Competing on Price is a Flawed Strategy

Competing on Price is a Flawed Strategy

I have received an email from Airbnb notifying me of the number of views I have received, suggesting that my prices have resulted in lost bookings, and recommending that I lower my prices to attract more bookings.

This is flawed advice. Airbnb hosts should be encouraged to be price makers, not price takers. It is in the host's and Airbnb's interests to keep prices up, no lower them. I differentiate my property using non-price criteria. If I compete on price, then I end up supporting  a race to the bottom. I am not going to do that.

Airbnb should re-think this short-term, flawed price-based policy!

32 Replies 32

@Robin4

Good morning Robin, mate.

Read your post. Am I reading you right? 

I am a supporter of your contributions, and have complimented you publicly

and thanked you in private. Your post was public, thus this reply is too.

In referring to some part of your post, I thought my understanding was correct. No BS. Correct.

If it was in error, my apologies. I'm not Australian, and there are nuances and implications in

your style that don't hit the mark with me. I'm Canadian from a French area, and no doubt

there are nuances in my choices of expression that could be off-the-mark with you or others.

That said, to be considerate and fair - and because you're obviously a very good person and

gentleman as I have stated publicly - there will be no more references to you or your fine articles.

Sad, but best. I mean that. I'm sad. My loss.

I wish you all the best in this activity. Was having a lovely morning, but this popped the bubble.

Oh, well. You have a good one. Good luck.

Robin4
Level 10
Mount Barker, Australia

@Dunny0....Hi Pal...hey I was not having a go at our level of conatact, I was refering to something you said in a previous post which I though my response would slot in behind, but unfortunately didn't...namely this bit...

 

"Robin has been waiting for three days to get a repy from the executives.

They know. You read these forums,

and tell them. He has shut down his listing!" 

 

That's the bit I am not happy with! As I have said before, we are all here to learn from each other, and you my friend make some really good points, some of which I agree with, some of which I don't, but hey, that's the wonderful thing about life! We are all different and we all bring something to the table.....

It's just that I want to carry my listing on my back, not someone elses...

Cheers....Rob

@Dede0

 

While you are right about the developers let loose on the site with little or no governance over changes, the principle of encouraging guests to price to attract busienss is one that is underpinned by the principle: best they spend their money, any money with AirBNB, than go to a competitor. 

 

I am not saying it is the right approach and we have never used their pricing tips as they are stacked in favour of AirBnB's wallet and not the hosts. So it's definitely a flawed strategy for hosts, but not for AirBnB.

 

 

Jayne8
Level 2
Hereford, United Kingdom

Hi Peter,

 

I have been holding out against this strategy as well, and am glad to know that others feel the same. Every place has it's price, we go for quite a high rate but think our annexe merits that. Why would we want to complete with other more basic places in the area. It costs to provide quality and people like to have choices.

Jayne

Huma0
Level 10
London, United Kingdom

@Peter36 my prices are already very competitive for London, so I tend to ignore Airbnb when they tell me to reduce them. If they were really calculating the price tips effectively, why are they making no distinction for bank holiday weekends, which are peak season here? I think it is mostly nonsense, so you are right to ignore them!

Candie-And-Dan0
Level 2
Las Vegas, NV

Hi Peter,

 

You are correct, what the host offers matters much, Airbnb gets paid regardless of amount we decide.  However, what we decide makes an incredible difference for us as hosts.  We not only need to ensure we cover our costs, which Airbnb know nothing about, but we would venture most hosts are doing this for income first and other reasons second.  Smart hosts have done their homework, they have fully reviewed all other rentals in their city or area comparing everything from prices, amenities, rules, offerings and more. 

 

There is a “bunk house” not far from us and it runs $18.00 a night, we could never compete with them.  We follow their calendar (another item to compare) they are busy and God Bless them for opening their home.  They offer limited creature comforts and have little extra after a mattress out of the weather.  Our nightly rate is three times that but we offer a private room, full kitchen, washer/dryer, pool, and much, much more.  Our costs in keeping up all those things are greater than cleaning a twin bed sheet once and a while, not rocket science. 

 

Delete any Airbnb message regarding pricing, it is nothing more than Junk Mail.  If you have done your homework and feel good about your rental and what you offer, and your previous guests do as well, you just maybe undercharging!  Remember, it is Your rental property business and Your home, Airbnb is simply a service who is paid a fee by You for using their service.

 

Full disclosure, we only use Airbnb for bookings, it is supplimental income only and we love meeting people from all over the world!

Dan and Candie

I never compete on price. I keep my prices consistent with wanting to attract guests who appreciate a more refined experience. I have had wonderful guests. I think my guests may be more refined too, than someone who is chasing a room based on price.

Peter,

We have had the best people we could ever expect.  Most have stayed for many days and it is always rewarding.  We know our pricing is low, but there is a method to the madness since we are not a year into our listing.  Start low, get wonderful reviews and slowly increase to the appropriate price point.  We are not a party house and state that in our listing, here in Las Vegas, we are sure it discourages some.  But we're not after that croud as you propose, many of our guests travel regularly and they have promised to return because of what we offer and how we share our home, not how much it costs. 

