Transcription
Short-term rental hosts have no clue what's coming. I just saw global data. That's a huge red flag for any Airbnb host that's not paying attention. You know, the Airbnb bus never ended. Did you hear that 46% of all short-term rental operators are experiencing far shorter lead times in their booking windows? That's big data. And I'll tell you why. Because I didn't say that people are paying less money. I didn't say that there's less bookings. All I said is there's shorter lead time. And you know, software, they're not built for that kind of nuance, are they?
So, here's five data points that's going to change the way that you run your software if you have a pricing software. Otherwise, if you do this manually, this might blow your mind. My name is Sean Rocky. I do pricing strategy. And this video is how to increase your revenue. So, let's lock in.
Data point number one about shorter lead times. This means that we cannot run your typical pace-driven strategy to determine what your final price should be to get a booking. And let me simplify that for you. Imagine your software thinks that you're going to make $100 because the market is behaving a certain way. And because people are now changing their behavior, the software is going to be wrong. The software now thinks because less people have booked at 30 days out that you should drop your rates. But this may not be true always. What we have to do is we have to look at the market and try to come up with what we believe to be a final occupancy projection based on the actual trends for final occupancy, not the trends for lead time. So, if lead time is down, people are booking shorter distances in advance, but markets are still filling just as much, then we need to hold our rates in the face of danger. But if you can identify that you have a slow season that will only have 20 or 30% occupancy, then you should proactively drop your rates. You don't want to wait for lead time data to confirm or deny if you're going to not get bookings. So, the lack of lead time data is really the lack of data. It's a lack of confidence data. So, we need to actually make decisions ahead of time and ignore some of the like metrics that we typically use to determine if our strategy is right. We're going to have to hold the line, which means in slow season, we have to drop our rates right away. In peak season, we need to hold our prices. And in the middle, we're going to have to thread that needle. We're going to have to figure out what we think we're going to get booked for. And even though the lead time data is scary, we're just going to have to take that leap of faith.
The second data point is about channel migration. Booking.com is up 17% year-over-year in the United States. And I had a conversation with Hopper. Hopper is doing a lot of B2B sales to try to get companies to use them to book their accommodations, not just their flights. And not only Hopper, but today I got an email from Vrbo saying that they're increasing their distribution to increase their value proposition to hosts. So, as Airbnb is losing market share, Booking.com is growing aggressively, and Hopper and Vrbo are looking to push wider distribution through their singular channels. This means that hosts have a compelling opportunity to increase their distribution on platforms that they normally won't use as their primary. Now, this is following the guests, though. The fact that Booking.com has grown 17% year-over-year is because more guests are using Booking.com. It's not host growth that they're talking about. So, if we can extrapolate Booking.com host growth as a sign that guests are fatigued by Airbnb and want other channels, we need to find out what those channels are that these guests are going to. And Booking.com and Vrbo and Hopper. These are great examples of new channel distribution. You can take advantage of this in an even more nuanced way. If you're pet-friendly, then be on BringFido. The best thing that a short-term rental operator can do right now is identify supply gaps on channels where there's more guests than hosts. It's like being on a new social media where creators get to go viral all the time. If you're one of the very few listings on a channel, you're going to get more bookings at a higher ADR. So yeah, I recommend Hopper right now.
Now, channel distribution is a judgment call that you need to make that goes beyond your pricing software, but further there are judgment calls that you're going to make based on how well these channels do and the algorithms of the channels. So instead of just having a one-size-fits-all like strategy, for example, cancellation policies, you might decide on Airbnb to be flexible because people on Airbnb want flexible and Airbnb's algorithm rewards it. But on Vrbo, Vrbo is not going to punish you for having a strict cancellation policy. So, your feedback data from where you're getting your bookings and your consumer types per channel will then change the contracts that you have per channel because Airbnb may stuff you in the algorithm for being strict or firm, but Vrbo won't. And thus, you can get premium bookings on Vrbo far future with good cancellation policies for you and you can fill your calendar last minute with Airbnb bookings under a flexible cancellation policy. Meaning, you may also not open up your calendar on Airbnb more than 3 months in advance. And that's a hot take and I wouldn't do that in every market, but this is the kind of nuance that we need to look at considering so much is changing in the space right now. We need to start changing the rules based on which channels are going to treat us the best.
