Thanks to the growth of online booking platforms, vacationers are provided with various options for the accommodation they are seeking and can easily compare the prices for different listings. Therefore, everything comes second to pricing in a highly competitive market like today’s hospitality.
Fixed rates can no longer respond to the dynamic demand of today’s volatile short-term rental market. They lead a business to overpricing and underpricing, both of which directly result in lost profits. Dynamic pricing for vacation rentals boosts occupancy rates and helps you achieve better profit margins.
Let’s do a little more digging into vacation rental dynamic pricing advantages and disadvantages.
What Is Dynamic Pricing for Vacation Rentals?
Dynamic or real-time pricing is constantly changing the price of your vacation rental rates according to supply and demand and other relevant market data.
In simple words, it is the practice of setting flexible, tailored prices for each night of your short-term rental differently to avoid low occupancy rates and boost revenue.
Dynamic pricing is a totally data-driven method, which uses the analysis of real-time market data for pricing. In this method, a base rate is defined, then it is optimised by the analysis of the past and future supply and demand data, and other historic and real-time data of the market and the property.
The Benefits of Dynamic Pricing
Maximise Your Profit
There is a narrow border between pricing too high and losing opportunities versus charging low rates and selling your property short. Dynamic pricing helps you figure this margin out and capture the best rate for each booking.
Dynamic pricing helps you maximise your return by setting the most competitive possible nightly and weekly rates. You can also make sure that your prices never go lower than a certain price to sell below costs by setting floor prices.
Boost Your Occupancy
Vacant nights equal zero revenue. You won’t leave vacancies on your vacation rental’s calendar by applying dynamic pricing, which sets higher prices for in-demand nights and lower rates to create higher levels of demand for hard-to-sell nights and entice last-minute reservations.
Stay Ahead of the Competition
For each vacation rental, there are a significant number of competitors in the market. Dynamic pricing for vacation rentals is an essential solution to beat up the competition more easily.
Having access to the crowds of online booking websites to view a list of prices for the same supply of vacation rentals from different hosts have made the travellers more price-sensitive. The accommodation seekers can easily compare rates and find the cheapest deals, so the competition has become more fierce than ever for property owners. The dynamic pricing method ensures your vacation rental will never fall behind the competition.
Now that we’ve talked about dynamic pricing advantages, let’s take a look at its disadvantages.
The Drawbacks of Dynamic Pricing
One of the objections to dynamic pricing is the likelihood of customer dissatisfaction due to frequent price changes. The opponents of this pricing method believe that the customers might get offended because of price fluctuations.
Dynamic pricing algorithms change based on the influential factors on supply and demand, including seasonality, local history, special events, holiday demand predictions, day-of-the-week demand and market activity.
Due to the seasonal nature of hospitality, a high diversity of accommodation and travel types, and the volatility of demand, the customers in this market already expect constantly changing prices. So, not only do they mind the price changes, but also the price-motivated accommodation seekers will take advantage of this pricing model to find the accommodation that best matches their budget.
One of the other disadvantages of dynamic pricing is that manually doing vacation rental pricing is too much work. It is much easier to set fixed prices for low season and high season or weekdays and weekend once per year than constantly collecting and analysing data and making calculations.
It gets even more difficult if you run multiple listings across multiple locations around the world. Besides taking too much time and energy, there is no way vacation rental managers can make sure that they have chosen the best rates for their rentals. Even if they attain the best rates, how can they distribute them to different channels?
Besides, pricing is only one of the numerous tasks a vacation rental manager must carry out. Property managers might not have the required revenue management skills or expertise in data analytics.
Luckily, property managers don’t have to set rates manually. With the help of technology, dynamic pricing is no longer a manual, time-consuming, and costly process. Fortunately, various dynamic pricing software come to rescue busy short-term rental managers by providing tailor-defined price recommendations by analysing market data.
Revenue management software will take charge of calculating and automatically updating vacation rental prices on most channels.
The hosts can also put their insights into practice and fix the recommended prices according to their experience.
Vacation rental dynamic pricing software easily integrate with many PMSes and channel managers and push the dynamic rates directly to OTAs and booking platforms.
In a highly-competitive seasonal market like hospitality, your rental business’ success depends heavily on the price, so vacation rental price optimisation must not be overlooked. Dynamic pricing is a method proven to choose the best prices for your property, taking into account supply and demand and other historic and real-time market data.
Dynamic pricing has its own advantages and disadvantages, but its benefits outweigh its disadvantages. So, if you are using a property management software/system (PMS) or channel manager, make sure they support dynamic pricing or integrate with at least one robust vacation rental dynamic pricing solution to maximise your profit margins by setting the right rates.