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Pricing is a tricky issue for many. Before I came into this industry, I spent many years in a commercial pricing environment and one simple truth that I learnt was that prices are set by supply and demand.

Supply and demand doesn’t care whether you think a property should be a certain price. Either high because it has an emotional value to you or low because you think that’s all people will pay. It doesn’t matter whether you can pay your bills.

An example from me recently.

I had spent several hours recently doing some renovations on the decking at my property. It was hot and hard work but it needed doing and that afternoon was my only opportunity. At the end of it I was hot and bothered but had to go and pick up my child from school. I got there with 10 minutes to spare and I saw the shop just down the road. The idea of an ice-cold drink snuck into my head (demand), so I decided to pop into the shop (supply) to get one. When I got in there the shopkeeper was looking more frazzled than I was and he let me know that his drinks cabinet had broken down. NO COLD DRINKS! Suddenly, the balance of supply and demand had changed. I still had a demand for a cold drink but not for the room temperature drink that the shopkeeper could supply. So, I left without buying a drink.

Understanding the interplay between supply and demand is crucial for property owners, property managers, and travellers alike.

On the supply side, the availability of holiday rentals can be influenced by a variety of factors. These can include location, property size, amenities, and the potential for profitability. Economic factors, including property maintenance costs and the opportunity cost of not using the property themselves, also come into play. Seasonal variations in supply can be significant, with owners often offering their properties during peak vacation periods and potentially withdrawing them during off-peak times. Recently a lot of new Holiday Lets have opened as the tax rules surrounding long term lets changed so in the last couple of years supply has increased.

Demand in the holiday let industry is influenced by a range of factors as well. Consumer preferences, economic conditions, and external events like the COVID-19 pandemic can all impact demand. Traveler preferences can shift based on factors such as location desirability, accommodation types (e.g., beachfront, riverside, cosy cabins, urban apartments), and available amenities. Economic factors like disposable income and the affordability of travel also play a pivotal role in determining demand levels. Additionally, external events like major sporting events, festivals, and seasonal holidays can lead to spikes in demand in specific locations.

The balance between supply and demand in the holiday let industry has a direct impact on pricing and availability. When demand exceeds supply, the market supports higher rental rates, and properties may get booked well in advance. Conversely, in periods of oversupply or reduced demand, property owners may need to lower prices or offer incentives to attract renters. Effective pricing strategies, marketing efforts, and property management are key for property owners and managers to navigate the fluctuations in supply and demand and optimise their rental income.

In summary, the holiday let industry is a dynamic market where supply and demand dynamics are constantly at play. I choose to use dynamic pricing software (Pricelabs for me, others are available) as this considers the forces of supply and demand for me. It does this for me every day and updates my prices every day.

So, what is dynamic pricing?

Dynamic pricing, also known as demand-based pricing, is a pricing strategy that adjusts the cost of a product or service in real-time based on fluctuations in supply and demand. It is a strategy commonly used in various industries, including the holiday let industry. Dynamic pricing aims to optimise revenue by setting prices at levels that maximise profitability while considering changing market conditions.

Here’s how dynamic pricing interacts with supply and demand in the holiday let industry:

1. Real-Time Adjustments: Dynamic pricing systems continuously monitor factors that affect supply and demand, such as booking trends, seasonal variations, local events, and competitor pricing. When demand increases or decreases, the pricing system adjusts rental rates accordingly.
2. Optimising Revenue: During periods of high demand, dynamic pricing algorithms typically raise rental rates. This allows property owners and managers to capture the increased willingness of travellers to pay more for accommodations. Conversely, during periods of low demand, prices may be lowered to attract more renters.
3. Balancing Occupancy: Dynamic pricing seeks to strike a balance between occupancy and revenue. While higher prices can lead to increased revenue per booking, excessively high prices may result in reduced occupancy. The goal is to find the pricing sweet spot that maximises total income.
4. Competitive Insights: Dynamic pricing systems often consider competitor pricing data. If similar properties in the same area are charging higher rates, the system may recommend increasing prices to remain competitive. Conversely, if competitors lower their rates, the system may suggest adjustments to match or undercut them.
5. Seasonal and Event-Based Pricing: Dynamic pricing is particularly valuable in capturing the nuances of seasonal demand and special events. For example, prices can be adjusted higher during peak vacation seasons or major local events, such as festivals, conventions, or sports events.
6. Last-Minute Bookings: Dynamic pricing can also account for last-minute bookings. If a property remains unbooked close to the arrival date, the system may recommend lowering prices to attract spontaneous travellers.
7. Data-Driven Decisions: Dynamic pricing relies on data analytics and machine learning algorithms to make pricing decisions. These algorithms consider historical booking data, market conditions, and other relevant information to optimise pricing strategies.
8. Flexibility: The key advantage of dynamic pricing is its adaptability. It allows property owners and managers to respond quickly to changes in market dynamics, ensuring that prices remain competitive and revenue is maximised.

However, dynamic pricing must be implemented carefully to avoid customer dissatisfaction or pricing volatility. It’s essential to strike a balance between optimising revenue and maintaining customer trust. When executed effectively, dynamic pricing can be a powerful tool in the holiday let industry, helping property owners and managers make informed pricing decisions that align with supply and demand fluctuations while maximising profitability.

