How should you price compared to your competition?
We sometimes get requests from our customers asking if it would make sense to have their pricing/rates always hover at the median price (or some other percentile to reflect their home's desirability) of the comparable neighborhood market. While staying at the middle of the market all the time may seem like a good strategy, we've found that this isn't the one that maximizes your revenue. Read ahead to find out why!
Peak-demand vs low-demand periods
In almost all markets (urban, beach, ski, lakeside, etc.), there are some peak-demand days when there is more demand than normal:
- Beach/Ski markets: High season or holidays in a heavily seasonal vacation markets
- Urban markets: Events (concerts, conferences, marathons, etc.), major holidays, high season
- Weekends in drive-to destinations that see a lot of leisure travel but very little demand mid-week
Regardless of the reason, every market tends to have periods with high demand and periods with low demand.
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During high demand periods, when occupancy in the area is expected to be on the higher side, we expect "most" properties to be booked. You can be on the higher percentile and still have a good chance of getting booked.
If during such peak periods, you followed the median price as a strategy, you might sell for a small premium (if everyone in the market was savvy and raised their rates) or worse, at no premium (if it was a little known holiday/event driving the demand and others in your area didn't raise their rates at all)
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During low demand periods, when occupancy is expected to be low, generally it's better to be priced on the lower end to ensure you're one of the few properties booked. You can still use minimum prices (at a seasonal level if needed!) to ensure you don't go too low.
During low demand periods, when occupancy is expected to be such that more than half the properties around won't get booked, if you are at the median price, there's a good chance that you go un-booked, foregoing potential revenue.
We didn't explicitly cover this, but there are also "medium demand" or "shoulder season" periods, and each day can fall on a spectrum (not every high demand day is the same!).
We also used following the "median" price (50th percentile) here as an example, but this applies to other percentiles as well - we generally recommend not following the market pricing without understanding the booking/occupancy trends!
A note about last minute pricing: While we covered low and high demand periods above, there is another factor that comes into play when you want to set rates for your listings - how much time is left to get a home booked (this is called the "lead time" or "booking window"). Even during high demand days, if most of the demand that would have booked has already materialized, but the "remaining" demand to come is low, it might make sense to be on the lower side to ensure you are booked!
For the reasons mentioned above, our pricing algorithm relies a lot more on booking/occupancy trends in the market to understand seasonal, day of week, and event/holiday trends (more on that
here). We of course want you to provide guardrails and preferences you are comfortable with, and those are available via our
customization settings).
The chart below (taken from our pricing dashboard's
Listing Neighborhood Data feature) helps visualize what we've described above - you'll see that our recommended prices are around the 25th percentile in the market during low season and hovering around the 75th percentile during high season. You'll also see that during the shoulder season (medium demand) the prices are ranging somewhere in between (with exception to the holiday - in this case Memorial Day in the US - right after the low demand period marked in red below!).
Of course, this is for a particular property in the area, and might not apply to every property. As an example, a higher end home might be desirable enough to always stay above the median price and still have a good chance of booking - this can be achieved by having a higher base price for the listing in PriceLabs, and using appropriate minimum prices as well!
If you have any questions around these, please reach out to our support team!
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