VRS520 - Tips on Last Minute and Far-Out Pricing Strategies with David Veirs of PriceLabs

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This content is part of 'The Ultimate Guide to Launching and Growing Your Successful Short-Term Rental Business'.

In this Tipping Point episode, David Veirs of PriceLabs shares his thoughts on last-minute and far-out pricing strategies.

There are so many aspects to dynamic pricing and he highlights the importance of understanding a few of the most crucial elements.

We get to hear about perishable inventory, some exceptional scenarios where prices might increase, and why tailoring discounts to market dynamics is essential.  

You’ll learn about shorter booking windows, flexibility, and why highly seasonal markets may attract smaller last-minute discounts in both low and high seasons.

David takes the veil off the balance between quality and affordability and shares how data-driven insights and tools like PriceLabs' Hyper Local Pulse can help optimize revenue and make pricing decisions more manageable.

Don't forget to your copy of STR Revenue Management Glossary

Welcome to the Tipping Point. Listen into this bite sized learning series as part of the Vacation Rental Success podcast, or watch the video version on the Vacation Rental Formula Business School's YouTube channel. This episode is brought to you by the kind sponsorship of Pricelabs, who will help increase your revenue and occupancy with their dynamic pricing and revenue management tools.

Pricelabs have just launched their 2023 breakthrough release of the next generation of revenue management. This brand new cutting edge solution leverages hyper local data to optimize rates and increase your revenues like never before. Visit the link in the description of this episode for more information.

Get ready to fire up your business. Here's your host, Heather Baier.

Well, hello. Welcome to another Tipping Point episode. On today's episode, I have the pleasure of hosting David Veers, who is a solutions, who is a solutions consultant at Price [00:01:00] Labs. Price Labs recently unveiled its most significant release to date called the Breakthrough release. Now, Price Labs has always been a beacon of innovation in our industry, particularly in the fields of revenue management and market intelligence.

They passionately and consistently strive to provide trustworthy tools and resources that hosts and managers and revenue team and revenue management teams can rely on. So today we welcome David, who is going to share with us six fascinating insights crafted by Price Labs exceptional data science team as they worked on their latest hyper local pulse algorithm.

These insights are going to change the way you think about and approach pricing and revenue management. And I for one, can't wait to dive in. So over to you, David. Yeah, thanks for having me on today, Heather. It's truly a pleasure to be part of your show. I'm really excited to share with your listeners insights we've gained [00:02:00] from taking a closer look at last minute and far out pricing strategies.

And when it comes to pricing, whether you're a seasoned vacation rental manager or just starting out, the challenge is the same. That is, what is the highest nightly rate I can ask that will also give me the highest chance of booking. And in very generalized terms, the lower the nightly rate, the higher the chance of booking.

And the opposite is true, right? When the nightly rate is higher, you have a lower chance of booking. Um, the other concept that I, that is important to understand before we jump into things is the average lead time or booking window. Now you might hear me say either term interchangeably. Lead time or booking window, and that's because they mean the same thing, which is simply the time between when the guest makes their booking and their actual arrival date.

So for example, if I just booked one of your lovely properties and I arrive in 45 days, my lead time would be 45 days. Uh, it's a good best practice to know your own portfolio's average lead time and the average lead time of your [00:03:00] local market because you'll use this information to determine when and how aggressively you'll handle your last minute pricing strategy and your far out pricing strategy.

There are lots of great tools out there that provide this type of data. Obviously, I'm partial to Price Labs, but the important thing is that you're tracking this data. And let's dive into this a little more with my first point, which is perceived value trumps low prices. So picture this with me. You decide to offer your vacation rental at an unbelievably low price.

Almost too good to be true. But to your surprise, bookings don't come pouring in. You might ask yourself, why the answer lies in the concept of perceived value. So unlike commodities with a standardized quality, vacation homes are booked based on perceived and physical quality. So price serves as just one of those signals of quality.

Some other examples might be excellent photographs. But if your price is too low, Potential guests may question the quality. It's all about finding that sweet [00:04:00] spot between affordability and quality. So in my opinion, capitalize on those things that make your property stand out in value and make sure you can capture those things in high quality photographs, while also making sure your pricing reflects that value in a competitive way.