A simple explanation of how it work is that it asks you for two figures.

1. Average price – This is what your rate should be on average night for your property.
2. Minimum price – This is the lowest price that you will take for your property.

The average price is then pushed through all the supply and demand algorithms to give a daily rate sometimes higher than your average, sometimes lower. The minimum price is the line in the sand that you won’t go below. In other words, you would rather be empty than go below the minimum.

It does need checking on regularly to make sure your average price and minimum price are competitive and you can assess this by how your occupancy compares to the local area. However, I have found that it only really needs tweaking of a few pounds either way to stay at the competitive edge of the market.

Imagine starting a holiday let in an unconventional, slightly run-down area – a non-touristy neighbourhood that has its challenges. Among the concerns raised by new hosts, the question of handling messy neighbours often surfaces. This scenario highlights a critical aspect: expectation management. Both for the guests and the property owners, effectively managing expectations becomes key to success in the dynamic holiday rental landscape.

From the property owner’s perspective, it’s vital to confront the reality that not every property is suitable for holiday rentals. The misconception that any space can be turned into a rental hotspot has been perpetuated by media narratives. While the pandemic fuelled staycations, the surrounding area’s condition matters. If the neighbourhood creates a negative experience for guests, it can deter future bookings and positive reviews.

On the guest’s side, expectation management revolves around defining what they anticipate from their stay. Closing the gap between property perception and reality becomes paramount. Transparent listings, complete with precise descriptions and vivid imagery, empower guests to form accurate anticipations about their upcoming experience.

However, effective expectation management isn’t limited to the listing stage alone. Clear and comprehensive communication throughout the process is essential. Detailed listings, outlining amenities, constraints, and house rules, empower guests to make informed decisions aligned with their preferences.

Honesty about amenity availability and conditions lays the foundation for trust. Clearly communicating any seasonal changes or limitations fosters a sense of transparency and reliability.

Furthermore, effective communication goes a long way in enhancing the guest experience. Timely responses and sharing local insights help guests navigate their stay smoothly, resulting in positive memories.

As guests anticipate their holiday, a flurry of expectations arises, accommodation quality, local surroundings, and overall experience. Effective expectation management is increasingly vital for holiday cottage owners. It ensures guests depart content, with expectations met or even surpassed.

Here are several avenues that can be utilized to ensure guests are well-informed:

1. Website Copy: Often underestimated, the website’s copy can sway opinions. Addressing visitors’ requirements through tailored website pages can pre-emptively satisfy their potential queries.

2. Website Photography: Visuals offer tangible insight. Professional photography, showcasing interiors and exteriors, bridges the gap between perception and reality. Don’t hide a problem but minimise it.

3. Communication with Guests: Expectations evolve during pre-visit interactions. Continuous communication keeps guests informed, mitigating disparities between expectations and actual experiences.

4. Attention to Detail: Pre-visit communication shapes expectations, while on-ground attention to details sets the tone. Adding special elements can leave a positive, lasting impression.

In a world of evolving guest expectations, adept management ensures satisfaction. Transparent communication, tailored experiences, and aligning reality with anticipation culminate in memorable guest experiences and enduring property success.

In the end, the art of managing expectations holds the key to a thriving holiday rental venture.

 

 

Recently I saw a host worrying about some US citizens travelling to her property who hadn’t given any information except for two of their first names Ali and Ali. They seemed mainly worried about the lack of reviews for the guests and the inconsistency of the names (they said they were husband and wife).  In the replies lots of people gave emotional support and some gave experience.

However, no one mentioned one very important fact.

By law there is some information that you must collect from your guests and the information given to this host wasn’t enough.

The Visit England Pink Book says that you need to collect the Full Name, and Nationality of all guests over the age of 16. You also need to record the Passport number (or other ID) and details of their next destination for all guests who are not British, Irish, or nationals of Commonwealth nations.

If asked by the police or by a home office official, you must keep this data for 12 months so you can give it to the police or a Home Office official if requested.

It also says, ‘Even if your local police force has traditionally shown no interest in these records, circumstances could change.’

Given that more regulation is being discussed across the whole of the UK I don’t think it will be too long before registration comes in and following that inspections. It would be wise to make sure you are following the law, even if it is a little known one currently.

To make it even more complicated by following the law you may need to comply with another law. The Data Protection (Charges and Information) Regulations 2018. If you hold this data electronically you need to register with the ICO (information Commissioners Office) and pay their annual fee (£40 for most).

I use my rental agreement to collect this information. Every time a booking comes in, they have to fill in a rental agreement which asks them for this information and explains why. This is then archived by my channel manager and kept for 12 months.

Do you collect this information? If not how are you going to?

 

 

• Pink Book https://www.visitbritain.org/business-advice/registration-and-data-protection
• The Immigration (Hotel Records) Order 1972 https://www.legislation.gov.uk/uksi/1972/1689/made
• The Data Protection (Charges and Information) Regulations 2018 https://www.legislation.gov.uk/ukdsi/2018/9780111165782/contents
• https://ico.org.uk/for-organisations/data-protection-fee/self-assessment/