February 8, 2016
What the Super Bowl Teaches Us About Vacation Rental Dynamic Pricing
Football wasn’t the only thing that was popular the weekend of Super Bowl 50. With thousands of fans flocking to Levi’s Stadium to watch the Carolina Panthers and Denver Broncos, Airbnbs, VRBOs, hotels, and other forms of accommodation were in high demand.
Everbooked, a provider of pricing and market intelligence for Airbnb, said that Santa Clara had an estimated 375% increase in the number of nights sold, San Jose had 124% more nights booked on Airbnb than usual, San Francisco saw an increase of 66% in nights booked for the Super Bowl, and Oakland’s nights sold increased 36%.
We asked some of our favorite vacation rental pricing experts what we could learn about dynamic pricing from the Super Bowl, and this is what they had to say:
The Super Bowl shows us how complex the vacation rental market is getting. For the weekend of Super Bowl 50, there are 86% more listings in Santa Clara, but prices of booked properties are only up 19%. It completely defies conventional wisdom than an owner could only make 19% more because of a major event like the Super Bowl, but that’s exactly what’s going on.
David Ordal, CEO, Everbooked
If you are in San Francisco, you were asking yourself, ‘How much more can I charge during the Super Bowl? It must be a lot!’ The good news is that you saw an upswing in price. But here’s the rub: With big events like the Super Bowl, a lot of new inventory gets added to the market, so supply might outpace demand, and occupancy rates can drop.
How can you navigate these risks and rewards?
See what similar homes in your area are charging for the event. Start by imitating them.
Regularly check for indicators of mismatched supply and demand. If travelers are inquiring at a slower rate than usual, lower your prices to drive more travelers to your listing.
Check back in with those similar homes. Which ones are getting booked? Which ones aren’t? If you’re seeing lower priced homes getting booked, then lower your rates.
But the Super Bowl is just one event. You should maintain a list of national and local events. Many of these events aren’t monitored by your casual Airbnb host. So for these events, when demand increases, supply might not, and that’s the best time to raise your prices.
Evan Hammer, CEO, Smart Host
The Super Bowl is a great example of why you need to be using advanced dynamic pricing software that tracks both supply and demand. Even though major events can create a surge in demand, with more and more people embracing Airbnb and HomeAway to quickly bring inventory onto the market, supply can very quickly expand and eliminate any potential price increase.
Ian McHenry, Co-Founder and President, Beyond Pricing
The Super Bowl illustrates how scarcity, not only demand, is one of the most important aspects of dynamic pricing. During the Super Bowl, many more homes came on the market in San Francisco, so the impact of more visitors did not translate into enough demand to drive up prices in the way many hosts hoped.
In general, when considering nightly prices for an event, you have to consider what type of travelers/groups are going to attend a particular event, and therefore how in-demand your inventory type will be. For example, since people traveling to the Super Bowl often come in groups, the demand increase for single-rooms/spare bedrooms will not as dramatic as some expect.
Andrew Kitchell, Co-Founder, PriceMethod
While events with the magnitude of the Super Bowl may be rare, events that affect vacation rental pricing are frequent, making revenue management common in many industries. Airlines have long used variable pricing, and dynamic pricing first became widely accepted in the hotel industry only about 6 years ago. Marriott paved the way, and Hilton, Accor, Hyatt, and Starwood followed suit in subsequent years.
The goal of revenue management? Determine the highest price consumers are willing to pay for their product. As demand rises and falls, so do prices. Simple enough, right?
Not exactly. Dynamic pricing is very complex, and the founders of many of the vacation rental dynamic pricing companies are Ivy League data scientists and master programmers. While self-managing homeowners and managers are likely to price based on season, this isn’t enough.
A truly sophisticated service will automatically price properties around the clock, and this is why many professional managers and homeowners will choose to use a service like Everbooked, Smart Host, PriceMethod, or Beyond Pricing.
With API’s built in to update pricing across your VRBO, Airbnb, and other listing sites, once you have set up your account, you can let your pricing service go to work. In determining pricing, dynamic pricing services will consider everything as simple as adjusting for holidays and as detailed as local events, demand and availability of other vacation rental homes in your area, FAA surges, and much more.
To add to the complexity of dynamic pricing, vacation rentals are far more difficult to price than hotels. Hotel revenue managers have the same number and types of rooms year in and year out, so reverting to historical data is easy. With the vacation rental market changing so quickly and with changing algorithms on VRBO that are affecting the way homeowners price, pricing for vacation rentals is no easy task.
Remember, the goal is not to get 100% occupancy. The goal is to maximize profits.
By underpricing, you might be leaving money on the table. By overpricing, you could be missing out on revenue all together, and maximizing your revenue has a direct impact to your earnings.
Are you using dynamic pricing to maximize your profits? Let us know in the comments below!