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.
NB: This is an article from Linchi Kwok, Associate Professor at The Collins College of Hospitality Management
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 of 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 hosts:
- To maintain a relatively high price positioning
- To be careful when using the dynamic pricing strategy to avoid its negative effects.
For single-unit hosts:
- 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 dynamic pricing strategies in the room-sharing sector.
