Cheap at 143% of the price?
December 19, 2009 6:20 PM   Subscribe

[Holiday accommodation pricing filter]. When is cheap too cheap? Could pricing that is too competitive be a turn off?

I received many excellent ideas when I asked this question on fitting out our holiday cottage and took 99% of them on board. Now I need to pick the collective Metafilter brain once more.

Our holiday bookings in the cottage have been going great. But now we have a new venue (a renovated wool shed) and I am getting a bit confused as to how to price it.

The cottage pricing was easy. Find comparative venues and then charge a very competitive rate. It's been working well so far. We charge around $100 per night, give or take depending on the length of stay.

But our new venue is a rather unusual if not unique venture and it is hard to find a comparison. It's a renovated wool shed with two en-suite bedrooms with very tasteful and substantially handmade furniture and fixtures. As well as the bedrooms, there is a large kitchen, a huge living area that substantially retains the rustic feel of the original building use - wooden floor, shearing memorabilia etc - a large new addition featuring a huge covered dining balcony, and another covered deck / stage area. We are particularly set up for musicians; in-situ instruments include drum kit, guitars and piano, plus concert pa system. The Shed can sleep from 2-8 people, two in one bedroom, three in another and another three on a selection of day beds and sofa beds in two of the living areas.

We are thinking of charging @ $200 pn for one couple (whole venue use), $300 for two couples, and an additional $50 for each additional person.

A travel journo recently visited and said we were too cheap and that our prices will actually turn people off. Is this possible? Would you not trust a place that seemed too affordable? We want to keep it affordable because, ya know, we want bookings. But could we actually doing ourselves a disservice?
posted by Kerasia to Grab Bag (11 answers total) 1 user marked this as a favorite
In real estate, I'm generally inclined to look for a bargain. But a price that falls well below the rough average in ANYTHING is usually a warning sign. I dealt with this working at a small food company- We sold much more product at a higher 'gourmet' price point than we did at a lower 'family-friendly' point. Raised on dollar stores and cheap Chinese knock-offs, I think low,low prices tend to trip a quality sensor in our brains.
posted by GilloD at 6:27 PM on December 19, 2009

The other thing is to make the lower-than-market price "Special Introductory Price" or "Limited-Term Offer" so that it looks like a bargain, not a cheap rathole.
posted by Sidhedevil at 6:30 PM on December 19, 2009

Best answer: Your journalist visitor may have been thinking of your shed as a Veblen good, where people prefer to buy the more expensive option instead of the less-expensive one. Your previous post doesn't suggest that you consider yourselves to be in the luxury business, but you are in the travel and short-term rental business, and tales of nightmarish hotels and hall rentals gone sour are very thick on the ground.

Given the circumstances--vacations and events are things people tend to plan ahead for and spend significant amounts of money on, and they need to have a fairly substantial amount of trust in their hosts--I could understand how someone might pass up a $200-a-night deal for a $300-a-night one, if only to avoid the probability of being stuck in a "cheap rathole," as Sidhedevil points out.

Also, it's always easier to lower prices than to raise them. If you set a slightly-higher-than-expected price and later decide that a lower one would be in order, it's much easier for you than if you set the price a little too low and need to raise it.

(I know nothing about the travel or rental markets in Australia, so I can't comment on whether your pricing is reasonable. Also, IANAMBA or economist, so parts of this may be utterly awry.)
posted by tellumo at 6:48 PM on December 19, 2009

Best answer: You could do what one of my favourite Prauge hotels does. They have a published rack rate of €160 a night, but there is always a special offer. The last time we stayed, we paid €318 for five nights. Yes it was off season, but still.

The other thing - and I can't stress this enough - is the role of reviews in building consumer confidence. Someone thinking of booking will be more swayed by good reviews than by price.
posted by DarlingBri at 7:00 PM on December 19, 2009

Best answer: The important question is, for every potential customer who is turned off by a lower price, are there more or fewer customers who will be attracted by it, and who otherwise wouldn't be able to afford a nice, spacious vacation cottage?

That said, the extra fee for extra bodies seems steep based on my experience with holiday rental cottages. Although my experience is only in the U.S., I've shopped around extensively on several occasions for holiday rentals here, the markup per person is usually more on the order of 10-15% over the base rate. In fact, from what I've seen, for a 2-br cottage, the base rate is usually based on 4-person occupancy anyhow (else, why have a second bedroom?), with extra being charged for additional bodies in some cases.

