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If there is one debate that rages continually inside vacation rental companies, it is this:

 

In our advertised prices, should we roll any mandatory add-on fees into the rent or not?

 

Why is this a recurring concern?  Because:

•    Fees (vs. commissions) often contribute all the profit and many expenses;

•    No lodging segment has a more varied or complex pricing structure;

•    Not all managers or homeowners roll fees into the advertised prices;

•    Renters hate it when hit with unexpected fees;

•    But renters will often ignore a home that “appears” more expensive.

 

I know a company that changed its advertised rents to roll in fees but later concluded that it would have to revert to its original pricing by backing add-on fees.

 

This company’s reservations staff had been repeatedly beat up by renters who became angry when informed that the advertised price had to be significantly increased by fees (fees and taxes can increase advertised 50%, especially for short 2-3 day stays).

 

So the company changed its policy by rolling fees into the advertised rent.  The result:

•    Renters who did book were much happier;

•    The lives of this company’s reservation staff improved significantly, and

•    Bookings fell 20%.

 

The unfortunate lesson for this company was that many renters ignore a home or company that “appears” more expensive than comparable homes.  They often dismiss a home without drilling down enough to learn that it would have been less expensive than the home they ultimately booked.

 

The dilemma: renters get angry when hit with unadvertised add-on fees. But property managers lose bookings when fees are made clear due to the perception of being priced higher than properties with hidden fees.

 

If you can take the high road without losing rentals, by all means roll your fees into your advertised rents.  But remember why add-on fees are used.  Pricing today is a game of psychology.  Add-on fees are indirect ways of increasing prices. 

 

Consumers don’t always take the time to get accurate price comparisons.  This fact is obvious and relied upon in the creative strategies that focus on appearances. For example:

 

•    Car dealers add a variety of fees, including delivery;

•    Banks invent more fees than I can keep up with;

•    Airlines adapted to low cost competition by lowering base prices but charging fees for every sort of convenience.

 

Some renters—too many to be ignored—punish good managers for being honest and reward companies that do a good job of hiding actual prices until the last minute.

 

The vacation rental industry is fragmented in its pricing, so there is no common standard.

 

While commodity price can be compared on aggregation sites, I know of no site today that can accurately compare prices for vacation rental homes without a direct link to reservation systems.

 

Hotels rely heavily on fees today, as do airlines.  And the Internet does a good job of comparing prices for hotels and airlines.  But both industries typically use reservation systems that provide real-time access to availability and pricing data to travel agents.

 

In vacation rentals, the “advertised” price often does not include add-on fees.

 

Here’s my advice.  Let your market be your guide. 

•    Check the advertised prices for homes similar to yours;

•    Determine the extent to which they roll in fees;

•    Decide whether your prices “look” higher;

•    Determine whether your prices are higher and, if so adjust them.

•    Always price your homes so they “appear” to be price competitive.

 

It goes without saying that you should post all add-on fees on your website if you don’t roll them into your advertised fees.  

 

If you are dominant in your market, or have the greatest number of homes with great rental appeal, you may be able to book them even when your advertised rent is higher.

 

One question commonly arises.  “What if I go to great lengths to let consumers know that my all-inclusive prices are often less expensive than competitors’ homes that have unadvertised add-on fees?”

 

This is a fine idea if it works.  I know companies that do a very good job of this by adding language to every web page and by comparing competitors’ prices.  But if there is even one renter who doesn’t bother looking at their web sites because the advertised price appears too high, then this strategy may still result in lost rentals.

 

Sometimes, renters zero in on homes that interest them based on two lines of text and a picture.  There is a lot of basic information that competes for space in these two lines.  It is hard to make the point, “our all-inclusive price is actually a great value.”

 

In the end, your pricing strategy must take into account:

•    Your competitors' practices;

•    Your ability to distinguish your prices from competitors;

•    Your homeowner's fickleness;

•    Your staff's ability to deal with unhappy renters;

•    Your inventory and share of desirable homes.

 

 

Good luck.  There is never an easy answer.

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