Written Posts

Market Surveys and Competitive Pricing

5 Comments 13 April 2011

Maybe my glasses are foggy.  I’ll just admit that right up front.  Not everyone looks at things the same way I do, but over the last eight years of studying market surveys, pricing, specials, and/or a revenue management dashboard I still don’t follow the concept of constantly knowing what your competitors are doing with their price.  This actually may be something that Eric Brown agrees with me on.

Especially since adopting Yieldstar for our communities I’ve found the need for a market survey to be limited.  And even then, just a general idea with a mystery shop or quick survey will get the job done from what I’ve found.  I suppose I’m spoiled now.  I used to study all the market surveys in detail, look at occupancy trends, and adjust accordingly.  Now that I have my buddy Yieldstar I guess my life is just easier.

But wait, I’ve been working with two new construction lease-up properties and two student properties this past year that aren’t using a revenue management tool.  We set the prices where we wanted them to be and we’re achieving those.  On some slower moving floor plans for the lease-ups we gave away the 1st month free as an incentive, but other than that we’ve locked in the rates where we want them.  Hmm, what am I missing?

Sure, we know where we stand in comparison to our competition with pricing, but in the end we are asking what we think is fair for what we built and not constantly adjusting based on what competition is doing.  It begs the question, who’s dictating your price?  You see, the problem with market surveys and comparing all your competition to determine your price is that in the end it’s still a human opinion that determines price.  That opinion is what holds pricing back, offers discounts when they aren’t necessary, or creates a mindset of average or mediocre.

Each community has a target market it’s trying to cater to, but in my opinion it’s not the best business practice to have your teams constantly studying the market for price.  Instead of your teams focusing on delivering a better experience, enhancing their marketing efforts, or insuring the product is shown at its best they are busy wondering if their pricing is competitive, cheaper, or just plain good enough.  I’ve seen teams get caught up in thinking about their price so much that they begin to blame all their woes 100% on price.  I promise you this is not the mindset you or your team want to have.

So what to do?

First, I recommend you only do a market survey once per month.  Even if the property down the street decides to offer a 2nd month free in the middle of the month do you really want to copy that?  I know I don’t.  Be patient.  Study your your comps trends over time and not necessarily in the moment.

Second, striving for 99% occupancy can likely leave money on the table.  Again, be patient.  Just because you have a vacant unit doesn’t mean you need to adjust your price or offer a concession.  An average concession of just 1 month free can impact the value of a property by MILLIONS of dollars.

Third, you’re better than you think you are anyway.  Trust me, you can do better than the property down the street if you just do things a little bit different and better.  I’ve seen it done.

Fourth, STOP APOLOGIZING FOR YOUR PRICE! If I didn’t drive it home in point 3 by just telling you that you’re better, maybe I will here.  You are awesome!  Own it and create your own price!!!  What your competition is charging is really not that important.  You are!  Do you think Target apologizes for being more expensive than Walmart.  Nope!!!

Fifth, consider a revenue management model.  It works with some tweaking.  You can’t set it and forget it, but it helps make price one of your easier marketing P’s.

Would love your feedback.  If my glasses are fogged over here please help me see through.

  • Anonymous

    Hey Mark,
    We agree on more things than we argue about, 🙂 Your post is mostly spot on, I have never paid much attention to what our competitors were charging or doing. They are mostly acting as a commodity so let them fight that bloody game.

    Your point about stopping at 95% is interesting, as you elude that the operator would lower prices in order to increase occupancy beyond 95%. We have found that the highest profit margin exits in the space between 95% and 99%, and that prices are significantly lopsided in that space.

    I understand your math and position of leaving money on the table. (My partners in the assets have read you post too, which has led to some significant internal arguments. You should have been a fly on that wall, lol) However we have seen utter magic occur in that last 4%, most of which I would never have thought posable. The problem is that it is tough to debate because of a myriad of moving parts.

    • Honestly this would be a GREAT topic to discuss through a podcast OR in person. So many angles.

    • Excellent points Eric. I trust that at 99% you continue to push pricing, and I agree with you about scarcity being a great motivator. If monitored and managed closely I think a high occupancy strategy can work. I guess from what I’ve seen, we can continue to push rates even at 95% where some others may get nervous about going backwards and get trigger happy with the specials. I could go into more theory and process for revenue management, but I know you have a handle on what you are doing. Each asset is going to be different anyway. I guess my main point is that comps should be considered as we look at market trends, but many should be cautious when using these studies to help them price their own units.

  • There are a ton of great conversations to be had with this post. I think you’re kind of unsure what the best way to set prices is. I agree that using comparables is a notoriously terrible method. They are totally unreliable.

    Setting prices are a human opinion as you state but then you suggest we use a Revenue Management system. I like the concept but think for smaller owners they aren’t going to control your assets as well as YOU can. REIT’s use these systems because of their size and scope. Truly impossible to manage 100,000 units correctly without some type of system doing the work for you.

    Don’t be afraid to set the prices that you think you can get and have patience. You’re right though that so often price is blamed for vacancy when internal factors which are often ignored could also be. Make sure your product doesn’t suck.

    Great post and hope you can get some more conversation on here about it.

    • Patience is key. I wouldn’t overlook rev mngmnt as a small operator though. There are a number of benefits beyond helping establish rents. The algorithm can monitor trends, help manage expirations, collect dollars typically written off as vacancy loss, and adjust faster than and more frequently than a person. That and time savings add up. I don’t let the system just run itself. It takes some management, but takes much of the guess work out of pricing and saves me a ton of time. I honestly rarely worry about price. When we see negative trends we typically have a people problem. Conversely, when we see positive trends that push occupancy above 95% we typically find our management to be better leaders. It’s an interesting correlation we’ve discovered.

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