Sound Strategy

Balancing the Art and Science of Vacation Rental Pricing: Strategies for Success in a Competitive Market

By Clark Twiddy

Weekly price formulation in the vacation rental industry has, perhaps, never been more scientifically focused. Around every industry corner and certainly, with most firms, the ability to contextualize and predict accurate price ranges for a given home is something that has never before taken up so much time or resources as firms (on behalf of homeowners) seek to gain a competitive revenue edge in a remarkably competitive commodity environment.

That sounds simple, if certainly not easy. If you know your client's goals and answer their calls, making more money for your client than your competitor seems straightforward. It never is that simple, though, as we return again and again–despite ever-increasing amounts of data structure and complexity–to the cold knowledge that no one and no one thing can accurately predict the future.

In practice, price formulation and subsequent pricing strategy have always been a combination of art and science; tying highly educated guesses about future pricing to market-based moving price averages in real time is a highly complex and demanding scientific skill set.??

In conjunction with science, the less-discussed but no less important art form lies in the emotional self-awareness and practiced self-reflection around our own humility and expectations over time. Alternatively, the experienced homeowner combats their own human impatience for above-average results with a conscientious knowledge that only duration enables compounding. Mistakes, to be sure, frequently arise when human impatience to compress a natural market cycle overwhelms our understanding of how a market works over time.

This is psychologically easy in a rising market–an upside shields mistakes. However, it becomes correspondingly complex in a falling market, even one known to move in cycles (the buy low, sell high rule that, in reality, is seldom followed). The challenge to do well over time is based, we believe, on three art forms focused first on ourselves as operators and investors:

1. Our emotional resilience and conviction.
2. A proper understanding of the vacation rental business cycle.
3. A vision and goals for our investment over time.

In short, while the market is constantly moving, our shared ability to articulate and adhere to these rules becomes the systemic approach to success that is the daily antidote for the fears, greeds, flows, and flights within the competitive market.??

Looking ahead, staying up-to-date with cutting-edge technology that utilizes algorithmic design, such as those linked to the 200-day moving average or competitive revenue benchmarks, will remain integral in terms of science. These tools provide valuable insights into market predictions and realities, bridging the gaps between expectations and actual outcomes.

Access to advanced skill sets that serve as diagnostic and empathetic tools is equally crucial. These capabilities aid in effective communication and decision-making, especially in the fast-paced environment of pricing formation. Beginning price assessments from a place of conviction, belief, value, and trust is paramount. While there's no algorithm or historical data specifically tailored for this approach, it's vital to achieving success–any pricing formulation beginning with on the technology side, for example, discounts the equally as important vision of the investor.

Ultimately, a balanced integration of art and science is essential. Relying solely on one without the other leads to incomplete strategies that may disappoint in the long run.? In a fiercely competitive market, incomplete approaches are quickly identified and will lead, in turn, to incomplete outcomes.? And while it can be tempting to pin underperformance on external market factors, experienced operators know that all outcomes–good and bad–begin not with technology but with ourselves and our expectations.??

Clark Twiddy is the president of Twiddy & Company, a vacation rental asset management and hospitality firm founded in 1978 along the North Carolina Outer Banks. He was raised in Duck, North Carolina, and is a combat veteran of the U.S. Navy and an alumni of several universities. Clark has served in numerous public, private, government and nonprofit capacities at various levels from volunteer to chair.