Price Optimization & Beyond
In many businesses, pricing strategy can make or break the company and brand. Price too low and you’re viewed as cheap option not worthy of a purchase; price too high and your customers might seek out your lower priced competitors. In the SaaS businesses that I’ve been a part of, we’ve used pricing strategy to achieve specific goals that changed over the lifetime of the business. As an example, freemium is a great model to get more people to at least try your product but as you go more upmarket, getting the “free” customers might be less appealing.
We’ve seen price optimization in the on demand economy as well. Also referred to as yield management, companies like Uber have excelled at raking in more money for themselves and their drivers with surge pricing. What about the vacation rental market?
Most recently Airbnb has introduced Price Tips to help hosts set a more “perfect” price which both optimizes the vacancy rates and the amount of money a host can earn during periods of higher demand. This validates that hosts need help in finding an optimal price. And that Airbnb will benefit from that optimal pricing as they make a percentage of the total bookings. However, in my own use of the product, I’ve seen that so far, Price Tips skews significantly on the side of filling units vs. creating higher earnings for a single night. I would assume that they’ll keep improving the product, but this is a very specialized area of knowledge and requires significant focus.
That’s where Beyond Pricing comes in. Beyond Pricing makes it possible for hosts to make more money, potentially while even renting out their space less frequently. Although it sounds great to be fully booked, it’s even better to get higher returns with a 30 or 40% vacancy rate. The idea is to increase monthly income by at least 10% (in most cases likely closer to 30–40%) while charging a 1% fee to do so: https://beyondpricing.com/faq#how-much-does-beyond-pricing-cost.
Airbnb is massive. They have over 1,000,000 listing across 34,000 cities in 190 countries. Their most recent valuation puts them at over $20 billion dollars. Beyond Pricing is currently in 40 cities across 14 countries and is currently controlling over $5 million dollars worth of bookings on a monthly basis. It takes time to enter each new city — here’s a bit of insight in terms of the effort from the Beyond Pricing FAQ:
One of the most important and unique things that Beyond Pricing does is leverage A LOT of data about local events, hotel prices, Airbnb demand, and other factors. We test every city extensively before launching. We don’t just tell you to lower your price as a stay approaches or increase your prices in high season — you already know how to do that. We’re taking your pricing to the next level with hotel and airline-level sophistication.
The Airbnb attempts missed many of the data and subtleties contemplated by Beyond Pricing as the go into each new city — that’s what happens when you have a side project vs. a company that’s dedicated to going beyond pricing and driving toward optimal yield management.
But being able to do this at scale across all Airbnb listings will drive an incredible business. And, there are other participants in this ecosystem such as VRBO and HomeAway that will definitely need to be added in over time, providing further opportunity.
This post is late in coming as the funding was previously announced in March, but we are extremely proud to be a part of what Ian McHenry and David Kelso are building at Beyond Pricing and we can’t wait to see what’s next!
Originally published at www.socialleverage.com on June 16, 2015.