Wonderful content from all who have replied, very good discussion, thank you for allowing us to participate.

Raffaele-and-Astrid0
Level 10
Coogee, Australia

Hi @Peter36

 

mhh... yes in somehow you are right, Airbnb try to maximize the profit, but it really depends on the area, I saw that you have a private room at 260 a night + 130 extra person, In Sydney you will have zero booking, beacuse the offer is higher, we have the double of listing. (12.000 Mel - 24.000 Syd)

my point is, ok that Airbnb suggestions are too low sometimes, but if you don't have any booking at all maybe is better cut down a little the price.
I checked in booking 19-21 Feb, 2 guest, you cost $603, $45 more than a 5 star Hilton hotel $558,  and most of the hotels in your area are 200$ cheaper than you, I saw that you don't have any booking at the moment, so maybe dropping your price in half it will not be a bad idea. but of course you know the area better than me.

Remember that most pepole using Airbnb for save some money respect a Hotel, if you cost more than an average hotel, guest will not book with you, also if your house it looks amazing. 

 

anyway, is just for talk.
cheers Raf

Hi Raf,

 

I was playing around with the parameter settings last night when you viewed my site. The enquiry result you saw was way higher than normal. The settings are now back to normal.

 

However, Airbnb suggesting that we lower prices to increase bookings neglects the economic principle of elasticity of demand. If the elasticity of demand is less than one, a price increase will yield greater total revenue (even with less demand).

 

In my area at the moment, hotel occupancy rate are historically high, so there is no need to lower prices. The Airbnb recommendations should not be soley based on analyis of there own data. A little more sophistication, or fewer recommendations is needed.

Ehukai0
Level 3
Aiea, HI

Thank you , I agree. I increased my rates ( they suggested 45 at one point my first week) but at 70 I'm booked for months . Very new here and very concerned about good ratings, however, I put too much into it to give away!!! 

Hi Jennifer,

If you are booked months ahead, then it suggests your prices are too low.

 

I keep complete booking statistics. Over the past 12 months, my medium book-ahead is 2.0 days. The average book-ahead is 7.4 days.

This means that of the nearly 70 bookings I received over the past year, half were booked with less than 2 days notice to me. If guests plan ahead, they may book cheaper properties several months in advance of their travel. This leaves my room standing, so when people search I will come up in the search results.

In addition, when someone is in need of accommodation, price is not important. I have had guests book me while they are traveling to the city from the airport. I have had guests book me when something has gone wrong with their existing accommodation. I can stand in the market to help out the late comers.

 

It depends on your business objectives, but it is simple economic theory. If you walk in off the street to a hotel, they will only offer you the rack rate. Of course, it increases my risk that I get no bookings, but so what. If I don't have a guest, it is like having a day off!

 

Lai-Peng0
Level 1
Thailand

Sharing my sentiments...we are Superhost but seems like my price is being eroded. There was an enquiry for 28days/4adults and the quoted price was Bt28,000 which means a Bt1,000 per night!!!!

 

Hi Lai Peng,

 

It sounds like you are using Smart Pricing. I never use Smart Pricing. I always keep control of my own pricing. Maybe you can consider changing your settings.

I agree that AirBnB's pricing tips are unfortunately close to worthless. I'm a marketer by day so I know what useful sales metrics look like, and unfortunately bookings/views is a garbage KPI. Why? #1, because views are not qualified leads - many views are guests doing advance research with no intention of booking, hosts pricing comps, and people window-shopping and dreaming of vacations on their lunch hour. #2, they aren't counting unique views - one person viewing many times before booking drives the ratio down but doesn't mean I'm doing a bad job.

The metric I would be interested in would be: out of all the unique visitors to my page in a given time period who made a booking before leaving AirBnB, how many of them booked with me vs someone else? Then I would want to know, of those who did not book with me, what did the place they ultimately booked look like? Was it a cheaper private room when I'm offering an entire apartment and can't and shouldn't be trying to compete with pricing for private rooms? Was it a luxury unit with amenities I can't offer like a hot tub?

Which brings me to the next shortcoming, the implication that price is the only or primary lever we have to pull as hosts. A business intelligence model could be very helpful if it gave tips like, "1-bedroom apartments in your area book for an average of $25 more per night if they offer laundry service," or "80% of bookings in your area are between $25 and $125 per night. 80% of entire home bookings are between $75 and $135 per night." Or on the marketing side, "Listings with more than 5 photos get booked twice as often as listings with fewer than 5 photos."

 Those are the kind of recommendations that the BI tools I use as a marketer provide. I ignore whatever advice AirBnB tries to give me in this "race to the botom."

 BTW, I am at over 90% occupancy and AirBnB has tried to tell me I could have, variously, 22% more or 4x as many bookings if I dropped my nightly rate from $45 to $35. Where are these garbage numbers even coming from?