Before 2020, a lot had been written about vacation rentals.
Some skeptics saw it as a fad and a highly fragmented market that would be hard to organize. And some believers saw a future for the sector, given the convenience and efficiency of the short-term rental model, especially via online platforms like Airbnb, Vrbo, OYO, Sonder, Domio and Monaker.
Let's look at a few facts that tell us how this fight between skeptics and believers has turned out. The U.S.'s short-term rental market has grown by more than 100% in only the last three years.
For a long time, vacation rentals were limited to a select customer demographic in more mature hospitality markets like the U.S. and Europe.
Travelers with large families would book familiar properties well to commemorate special occasions or a peak seasonal period. This picture has changed dramatically in the last few years. One estimate went as far as to say that vacation rentals could "topple the hotel industry" by the end of 2020.
With AirBnB's IPO surging over the target price, Sonder raising over $170 million and Vacasa raising $100 million during the pandemic tilts the argument in favor of the believers.
So, what does customer sentiment and expectation look like in this context? How can property owners and managers tap into this growing trend and price their offerings correctly? What should the traditional hotel managers be looking out for?
Let's delve a bit deeper.
In general, vacation rentals are gaining popularity more than ever before, spurred on by the increase in short-term lodging providers and also partly due to the pandemic where travelers are seeking unique and standalone lodging (vs. a 800 room hotel).
Understanding what the new vacation rental traveler wants
There's no denying it: customer demand for rented private accommodation is only growing.
In the latest report by VRBO, 62% of respondents are looking to stay in an OUTDOORSY location compared to an urban one, and 82% of families have already planned vacations for 2021, with a 25% surge seen for searches for remote locations.
Yes, 2020 has been an exceptional year for Vacation Rentals with higher than average occupancy and crossing hotel occupancy for the first time, but how can they sustain this in 2021.
This boils down to two categories: Expedia and Exploration.
Experience: to retain the guest
- Comfort at par with hotel standards, at least in the relevant region.
- No compromise on safety and security; neighborhoods should be carefully selected.
- Facilities available to be highlighted as a differentiator.
- Use the local culture immersion as a differentiator. "Live like a local" is a very powerful tagline.
Exploration: to find and convert the guest
- Competitive price and value when compared to hotels in the same region.
- Ability to understand demand patterns better to plan for health and safety arrangements for incoming travelers.
- Ability to identify unique inventory in markets with demand and which is not already contracted by other vacation rental providers.
- Last but not least, solve for higher occupancy as that is a unique differentiator vs. the traditional hotels.
2021 would be a year of intense competition as recovery begins in parts, and any vacation rental company cannot look at succeeding without balancing the two levers of exploration and experience as it is essential to acknowledge the unique nature of every visit.
A cookie-cutter approach to pricing and service bundling will lead to lost opportunities. Like hotels, vacation rentals must monitor the market in real-time and adapt to emerging/upcoming trends to make the most value proposition.
This monitoring is essential not only to explore guests but also to stay on top of supply-side restrictions that can come into effect on short notice and requires vacation rental managers to adapt to these changes quickly, for example:
- A COVID outbreak in the neighborhood: How will you ensure that guests are accommodated in nearby properties that are available or plan to boost occupancy in other markets to offset the loss.
- A flash sale started by a competing hotel or VR property: This will require you to adjust the pricing accordingly to ensure you do not lose potential guests.
- Inability to accommodate an irate customer due to any reason like mismanagement of facilities. Unlike hotels, you cannot replace an entire property or accommodate the guests in a separate room hence making the scale of damage much larger
The missing vacation rental tech - ecosystem
Despite a clear market demand, the vacation rental sector as a whole (excepting digital native players like Airbnb) still follows traditional operational models. For example, more than 50% of property managers change their rates only once every quarter or even less frequently.
This means that companies lose out on-peak periods, event-based demands, and similar opportunities.
For the last thirty years, most technology ecosystem has been created around the experience of booking a room, onboarding a flight, taking a cab and checking in to a hotel, evolving it over the years to ensure that hotel chains and airlines have access to most data to make informed decisions.
However, even though vacation rentals have been around for at least a decade, no real tech-ecosystem has been created for them to seamlessly engage with the guest, leaving the sector fragmented and non-standardized.
This non-standardization makes it difficult for vacation rental managers to assess which properties to source and compare pricing on different platforms making the task manual and time-consuming.
How can we standardize supply discovery?
One way to standardize technology for vacation rentals is to recognize the difference in every property and address that pain point.
RateGain's AI-Powered competitive pricing solution for Vacation Rentals uses image-mapping technology not only to recognize different properties but map them on each platform. This innovative solution allows vacation rental managers to compare listings and compare prices by relying on images added for the property.
This unique technology allows vacation rental managers to match the price and find the best-performing inventory that is not listed on their site and approach good properties to be onboarded on their platform.
This becomes more important in identifying duplicate listings and competitor sets in any given market – especially when one physical address might have multiple apartments/rentals with varying quality, amenities, and views.
How can we standardize demand discovery?
The one thing that the COVID19 pandemic has made the industry do is to strive towards agility, and as countries open up borders and domestic travel, only to shut it in a few months again, it would be extremely crucial for vacation rental managers to have a solution that is easy to implement and at the same time allows them the flexibility of switching to new source markets as demand fluctuates due to new restrictions.
A platform to optimize distribution channels and source markets, RateGain’s Smart Distribution processes 20 billion data points a month to discover and analyze new markets and provide strategic insights on the channels to find demand.
Taking over the contracting process and channel setup, the solution is also equipped with an AI-based mapping recommender with an auto-mapping feature, amongst other cool stuff.
Addressing market volatility
Given the current demand fluctuations in most markets due to the ongoing pandemic, vacation rentals need to know what’s happening in the market place and when to change their prices.
RateGain's Optima product powered by Market DRONE provides instant alerts to revenue managers and property managers on their preferred devices, allowing them to receive and understand the current market trends and rate plans and take immediate action to make the required changes to the rate plan to remain competitive.
Market DRONE reduces the users' cognitive load and helps them understand and scale their revenue points significantly by allowing managers to adjust to the changing dynamics and in maintaining optimal pricing.
Ability to scan the market pricing for comparable properties by parameters like length of stay, booking window, number of guests, channels and geographies helps in staying on top of the market vs. following it. Supported by artificial intelligence, the solution provides all such market insights reducing any further leakages in revenue.
Vacation Rentals increased occupancy during COVID19 was one of the very few silver linings for the travel industry in 2020 and, at RateGain, we are committed to helping vacation rental companies to continue to build on that for the traveler in the new normal.
Here’s looking forward to a safe and healthy 2021, one that is filled with new travels, experiences and better memories of the new normal.