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Dealing with your price offer can be difficult. Over the years, we have seen several contradictions, even paradoxes, in the vacation rental industry. Hence, we are pleased to share six paradoxes and explain how we, together with our clients, have created pragmatic and future-proof software solutions.
The first paradox entails time: using historical data to ensure optimisation in the present. You most likely know the sentence “past performance is no guarantee of future results”. So, how can we assume that historical data in the vacation rental industry will lead to improved price offerings? Simply applying a similar (percentual) rate increase for all accommodations is often far from optimal. Practice shows that it is useful to look for trends in demand. We strongly recommend using and optimising different demand prediction models for that. For instance, a long-term model and a short-term model. The former is based on long-term historical data, while the latter uses current data trends.
Another paradox is keeping control while wanting to make processes efficient. It may be evident that there is too much data to process by individuals. Also, you may miss opportunities or these are already outdated. On the other hand, you would like to know whether rate change suggestions make sense and you also want to learn from them. Therefore, we recommend automation of data collection, data crunching, and notifications for your revenue manager. Your revenue manager stays in control by enabling automated and manual rate updates. To make the process efficient, it is important to document rate updates automatically and see to it that an accurate traceable record of changes is being made. Being able to retrieve those adjustments helps you during assessing and evaluating the effectiveness of specific actions.
Our third paradox has to do with additions. Initially, your price is very competitive, which attracts attention and an increase in people entering the book flow. Later in the book flow, however, it turns out that there are all sorts of extras that require additional costs. This can lead to an increase in exit rate during the book flow. We know that website visitors’ frustration reaches a peak, if they complete several book steps and suddenly see additional mandatory costs. It can make them feel like they are being taken advantage of or that the rental property is not as advertised, leading to dissatisfaction and negative reviews, and a higher exit rate during the booking process. We recommend to offer all-in prices that include all additional costs.
Our fourth paradox is about channel management. It seems like a good call to add all kinds of channels to your PMS to increase exposure and sales. However, there are several advantages to pushing your own channel. By selling through your own channel, you avoid paying commissions to third-party channels. It also allows you to optimise the customer journey and create additional sales in the future because you can improve retention programmes. You can use e-mail addresses, phone numbers, upselling in a guest environment, etc. We strongly recommend automatically increasing your rates for third-party channels to incentivise your customer to book directly.
Handling priorities leads to a fifth paradox. In Revenue Management, you optimise revenue and occupancy rates. However, you also may have to consider contractual agreements with homeowners. For example, you want to equally divide revenue across owners if their units are similar. When bookings are made without a preference for a specific unit your system automatically takes into account which unit (read: owner) should get the booking to equally divide revenue. More advanced setups include owner pools in which revenue is divided based on several business rules.
The discount paradox occurs when customers are getting trained in expecting to get discounts, and start to expect lower prices and may hold off until they see a deal. Over the entire period, this may lead to a revenue loss. We understand that there is fierce competition in the market and that a discount may convince your customer to finalise a booking fast. We find that discounts are sometimes offered because they are thought to be the way to go, or because sales are lagging behind due to competitors’ promotional campaigns. However, you have to be smart in your price offering to ensure that your profit margin is preserved while giving your customer the impression that it is an irresistible deal.
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