Vacation rentals have always followed the precedents set by the hotel and airline industries when it comes to Revenue Management, and adding fees for extra amenities and ancillary luxury services has long since seeped into vacation rentals. However, airlines have also veered into offering discount/budget options to fill seats and reach other market segments, should the vacation rental industry adopt this trend to put more heads in beds and increase revenue?

The vacation rental (VR) industry has long aspired to the revenue management standards put forth from the hotel and airline industries since the 1980s. Guest segmenting, dynamic pricing and channel management are all practices that have been adopted eagerly.

VR and short term stays have also readily adapted to increasing the level of service for additional fees. While the airline industry has always utilized First Class and Business Class to offer a better experience at a higher price point, the VR industry has also seen the expansion of better services, activities from companies like Xplorie, optional personal chefs, and a host of other options.

However, the prevailing trend of budget airlines and “Economy Plus” type seats begs the question: should vacation rentals follow this trend as well and look to offer a curtailed experience at a reduced rate?

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Airlines have implemented budget tickets, but there's a catch: no refunds, no possibility of upgrades, no baggage, and reduced loyalty rewards, to name a few. This is a way to reach price-sensitive shoppers and gain travelers from a new segment. Whether or not a Property Manager (PM) should pursue a similar tactic may depend on each PM's professional brand and sentiment. However, how would a PM even go about offering a budget version of a stay?

Here are a few ideas to help justify the offering of lower ADRs while maintaining overall revenue:

Flexible Check In/Out

Given the resources and timing it takes to turn around a listing, especially in markets with mandatory Saturday turnover days, a useful tactic might be to give the PM flexibility to set their preferred check in/out time that will accommodate their cleaning staff. While less than ideal check in/out times may be accepted by the guest in return for a lower rate, the cost savings on a smaller cleaning staff could make this profitable for PMs.

Stricter Cancellation Policies

The VR industry has a wide range of cancellation policies that tend to vary by region; however, there is almost always one policy with one price. Offering lower rates for stricter policies could be an avenue to reach more price conscious guests when demand from more affluent guests is waning.

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Limited Amenities

Certain amenities are a massive draw for guests, such as a pool in summer, or a hot tub in winter on the ski slopes. PMs could consider reducing/eliminating these amenities out of peak season — i.e. not heating the pool (even if the added pool fee covers the cost) — to lower the total price to the guests as it can add up and scare potential budget guests away.

Lock-offs

This is already done and designed into certain condo complexes, to some success. While that eight (8) bedroom waterfront villa may be fully booked all summer by large families at sky high rates, the demand for it in off season is wildly reduced, and may be more attractive as only a first floor 2- or 3-bedroom, making it more appealing to snowbirds or small families (while reducing wear and tear on the upper floors).

Limited to No PM Support

This is most likely a tough one to do given how devout PMs are to always providing their guests the best overall experience. However, setting the expectation that you won’t deliver that extra blanket at 11pm or be on-call to explain the TV remote situation at all hours, may be a tradeoff guests are willing to take at lower price points.

The Holy Grail: “Opaque Bookings”

Stealing this one straight from airlines and hotels — where you can book passage but not choose the exact seat, or book a room type but not the specific hotel suite — the idea of taking a reservation based off of certain requirements for a discount and not a specific listing could give lots of flexibility to PMs. Obviously this is more feasible for PMs managing less “unique” listings, but guaranteeing a “2-bedroom ocean view with free parking” when you have 20 of them on program could allow a PM to optimize occupancy across the portfolio and increase total revenue.

While we at Beyond Pricing would be the first to admit that the strategies listed above may not be for every PM out there, periodically reviewing your levels of service and the relative price is important to do from time to time and should be part of your overall pricing plan along with dynamic pricing.

If/when an economic downturn happens, these strategies could be lifesavers to PMs trying to stay a viable avenue for shrinking discretionary incomes and travel budgets. The airline industry has found success in its idea of “Basic Economy” and their findings should not be ignored by the VR industry.

So, what will your catch be?

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