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Super-Sizing: Adding Value to Your Business Model

How to apply successful pricing structures to vacation rentals.

When you can upgrade to large for just a few cents more, you’d be a fool no to, right? Based on the standard price, that much extra product should cost much more than what they are currently offering it to you for. The restaurant owner knows that the profit in a large size exceeds the extra expenditure required to produce it. The amount of profit as a percentage of the customer’s total spend falls, but the final amount of profit actually increases. Giving the customer much more for a slightly higher price then makes the average price lower for the customer despite the fact they are paying more.

The Quest for Change

If a printed edition of a newspaper costs $1 and access to the online edition also costs $1 then you are faced with a straight choice. But, if there is a third option where you get both for $1.20 - this becomes the best option. You are getting $2 worth of content for $1.20. This creates a structure where the highest price seems like the best value and the most logical choice.

The publisher knows that few people are going to opt to buy the online edition by itself. It is not designed to be bought alone. This price is over inflated and is there to increase the perceived value of the third option. The overheads, to include the online edition are low, so there is extra profit to be made at the bundle price, and the customer enjoys the sense that they have bought the product for the best price possible.

They create a structure where optional extras are offered in a way to add value to the product. Every customer, that uses your business brings with them a certain amount of expense. These expenses are things like your rent and utilities, marketing and advertising. The cost of getting a customer into your business initially is far higher than the costs associated with the extras products or services you can then offer them.

Margins are tied up in getting the customers in, rather than the product. The abundance of choice has left us with a market where getting a customer to choose your brand is a big expenditure. Your product may well be cheap to produce so you can provide more of it once the customer has committed to your brand. Once they are committed, they become part of the average outlay your business pays per customer. The challenge is to then present your products in a way where it makes financial sense for customers to opt to spend more, meaning an increase in profit for you and value for your customers.

How can you add extra value to vacation rentals?

A way to implement this strategy for vacation rentals would be to offer a weekly price that is priced lower than the total cost of seven nights.

There are overheads in changeovers, cleanings and responding to bookings. Having complete weeks booked will reduce these costs. Plus, having odd days booked can mean that you lose business from people that would book the whole week but now can’t because these days are disrupting your calendar.

Rather than just simply discounting your weekly price, you should aim to reach a middle ground where your single night price is inflated and your weekly price lowered. Your nightly price now seems expensive, and worse value for your customer. But it is not meant to be booked. The customer is designed to see your offer of a weekly price that offers far better value and opt for that.

The aim is that your customers will book this rather than 4 or nights in another property. The initial price is too high to consider but, with the weekly discount, the overall rate per night is lowered but the customer still sees the value of the product at the original rate. They are getting a high-value product for a low price and this is more appealing than another property of the same price.

You have then managed to make the higher priced option seem both the best value, and the most appealing.