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Are dynamic pricing tools worth it?


This first appeared in our weekly newsletter. Join the smartest short-term rental hosts and property managers by signing up here.


By James Varley, Founder, Holiday Cottage Handbook


There was an interesting debate online about the benefits of using a dynamic pricing tool – and interestingly, it seems many hosts and property managers are yet to be sold on the benefits.


I’ve been using a pricing tool for about a year and have found it to be useful at helping to achieve a higher nightly rate – and subsequently making the investment worthwhile.


When I started out in short-term rentals, my pricing strategy was incredibly simple (in fact, it would be a stretch to call it a ‘strategy’ at all). I had a weekday price, a weekend price, and charged more during the summer months and traditional holiday weeks than I did at other times of year. I would manually compare my listings to others nearby and generally err on the side of competitive in the hope that potential guests would be more likely to book my properties rather than a slightly costlier alternative.


One thing I didn’t know much about was demand in my area. There were times when I would get a booking long in advance and wonder what I had missed. Sometimes it was family events like weddings – which are unlikely to shift demand on a huge scale – but on other occasions it would be festivals in the local vicinity, and I should have been charging a higher price on those dates.


One of the benefits of using a pricing tool is that it will track demand and automatically adjust your rates. Plus, when you log in to your dashboard, you’ll be able to see whether demand is high, moderate, or low on any given date.


In relation to people’s thoughts about pricing tools, there were several comments on social media, ranging from:


I’ve been using a tool for a few years and wouldn’t be without it.


To…


I didn’t know these tools existed. (This was several people).


On the pro side, one host said he had started using a tool after listening to the #HCHPodcast (gold star for Aaron!), while others said they were happy with Airbnb’s smart pricing tool (presumably because they are listed only on a single platform).


On the other side of the coin, one host said she had tried a tool but quickly became confused by the ‘complicated’ platform. Some hosts said they were happy to manually change the rates themselves, while one man said he priced high as a starting point so guests could negotiate and think they were getting a bargain (which struck me as a novel strategy). Another host said she had started using Airbnb’s inbuilt tool but found the nightly rate was often too low or too high (something I found when I tried it).


Incidentally, Thibault Masson made an interesting point during a recent episode of the #HCHPodcast in relation to Airbnb’s smart pricing tool: “It’s very interesting because it basically means that Airbnb is setting the prices on its own platform. Think about it – imagine if Amazon was deciding the price of things sold on Amazon. People say it’s not possible – you can’t be a marketplace and a price maker. But that’s what they’re doing. It’s a great position for Airbnb.”


Back to the pricing tools…


Overall, it struck me that many hosts were unaware of pricing tools, some were confused by their platforms, while others were slightly suspicious of their benefits. From this admittedly small sample size, it seems there are many potential customers out there for dynamic pricing tools – but education is required to get them up to speed with A) how they work and B) the benefits of using one.


In relation to the most popular dynamic pricing tools currently on the market – check out these industry leaders (in alphabetical order):


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