I DON’T USE THE TERM EXPERT
As someone that revenue manages multiple portfolios, for multiple companies, and even more owners … there’s always someone unhappy with our pricing. I’m proud of the work we do, but its human nature (e.g. inherent bias) that we believe we’re right or know something others don’t, that the grass is greener on the other side, or the only person worth listening to is the guy yelling at us on TikTok.
I don’t use the term “revenue management expert” because first, it sounds pretentious, and second, there’s so much I don’t know and haven’t figured out yet. But I think that’s what makes a good revenue manager. You have to go Sherlock Holmes or Glass Onion and try to uncover the mysteries of your business. While revenue managers may not get the thrill of the fight like the previously mentioned men of mystery … but they probably get beat up pretty bad verbally from time to time.
I’ll take an aside and add , just be nice to your revenue manager. When’s the last time you nailed a forecast to the dollar or sold units in Death Valley in the middle of summer? It’s not easy.
I JUST WANT MY DAD TO BE PROUD OF ME
Nobody ever says, “Great Job! Perfect Price!” Not when I priced vacation rentals, bananas, beer, toilet seats, water balloon fillers, or oil and gas insurance claims. BUT, someone always new I had priced something too high and hurt sales or priced something too low and left money on the table. Everyone, and I mean everyone, even a revenue manager’s inner self, wants to change the price.
BUT WHY?
No really, you want to drop the price but why? Sure, to sell more nights (or units if you’re in one of my old industries), but how do you think dropping price will actually increase sales? The sad truth is a lot of times its just a random gamble and just like Vegas there’s a good chance you lose.
We change price so often for a few reasons:
All of us buy things and understand price, giving us exposure to and “knowledge of” pricing. But just like a great home cook may not be able to run a restaurant the Black Friday fiend might not be able to price the store for maximum profitability.
Its one of the few independent variables. There’s not much any property manager can change. Minimum length of stays, pictures, communication, all of those are convoluted and take time. I can type price right now … $329 and change it in just a second $319. Was that the right price change? No clue, but I feel good because I did something and I can show my boss I’m trying.
Prices are numbers which provides a false sense of transmutability and equivalence. I know I can drop my price to a dollar below my competitors (compset). I know I can do a 10% sale. That’s a lot easier to implement, communicate, and justify as data driven compared to calling John to see if he wants another staycation.
But the sad truth is … most price changes don’t matter!
VISIBILITY
Getting seen is getting sold. Its as simple as that. I once had a client where we couldn’t figure out why our price changes weren’t having any effect. Turns out, half their listings weren’t even available for sale on any channel, their descriptions were blank, they didn’t show up on the map, and they had the least reviews and lowest review score of the first 4 pages. We can move your price from $120 to $99 all you want, but you’re not making a sale.
Imagine a billboard in times square announcing 10% off. Not only is it being seen by tons of people, its probably converting some of those to sales. Just like a vacation rental listing is views x conversion rate, so are billboards.
So what happens if that same billboard is in a ditch. First, way fewer people notice it. Second, those that do notice it probably don’t trust its message or product quality an dismiss it. This is like showing up on a lower page, with few bookings, really low rates, bad pictures, and no and/or bad reviews. It doesn’t matter what your price is, its remaining vacant.
MATH
Finally, vacation rentals are hard to manage because they are single units with binary outcomes. The sample size is small. Many hotels can gather more data in one day than a vacation rental can over an entire year. We all naturally want to draw conclusions … but how good is that conclusion if you’ve only seen 4 Tuesdays in March?
Also, there’s so many vacation rentals that the odds of a traveler selecting you is lower. If there are 5 hotels in town, then each hotel (all else being equal) has a 20% chance of booking each traveler. How may vacation rentals are in your area? Let’s be conservative and say 500. That’s only a 0.2% chance of booking a specific traveler.
So what happens if you don’t book for a few days? Maybe your property is fine and people booked one of the other 99.8% of the properties. Also, vacation rentals aren’t hotels. They can only be sold once. So drop your price when you shouldn’t and you just gave someone a bargain.
REVENUE MANAGER TRAUMA
Sometimes, revenue management isn’t making complex mathematical models for 3 data points, listening to your boss who knows the market inside and out, or trusting a dynamic pricing tool to think of everything for you. Sometimes revenue management is yelling “HOOOOOOOOOOOOOOOLD” at your team to keep the rates and wait for them to get booked.
My clients get to see a change log of every change I make throughout the week. Maybe I need to add every time I check rates and bookings and add an entry for “HOLD!”
Edited to correct typos resulting in incorrect math as brought to our attention via comments and LinkedIn messages.