Now, GuestEvolve has been big on AI already. And one thing we've learned is that large language models are being used more and more instead of Google to search for accommodations in cities. Meaning that your direct booking website, if properly described and properly indexed, can show up in search for direct bookings. If somebody says, "Find me a house in San Diego with four beds and something something by the water." Large language models can find you. And this is a big shift in direct bookings. The way that we market our property has to be primed for SEO, not just for Google, but for semantic language model search, which is something I'm not an expert at, but I guarantee you in the next couple of days, I'm going to know a few things about a few things. So follow for more and wait for that video. Once I get my mind around it, it's coming to you, too.
There's an element of game theory to pricing strategy because we're increasing this all-or-nothing risk of our calendar not getting booked. Now that lead times are shorter. When we don't have a booking, we need to value the sure thing over ADR. Because if you're 20% likely to get a booking at $100, but 30% likely to get a booking at say $75, we can do the math. The net revenue per day would be 20% of $100, which is just $20. What moves can we make on our calendar that will increase the likelihood of us getting a booking because everybody else is trying something else? That is game theory at heart. And what we found is a mistake in pricing software. They price everything by the day assuming that a daily rate is God no matter how long a stay is. So you can have a rate that's $400 a night and so does your competitor, and you are nowhere at an advantage. Well, you could do something like a five-day discount where everyone else is doing a weekly discount and now for five or six days you have a slightly better rate than them and you're likely to get booked for five or six day stays because you're optimized for those. This is an example of a little bit of game theory where we deviate on our pricing strategy because everybody else is doing one thing.
And let's expand on that. I've got an accusation for PriceLabs. There's been such an increase of operators using software and technology. It's one of the biggest conversations at GuestEvolve is the use of tech in your business, but that includes Wheelhouse, PriceLabs, Guesty's Go Beyond Pricing, AirDNA's pricing tool, um, and even like Hostaway has a pricing tool now, I believe. All these channel managers are building their pricing engines. So that means that the percentage of operators that have a pricing engine built into their system is going to breach 70 or 80% within the next year and a half. And if 80% of a market has a pricing engine that deviates for supply and demand and they all behave similarly, then what happens is these softwares just become balancing algorithms. Because let's isolate it to PriceLabs, for example, they're one of the bigger players in the game. If half of a market uses PriceLabs, but only 20% of people will get booked, there still will be 60% of PriceLabs' consumer base that would not get a booking if only PriceLabs clients got a booking. Let me rephrase that for you. PriceLabs is forced to treat all of their customers equally, even if only a portion of them will get a booking because there's just not enough customers. That means that what PriceLabs does with all of their clients is balance all of their likelihoods to get a booking, creating an equilibrium between them versus standard market. This is only a level one deviation in a market. And if everybody deviates the same way, they then lose their advantage.
Now, this is hard to pin down per market, but the data overall is showing increased volatility in both listing growth and hosts exiting the space, meaning that forward-looking projections based on software will often be inaccurate because a lot of software uses past data to make forward-looking assumptions on your market. But you can track if your market has more or less hosts in the space to determine if you're in a space of greater or weaker strength. And this can be segmented, too. You might see an exit of luxury properties, but an increase of cheap properties in your market. And this is one of the tasks that a short-term rental operator has to do on their own. They cannot rely on a software to try to tell them that there's increased competition in their specific segment. They're not intelligent like that yet. GuestEvolve believes that AI is powerful and maybe will one day solve these problems for hosts, but until that day, we must manage our software because they only go so far.
In summary, the short-term rental market's going to look pretty ugly next year. Even though there's a lot of growth, more hosts are leaning into the same software that used to be your advantage. And because markets are changing too quickly for these software to adapt, they're going to be doubly wrong. Software is important. They automate without mistakes. You don't accidentally move a decibel and give somebody a property away for $10. But their ability to nail your price will be a hybrid of the things that they think they know and the guidance that you give them. So, if you want to learn about market forces and pricing techniques that are based on deviating from your competition instead of just being overly loyal to numbers, watch this video next. This video will give you a great primer on pricing strategy fundamentals that you can use on any pricing software. Thanks so much for watching this video all the way through to the end.