And the second point I want to make is we sell perishable inventory, right? Um, Pricelab's analysis of many markets reveals a straightforward pricing strategy. Reduce prices as the booking date approaches. The logic is simple. As each day passes without a booking, your chance of getting booked decreases.

This insight powers last minute discounts and far out premiums, helping you optimize your revenue by keeping rates high far into the future, and lowering them as the lead time gets closer. So let's walk through a few scenarios together, and first, let's just get the edge cases out of the way. Uh, you might be sitting there wondering, does it ever make sense to increase prices as a date gets closer, similar to how airlines do it.

So the answer is yes, but my warning is that it's only in very exceptional scenarios. [00:05:00] When your market's forecast changes because of a sudden unexpected surge in demand, then the forecast is revised upward. This means that even with less time remaining, the probability of booking increases. These situations are more often the exception than the rule, but to highlight an example, we certainly saw big increases in demand when people started traveling again shortly after the COVID quarantine periods lifted.

Or another example, let's say a big artist makes a surprise tour stop in your city in 14 days. I don't want to drop any names, but let's just say our next topic is about tailoring discounts to market dynamics. Sorry, I'm a dad of three, so I can't resist a good dad joke. Um, getting back on topic, uh, tailoring discounts to market dynamics.

On urban markets, we often see shorter booking windows, suggesting that discounts should kick in closer to the booking date and not too early. So while a general approach to all markets might look something like this chart, or if you can visualize a chart with me, with nightly rates [00:06:00] on the y axis, and dates going into the future on the x axis, starting with today, the generalized approach would show far out prices increasing by 20 percent after 6 months into the future, and the last minute prices dropping rates gradually over the next 30 days.

However, we realize that not all portfolios or markets follow this generalized trend. For instance, in the case of one bedroom vacation rentals in Chicago, Price Labs Optimization recommends starting last minute discounts closer to the check in date rather than following the general approach to all markets.

This may look like holding your rates and 10 days out as opposed to 30 days out. So if you're in a market with a short average lead time, it would make sense to hold your rates until we get close to or hit that average booking window before you start dropping your rates. Now, as we know, not all markets and seasons are created equally, so we want to have flexibility by market and season.

In traditional vacation destinations [00:07:00] where bookings happen far in advance, aggressive far out premiums may not be your friend. In other words, if you're in a market that receives lots of advanced bookings far into the future, beyond that general six month window, you may want your far out increases to start later or be lower than 20%.

Even for last minute discounts, you may want to start those early relative to urban markets. Examples of these markets might be beach towns or ski towns with a lot of repeat guests. You'd know if you were in this type of market because after a guest completes their stay, they're already looking to book again next year.

And then when we were going through our data, we came across, we're calling our seasonal surprise, which is just a surprising twist and highly seasonal markets. The data suggests that both low and high seasons tend to have smaller last minute discounts compared to the shoulder season. What does that mean?

In the low season, the probability of getting a booking doesn't change dramatically as we get closer to the check in date. And on the other hand, in the high season, most [00:08:00] competitors are likely to be booked. Hence, your probability of getting booked doesn't decrease dramatically with time. Thus, a case for small, last minute discounts in your high and low seasons in highly seasonal markets.

Now with all these variables changing by market, season, lead time, and so forth, it might feel a bit overwhelming trying to stay on top of it all. That's why at Price Labs we're so excited about our latest release, where you can let the algorithm work for you. And in Industry First, the latest version of our algorithm called Hyperlocal Pulse, Takes these market and season specific nuances into account automatically and adjusts your last minute and far out pricing based on a number of factors, including lead time.

You don't need to constantly update your last minute discounts or far out premiums. The algorithm does the heavy lifting for you. So in conclusion, Pricing your vacation rental doesn't have to be a daunting task. With the power of data and insights from Price Labs, you can make informed decisions and optimize your revenue.

Remember, it's not just about low [00:09:00] prices, it's about finding the right balance to signal quality and capture bookings. And that's all I have for today. Thanks for listening. That is great, David. It's actually made it super, super clear for me and that takes a lot . So I really appreciate you taking the time to come and.

And share all that with our Tipping Point audience. Thank you. It's my pleasure. We hope you enjoyed this episode of The Tipping Point. Don't forget to check out this week's sponsor, Price Labs, to help you master the art of dynamic pricing for your short term rental business. Click the link in the description of this episode for more information.