How to Talk to Your Owners About Dynamic Pricing : Wheelhouse Blog

How to Talk to Your Owners About Dynamic Pricing

July 21, 2021 | John DeRoulet

Effective pricing is one of the most important business aspects a vacation rental manager has available to them to impact their bottom line. Pricing is complicated and the marketplace is volatile. Meaning, having the “right price at the right time” determines whether our ADR is optimized as well as how your occupancy compares.

Further complicating this is the perception of value and sentimentality attached to the asset itself. How often have we heard “my property is worth X” when we know the market moves through X, Y, and Z rates throughout the year?

What is Dynamic Pricing?

Dynamic Pricing is a pricing strategy in which “businesses set flexible prices for products or services based on current market demands.”

In the Vacation Rental/STR space this may mean having pricing specific to seasonality, day of week trends, and even actual sales in the market. Some of us do this better than others. (Learn about the Wheelhouse Engine to see who does it best!)

At its root, dynamic pricing means to “set the right price, at the right time, for the right customer” and to have that price reflect and react to changing market conditions to produce the highest revenue for your product. It does not mean the product is worth less but specifically that time and demand have a varying, direct impact on the value of the product throughout the year.

These principles shouldn’t be a surprise to us and many owners will recognize where dynamic pricing has become so ingrained that we may not even notice it.

Airlines charge different prices for the same seat on the same flight depending on when you are traveling and how popular those dates are currently.
Restaurants have Happy Hours where they sell reduced-price menu items. This is not a reflection of the quality or value of the menu items but rather a reflection of demand. It is not often that a restaurant or bar is booked out at 3 pm on a Wednesday!

As such, to truly maximize revenue one has to consider the market and one’s place in it at any given time and price accordingly.

Why use Dynamic Pricing?

Dynamic Pricing is now the norm across industries. It is fundamentally ingrained in other forms of hospitality and technology has allowed for widespread adoption within the Vacation Rental industry.

Setting a single rate is like a broken clock; it’s right twice a day but what about the rest of the time?

Utilizing Wheelhouse’s Dynamic Pricing platform allows you to rapidly respond to the changes in the marketplace. Drive more Revenue via Occupancy while also capturing higher rates through optimization.

Here’s a shortlist of important points you can leverage when talking to your owners about pricing:

Occupancy contributes far more to RevPar than ADR growth: If your Occupancy is unoptimized because your price is too high, even a small gain in occupancy at a lower ADR will have a more significant impact on RevPar than ADR growth. It is the low-hanging fruit. The difference between $0 and $150 is far more than between $300 and $330 despite the significant price drop!
The Market Moves Quickly and Capitalizing on it requires Tools: As we have seen through Covid and its recoveries, the market is volatile. Demand can appear (or even disappear) quickly. Events can be scheduled and have a sudden impact. For top properties in particular, it is very difficult to gauge how a one-time event will impact your demand. If you are priced too low, you may be the first one booked. Using tools such as Wheelhouse allows your team a significantly better chance of identifying and capitalizing on changes in demand in the marketplace.
Legitimacy in an Environment of Dynamically Priced Properties: Have you ever seen a deal and thought it was too good to be true? Have you ever just skipped over a wonderful product because it seemed way overpriced? Technology has enabled consumers to view far more properties and products in relation to each other than ever before. Pricing can always be compared. Tools such as Wheelhouse have also allowed savvy and sophisticated sellers to meet the demands of the market on a daily basis. I hate to say it is a case of “keeping up with the Joneses” but when your clock is only competitive twice a day (or year) it becomes a case of being left in the dust, no matter the quality of your product.

Overcoming Objections

Owner’s unfamiliar with dynamic pricing may have some hesitancy. Coupled with the sentimental value of their properties or seeing it through their perception of value can make owners uneasy. There are many ways to assuage these concerns, protecting both owners and providing the opportunity to take advantage of dynamic pricing.

Guardrails can be set within Systems like Wheelhouse. Many people ‘feel’ like their property is worth a specific amount however the market is the true determining factor. In many cases, there will be dates where its value is less and in others, it may even be more. Ultimately, it is up to the owner and features like Minimum Price and Minimum Length of Stay Rules allow for the owner (or manager) to set restrictions that align with their experience and perception of value while still incorporating changes within the market.
Dynamic Pricing Provides visibility into the Market. Platforms such as Wheelhouse then enable decision-making. It is difficult to make a decision if one doesn’t know all the facts. Platforms such as Wheelhouse are correlating more data than an individual can handle every single day. This doesn’t mean the owner is losing control, however. Instead, it is enabling a more nuanced level of control because now market trends become visible to the manager and owner allowing them to interact with the system to set their strategy, risks, and rewards. Wheelhouse has made a concerted effort to lift the “Black Box” of vacation rental pricing with its Insights tool showing managers and owners not only what we are seeing but how that translates to a recommendation for a competitive rate.
The Snowball Effect. Pricing according to the market allows you to optimize Occupancy in low seasons and ADR in high seasons. This ensures a steady and stabilized stream of revenue for both the owner and the manager. Furthermore, as more consumers utilize OTA’s for their shopping, it ensures that your properties meet the conversion, views, and competitiveness metrics required for listing sites to show your listing. The more optimized your property is, the more channels will serve it to customers which leads to more conversions and higher placement within the algorithms. If your property is not consistently competitive in the market place it will quickly lose its place on the OTA’s.

Dynamic Pricing is undeniably the future of pricing in the STR space. Consumers are already acclimated to this reality but it is up to owners and operators to adopt it. As an industry, we have come a long way! Dynamic pricing used to mean many things. From being able to offer rates for each day of the week to scraping Airbnb and tracking your competition.

Tools like Wheelhouse have taken this even further by incorporating real market data and sophisticated (published!) data science into pricing to provide accurate, optimized rate recommendations unique to your listings. It’s time to take advantage of what the marketplace has to offer.

Reach out to us at sales@usewheelhouse.com to have a conversation today!

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