To think about it in another way, you are charging a hypothetical 2-couple party as much simply for dirtying up an extra set of linens and consuming a bit more hot water, as you would for the same two couples to rent out both venues. That just doesn't make sense to me as a pricing scheme.

If $200-300 seems to be in a reasonable ballpark based on comparisons with other spacious "nice" 2-br cottages, I'd suggest you consider $250 as a base rate for up to 4-person occupancy, and only tag on an extra fee for more than 4.
posted by drlith at 7:29 PM on December 19, 2009

Can I add something to your older question? Bicycles (if appropriate for your area).
posted by CathyG at 7:51 PM on December 19, 2009

You should market to people looking to record or write a record together. Or to families with musician kids. Reviews will be critical here - definitely do 'introductory pricing' to get people in and start getting good reviews. Make sure these reviews are on independent travel sites and not just your own personal website -- you can link to those external sites if needed.

And photos - tons of them, clearly identified. And I love layout diagrams for places like this, so that I can imagine how two couples would work, or our family, or grandparents, etc.

Also - put your link in your profile! I'd love to see where this is.
posted by barnone at 8:26 PM on December 19, 2009

Best answer: Mr 26.2 rented an out cottage at a bed and breakfast in Oregon. It was lovely and far larger than we needed for two people. However, there was certainly not a discount to rent it with only the two of us. Unless you're feeding them, I don't think such a large discount is appropriate or necessary. We wanted a whole cottage to ourselves and knew that would be more costly than a straight room.

Generally, I don't look at low end properties when I reserve vacation accomodations. I usually start the search at a bit below the mid-point and search from there to upper end. The cheapest places are often cheap for a good reason.

You've got premium facilities and you're pricing it too cheaply for your target market. So yes, I'd price a bit higher and then discount to fill the space.
posted by 26.2 at 9:03 PM on December 19, 2009

Response by poster: To think about it in another way, you are charging a hypothetical 2-couple party as much simply for dirtying up an extra set of linens and consuming a bit more hot water, as you would for the same two couples to rent out both venues. That just doesn't make sense to me as a pricing scheme.

Doh! You are right drlith.

In fact, from what I've seen, for a 2-br cottage, the base rate is usually based on 4-person occupancy anyhow (else, why have a second bedroom?), with extra being charged for additional bodies in some cases.

Yep, I see this point now too. I think I have been too much in the one-couple headspace, what with the marketing of the cottage, to have fully understood the difference in marketing what is, essentially, a whole house.

This question and answers have been really helpful in clarifying these things. I've just reconfigured our booking rationale and raised our prices! Even the Cottage got a raise! Thank you all for taking the time to help me with my query.
posted by Kerasia at 11:21 PM on December 19, 2009

I see you have your question answered, but can I too add to your previous post? Not sure if anyone mentioned it, but I LOVE when accomodations have nice bathrobes for its guests to use.
posted by murrey at 6:04 AM on December 20, 2009

Best answer: Consider the "costs" of the customers you want to attract. A customer who is in the Velben good mindset may well demand far more than their price premium would allow for. That works for some vendors, not so well for others.

I would suggest that you slot the woodshed cottage in the same market space as your other cottages, and adjust from there. Look at who your reliable customers are, and who your *good* customers are (not so much the individual people, but the sorts of people who are easy to work with and don't cause you much grief), and price the woodshed as a special step up for those kinds of people.

I say this for two reasons- if the cottage customer is generally families looking for quiet weekends, and you price the woodshed as a high end luxury, you may end up with conflict between those two sorts of customers. The high end customers will demand more time than you have, and be disappointed. As will the cottage customer who suffers from your resources being devoted to the woodshed customer. Rather, make the woodshed the same sort of experience, priced in line with the added amenities.

(Looking at it from the customer, I'm not sure there is a very large segment of people who would pay more to stay in the same building as some other strangers. Perhaps you could use the woodshed in two different ways- market and price it at the one family rate, and use it as overflow when there is more demand for from the cottages. If you have no premium booking for the woodshed one week, but get more interest in the cottages than you can accommodate, offer the cottage as a modest upsell to someone, or as a price-break for two parties looking for a modest bargain.)

Or, go completely market based and just keep raising prices until bookings suffer. I'd prefer to work in the former mindset, but I prefer the stability of volume over premium.
posted by gjc at 10:12 AM on December 20, 2009

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