How To Tell If Your Prices Are Too Low

[Ann72]

Sometimes I feel I'm a one-woman band on the subject of pricing, for I believe that most hosts undervalue their properties, not to mention their time.  My philosophy has always been that "you get what you pay for," so if I see a room going for $39 a night, I'll assume it's a hovel and will avoid it like the plague.  

Airbnb, on the brink of an IPO (supposedly by June of this year, but no later than the end of 2020), constantly beats the drum of "lower is better," implying that the data they've accumulated from guests' behavior proves that people will book the cheapest place no matter what.  

But is cheapness really the only or the major factor that goes into guests' decisions?  When planning a trip, you'll have a budget, and a need to be in a specific place, but you'll also have a desire to be taken care of, to enjoy your surroundings, and (especially for vacationers) to get completely away from the cares and worries of daily life.  And you might be willing to pay more for that kind of luxury.

While spending hours this winter preparing my prices for the coming summer, I came across an article that speaks to this idea and thought I would share it.  My favorite takeaway?

"A few customer complaints are a good indicator that the price is correct.

 
"If customers never leave or don’t buy due to your pricing being too high, then you are not charging enough.
 
"It is erroneous to assume that if your prices are just where they should be, no one will ever complain about them. There will always be a few customers who want it for less, even when they know the price is appropriate."

The article is from TalkRoute and it's called (surprise) "How to tell if your prices are too low."  I can't link it, but it comes up easily on a search if you're interested in gaining new insights or just want some reassurance that your pricing strategy is (forgive me) on the money.

[Gordon0]

There's a fine line between a race to the bottom (not my game I'm afraid) and the sweet spot price point that a) means you get what you want (and need) and b) the guest is prepared to pay the rate and feel they get vfm.

For me, it was all about testing up/down a little until I got the right mix. Am I there 100%? Probably not, but - for the majority - I get decent, nice guests, and it pays for my holidays.  

[Beth80]

@Ann72 First off I just laugh at the suggested prices that Airbnb sends out. When we started this adventure we did some research. We looked at how much it was going to cost us per guest per day. What kind of guest are we looking to host? SinceSthis is our private home we decided we wanted to aim towards upper middle class. We looked at the mid class hotels and under priced them. We get requestefor a discount in the first sentence and I know they aren't the people we sanwto host. The ones that come back time and again tell me that I'm doing something right.  Like @Gordon0 I'm happy with most of my guests and certainly like the money I make for my holidays. 🙂

[Gerry-And-Rashid0]

@Beth80 

I think you are spot on - we are priced about 25-30% higher than comparable local properties, but  we get very nice guests. One one occasion we got an enquiry for dates, and said yes it was free - he then asked for a discount. Our rule is that is a red flag - we politely suggested they look for something within their budget He then apologised but it was too late....long story, but, took a look as his profile a few weeks later and his hosts (local to us) gave him a glowing review! 

[Gerry-And-Rashid0]

@Ann72 @Gordon0 

Another angle is nationality and cultural expectations - for some bizzare reason 60% of our guests are German - we are within easy reach of airports with flights from dozens and dozens of countries, yet we attract Germans. There is clearly a pricing element, and a review element, but I wonder if there is also a subconscious 'other people like us stayed there and really liked it' - not sure how you measure that, but clearly we are doing something that Germans like!

PS: cultural expectations also includes expecations re room size. US visitors find the guest room small, not that it affects our scoring, but...

[Mark116]

The problem with pricing is that if you are what airbnb's AI deems as 'too high' they basically hide  your listing.  

[Ann72]

@Gordon0@Beth80@Gerry-And-Rashid0 It's so nice to meet like-minded hosts!  SO interesting, Gerry, that the Germans keep coming back and others come along - I think you're spot-on with the reason. 

I just believe there are people out there who perceive something has value and are willing to pay for it.  In three years I've gotten a few 4-star rates for value.  But one of those 4-star-for-value raters came back last year after skipping a year.  I asked him - did you go someplace cheaper last year?  He admitted he had and that it just wasn't worth it.  He'll be back this year as well.

And the conundrum that the lower you put your prices, the worse your guests are, is something I can't explain, but once I raised my prices higher than almost everyone else around me, I got the nicest people.  Go figure.