Going from setting rates once a year through a handful of seasons to having rates that change daily has major implications for all levels of the vacation rental organization. Whether using some sort of rules-based system from the property management software (PMS) that changes prices based on occupancy or number of days out or using a sophisticated, third-party revenue management system that changes prices based on fluctuations in market supply and demand, one thing is true: gone are the days of having rates that change based only on the season and that are set once per year.
While this may seem like a minor change, it affects all levels of the organization, so it is important to get the entire team on board before flipping the switch.
In working with hundreds of managers, we have found that once you have made the decision to get more sophisticated with your pricing, there are still a few things to think about regarding how you do business.
Retrain the Reservations Staff
Sending out PDF quotes with rates that will be honored indefinitely is a thing of the past. You will need to retrain your reservations staff to communicate that rates (just like availability) change continually, and guests should be encouraged to book now to lock in that great rate.
Looking at other sectors of the travel industry, this is nothing new. Even “old school” travel agents who sell packaged vacations and send out PDF quotes still state very clearly that the proposed rates are not valid until the property is booked.
Most guests are quite used to the idea of rates not being the same if they return days later (sometimes even hours later, in the case of flights) to book, so don’t fret about a customer backlash. Prepare your agents for explaining that, just as for flights, hotels, and car rentals, prices and availability for vacation rentals are subject to change.
This strategy will help reservationists with the pricing system conversion, as guests will now have an incentive for making a decision. It will be clear that if they wait, the rate could change (or someone else could book it), so it would be best to lock it in as soon as possible. The reality is that rates will not change drastically (unless a major event is suddenly announced and demand peaks).
If you have repeat guests who are upset that prices might be different from last year, train your reservationists to use that as an opportunity to inspire loyalty in guests. Instruct them to offer the same rate the guest paid last year (or 5 percent more), noting that the offer is only available to repeat guests.
The last thing reservationists need to recognize is that depending on their PMS software, how they adjust a folio if guests add or subtract a day from their stay may change the rate. Make sure to review with the staff how the system works and how you want to handle that scenario. Avoid recalculating the entire stay because rates may have gone up or demand may have peaked since the initial booking.
Make Sure Your Website Can Handle It
Using just a static rate table will no longer suffice. Airlines and hotels did away with rate tables decades ago. If you really want to keep a rate table, it will either have a lot more rates or you should make sure your website provider can display a minimum and maximum price during the “season” you define. Several OTAs, such as HomeAway, support a seasonal minimum and maximum rate. However, the more dynamic your pricing, the less meaningful those rates are: if you show a wide range of prices, that in reality they might need to enter their dates just to get an accurate quote.
If you have not already noticed, HomeAway and other channels are hiding or completely getting rid of rate tables and pushing guests to enter dates to get a quote. The data somewhat supports this strategy: conversion goes up when guests enter their dates, in part because it makes it easier to see which units are available and what the relative rates are.
Other options for displaying rates include the following:
- Calendar view (with no rates, with rates on the calendar, or with rates appearing when the cursor hovers over a date)
- No rates tab (guests need to enter their dates to see prices)
We generally recommend using one of these two options. If your website provider is having a hard time making its rate table or calendar match your dynamic rates, we strongly recommend just going with no rates tab.
One of the major issues in how your website provider displays rates relates to how it receives rates from the PMS you use. We will address how PMS systems handle dynamic rates below, but this was one of the major issues with rate feeds once dynamic pricing was implemented.
Get Owners on Board
Owners will no longer be able to easily know what you are charging, and they may try to micromanage things. Make sure to explain what you are doing and why.
When starting, we recommend implementing dynamic pricing only with the owners you know will be okay with your making all the decisions when it comes to pricing. You can, either put together an FAQ and some literature on the merits of dynamic pricing and poll your owners to see who wants to opt in, or you can simply exclude those pesky owners who are always looking over your shoulder and think they know better how to manage the pricing of their properties.
We’ve seen managers make the switch without fully considering those owners who constantly look at their rate table on VRBO and compare it with their neighbor’s rate—and then cannot understand why you are pricing higher than their neighbor on Christmas. Often, those owners are more trouble than they are worth, and it would be better to leave them out of your dynamic pricing program.
Lastly, make sure contracts with owners allow you to fully manage rates. You would be surprised how many vacation rental management contracts look more like real estate agent listing contracts than hotel management contracts. You are the expert, and the owners have hired you to make these kinds of decisions, just as they trust you to pick the right pictures for your listings and the right way to answer the phone for guests.
Make Sure Your Channel Manager and PMS Can Handle Dynamic Rates
Every PMS system handles rates differently. If using a channel manager provided by your PMS or a third-party manager, make sure that their rate feed incorporates your dynamic pricing correctly.
The main issue is that many dynamic pricing systems are based on a set of rules (e.g., when my occupancy is 80 percent, increase price 10 percent). Those rules are then applied when someone sends a request for a quote, but often they are not translated into a given price per day or price per season.
Ask your PMS system whether their rate feed is accurate. Often it is not, and this is a huge problem in the industry. All dynamic rates should be able to be translated into a feed that has a given price for every season or day. A season is really just a range of days. It is essential that all PMS systems and channel managers standardize translating rates into a given price per day or range of days, potentially with length of stay adjustments where supported (e.g., offer discount if length of stay is greater than seven days or increase if fewer than three).
Finally, ask your PMS system whether they can handle multiple listings that change rates daily. If they can’t, you may want to consider switching to a more rate-sophisticated PMS.
Ease into It
Set some boundaries (minimums and, potentially, maximums) as you get comfortable. Test things out with your most lenient owners. Also, you will want to know where you stand in the market. Whether you are setting rules or using independent third-party reporting or a revenue management system such as Beyond Pricing, you need information such as the pricing levels of your competitors and their occupancy trends. And you likely will want to know that information across as many advertising channels as possible (not just on Airbnb and HomeAway). Knowing current market trends helps you put your dynamic pricing into context so you are not flying blind. If your dynamic pricing product does not provide this kind of market intelligence, consider supplementing it with this kind of data.
Do not be afraid to ask for help from fellow managers who have made the switch. They, better than anyone else, can guide you and help you proceed to the next level in what is probably the most exciting change toward modernizing vacation rentals since smart locks!