Airbnb’s customers taken hostage

The Pope’s visit to Philadelphia sparks prices on Airbnb

3-bedroom flats are being offered for €10,000 a night in September, when Pope François will be in the American city.

(source: Le Point, AFP, 21/07/2015 at 07:39)

Price increases for major events: a long-standing practice

Yield managers have always dealt with events that have an impact on demand: prices soar in Paris for the Paris Air Show, the Paris Motor Show or any other event that generates traffic. Try booking a hotel in Monaco for the Formula 1 Grand Prix weekend…

The Yield Manager is just as capable of lowering prices during off-peak periods as he is of raising them during peak full stops. What we readily accept for price cuts, we are beginning to tolerate for price increases. The principle is fairly widespread and accepted. There’s not much debate about it any more.

Is Revenue Management ethical?

But can we go so far as to raise prices opportunistically, on the basis of an event that has not been planned in advance? Like the fan dealers who increased prices by a factor of 3 during the heatwave?

This is where we reach the limits of good pricing practice. When Jean-Paul II died in April 2005, the airlines sharply increased prices on the Paris-Rome route, certain that thousands of faithful would travel to the Pope’s funeral.

This time it’s Pope François who is behind a price hike on Airbnb for his trip to Philadelphia. These are not even yield professionals, but private individuals. Sniffing out a bargain, they put on the Yield Manager’s clothes and passed on price increases.

On a peer-to-peer platform, this is the sole responsibility of the owner. Even if customers find the practice outrageous, it will probably have little impact on what happens next.

On the other hand, for an institution, a well-known hotel chain or an airline, it’s a real debate.

Because a good Yield Manager can of course be opportunistic, but he also knows how to be reasonable and not play with price like you would play with matches.

The customer wins

In reality, it’s not about morality. It’s about yield policy. Everyone places the cursor where they see fit, between the possibility of generating revenue in the very short term from a good hit, and a certain restraint intended to preserve revenue over the longer term, so as not to run the risk of becoming permanently angry with customers who won’t be coming back.

This type of trade-off occurs every day, but in a less visible way, when the Yield decides to cut itself off from a commissioned sales channel on a very limited date, with the certainty of selling direct and saving commission.

He runs the risk of getting angry with his Tour Operator, the risk of being relegated to page 4 of his website, or even of being delisted.

This is why the level of « aggressiveness »  of Yield needs to be thought through well in advance, so that you don’t have to ask yourself the same question every time, and so that you find the right balance in your management, between the instant contribution of a Customer on a given date, and the overall contribution of Customers over the longer term.

This trade-off will always occur. But in the end, it’s always the Customer who wins. They have the last word.

Keywords: Yield Manager, Le Point, Airbnb, Pope François, price