals
Everyone in the vacation rental industry who leans on revenue management tools intones the same mantra: Trust the data. But what happens when the data doesn’t match what you’re looking to achieve or doesn’t match what you think you’re offering?
Some property managers find that the data they have to work with comes from too small of a sample size, or is telling them to do, as Matt puts it, “irrational things.” So how do you account for data that doesn’t seem to align with what you know as an expert in your market?
What You Can Do About It: Dive Deep into Revenue Management
Part of the challenge in dynamic pricing for vacation rental management is that the data we deal with on the day to day is so new to all of us. As vacation rental managers and vacation rental revenue experts, we’re still realizing how deep the well of data on vacation properties can go.
If understanding the data is really important to you, then education is key. This could involve working with more data-specific tools, or learning more vacation rental pricing data.
Problem 3: Overwhelming Yourself (or Your Team) With Data
Matt is quick to say that if he were still a property manager, “I have zero interest in numbers or data.” And he’s not alone. Revenue management is a very challenging job, and it’s incredibly time-consuming. Vacation rental property managers and their teams have plenty on their plate, and maybe the idea of adding one more (that happens to involve numbers) is just too much.
What You Can Do About It: Leave Dynamic Pricing to the Experts
We’ve had a few discussions about the pros and cons of handling dynamic pricing yourself, hiring an expert in-house, or outsourcing your revenue management. If data isn’t your cup of tea and the idea of dissecting reports makes you queasy, then hiring a revenue expert or outsourcing to a dedicated revenue management team is a good idea. Revenue management companies like Rented not only manage the dynamic pricing tools for you, they also provide that much-needed human element to evaluate pricing and recommend adjustments that a machine simply can’t provide.
Are you curious what a full-service vacation rental revenue management company can do for you? Reach out to our team of experts to hear more about our Automated Pricing Tool and how our team uses it to make the best pricing decisions for your property. Learn more here!
A special “thank you” to Matt for the insightful conversation and the AMAZING hat! We highly recommend checking out the ‘How To Save Your Vacation Rental Business’ podcast series. Listen on VRMB or your favorite app.