Skip to main content

Price positioning and dynamic pricing on Airbnb: Are multi-unit hosts revenue pros?

As a means to fulfill travelers’ accommodation needs, room-sharing websites compete directly with hotels and OTAs (online travel agents, such as Expedia or Priceline) in the lodging market. Even though Airbnb is now also getting into the real estate market with investments in residential-rental-ready buildings, most room-sharing websites work like an OTA --- for the most part, they provide an online marketplace where hosts list their underutilized space and travelers find a place to stay. Their profits and success rely on the transactions among the hosts and travelers.

Room-sharing websites not only want more travelers to use their service to book a stay as travelers but also want more people to list the underutilized space on their platforms as hosts. They want to help hosts gain more profits over time, allowing them to attract additional hosts and keep their existing hosts happy.

Airbnb, for example, introduced the “smart pricing” tools to assist hosts in adopting the right pricing strategies for the listing(s) they manage. Nevertheless, it is still up to the hosts to decide how much they want to charge a listing against others in the same neighborhood (i.e., price positioning) and whether or not they wish to adjust the listing price according to the fluctuating demands by the travelers (i.e., dynamic pricing). Many hosts, however, lack professional training or experience of how to manage a lodging product or adequately price their listing(s).

Before we can make any recommendations to the hosts and room-sharing websites regarding their pricing strategies, it becomes essential for us to find out whether the pricing strategies of price positioning and dynamic pricing are helpful in increasing a listing’s revenue performance. Additionally, will such pricing strategies’ effects on listing performance vary between multi-unit and single-unit hosts (i.e., hosts managing more than one listing vs. those managing one only)?

The research study

I then worked with another researcher, Karen Xie at the University of Denver on an empirical study --- “Pricing Strategies on Airbnb: Are Multi-unit Hosts Revenue Pros?” which is recently published in International Journal of Hospitality Management. In this study, we aimed to answer three research questions:

The research questions

RQ1: How would the strategies of price positioning and dynamic pricing affect an Airbnb listing’s revenue performance?

RQ2: How would host type (multi-unit vs. single-unit hosts) affect an Airbnb listing’s revenue performance?

RQ3: How would host type (multi-unit vs. single-unit hosts) affect an Airbnb listing’s revenue performance?



The data and the analysis

We collected the data from a research company that provides trusted data and analytics services about Airbnb. Our data represent the 10 major Airbnb markets in the U.S., which are also the top 10 metropolitan areas with largest populations and gross domestic products (GDPs) in the nation, consisting 320,243 listings operated by 216,058 hosts over 34 months from October 2014 to July 2017. The unit in our econometric analysis is A Listing’s Monthly Revenue Performance.

The results
  • Positioning a listing at a higher price point than the average price of neighborhood listings can significantly increase the listing’s revenue performance.
  • Dynamic pricing is also effective in driving up a listing’s revenue performance.
  • Higher revenue performance was observed in listings managed by multi-unit hosts.
  • Price positioning’s positive effect become more salient for multi-unit hosts.
  • Dynamic pricing’s positive effect is weakened for multi-unit hosts.
The practical implications

Drawing from the results from our analysis, we make the following recommendations:

For multi-unit host
  • To maintain a relatively high price positioning
  • To be careful when using the dynamic pricing strategy to avoid its negative effects.
For single-unit host
  • To maintain a relatively high price positioning
  • To consistently monitor the market demand and fluctuate the listing price accordingly
For room-sharing platforms
  • To conduct more analysis in other markets for more insights, using ours as an example
  • To provide training on the topic of price positioning to help hosts set up the initial price
  • To provide market insights for hosts, making suggestions or reminders to hosts in adjusting the listing price.
  • To offer different training sessions on dynamic pricing for multi-unit and single-unit hosts
For hoteliers
  • To pay close attention to those listings with a relatively high price positioning in the market and see how their price points are compared to the hotel’s average daily rate.
  • To pay close attention to the dynamic pricing strategy adopted by multi-unit hosts
The conclusion

We believe our study addressed a few important research questions. The results provide some insightful business intelligence to several key stakeholders in room-sharing businesses, assisting them in making informed business decisions regarding the effective pricing strategies in the room-sharing sector.

Through your observations or experience, what other pricing strategies can be useful in helping hosts increase listing revenues? What other research questions that need to be addressed in future studies?

Note: This discussion is also available on MultiBriefs.com, with another relevant (different) highlight on HospitalityNet.org.  
-->

Comments

Popular posts from this blog

Yammer: A Social Networking Site Exclusively for the Workplace

Effective internal communications among employees are related to some desirable organizational outcomes, such as robust morale, a clear vision, low turnover, and high employee engagement. The question is what platform can serve the purpose. This ABC News video introduces “ Yammer ,” an exclusive internal communication tool for companies. A user must use a valid company e-mail address to sign up for an account. Once an account is validated, the user will be led to the company page that is pretty much like a Facebook page. The difference is that only the users whose e-mail addresses share the same domain can see the wall and communicate with each other. I have no question about whether Yammer could be a useful internal communication tool for companies, but I just wonder: how many social networking sites do people need for communication? Why people have to “create” so many platforms or channels for “effective communications”? To many people, Facebook is only for “friends,” whe

Will restaurants of the future still need a dining room?

It does not seem the coronavirus is leaving us soon, although we have seen good   progress in developing the vaccine . In recent weeks, many places reported   a surge of new infected COVID-19 cases . Some even resumed   lockdowns   and the mask-mandate order, forcing restaurants to   shut down indoor dining   services again.     As a short-term remedy, restaurants immediately shifted their offering to   curbside pickup and delivery  services. Meanwhile, restaurants are testing new concepts to embrace the   contactless self-service  trend for the future. Here are some examples,     Chipotle opened its first digital-only restaurant     The new prototype, known as the   Chipotle Digital Kitchen , debut in Highland Falls, NY, earlier this month. Different from the traditional Chipotle restaurant, the Chipotle Digital Kitchen features:     A lobby designated for pickup services through off-premise orders.   A see-through kitchen, allowing customers to see, smell, and hear what is going on b

The 2020 hospitality and tourism trends that will likely stay in 2021 and beyond

The COVID-19 pandemic had made an unprecedented impact on the   global economy   in 2020. The good news is the long-waited COVID-19 vaccines will   soon become available . Let’s hope that the coronavirus will disappear soon as we enter the New Year.     Looking back before we look forward   At year-end 2019, I predicted a few   2020 trends   in hospitality, retail, and tourism businesses. For example, I recommended that we should pay special attention to the following areas:      A shifting focus on food delivery, sustainable food, and quick-casual restaurants. Using AI and facial recognition in service operations.   The threats from Google, Amazon, and Airbnb as a (potential, new) giant tourism enterprise in the market.   Investors’ growing interest in boutique retail stores and hotels. Customer loyalty issues as more travel companies adopted the dynamic pricing strategy even in their frequent traveler programs.   Safety issues during travel.     Certainly, the global pandemic was not