People in agriculture experience a similar type of competition, but experience it much differently. They all grow identical produce, but none has any direct influence on the price any of them gets for their individual efforts. Thus, there is no reason for the animosity that signifies competitive behavior. Moreover, there is often regular cooperation between neighborly farmers--cooperative use of machinery, exchange of personnel, etc. The friendships are deep, enduring and can extend over generations. One of the laments about the passing of the family farm is the concomitant passing of that great way of life.
The Crucial Difference
But there is an important difference between the situation in agriculture and that of self-storage. While both are often commodities, in agriculture there is no chance the actions of any one farmer can alter the market conditions encountered by customers. Farmers and ranchers are, therefore, free to work openly with each other as well as state agricultural schools and county and federal extensions. Such cooperation has resulted in marvelous improvements in productivity.
And self-storage? In any local market, cooperation among facilities can easily result in price management, where operators control the prices or terms to be exacted on tenants. The laws allow only for distant relationships between rivals. They are not to have any contact with each other regarding pricing, increases, discounts or other competitive elements. Breach of such rules can result in Federal Trade Commission proceedings in which no sane person wants any part. Consider this riddle: If prices are identical among rivals, is that evidence of collusion or competition? You know how the government sees it. If challenged, you get to prove differently--at your own expense.
Togetherness Is Not All Bad
It gets more complicated. There are areas where industry cooperation is both needed--and dangerous. Self-storage operators share common problems. All facilities need state laws guarding them from responsibility for tenants' properties, illicit activities of tenants on-site, lien-processing standards, critical planning groups, etc. All of these legitimate problems defy solution without cooperation, since no political body will move without there being consensus from the industry. Associations are the usual vehicles for achieving political progress, but they have also been seen by the FTC as a hotbed for conspiratorial acts. The FTC is wary of the temptations facilitated through informal and social circumstances of association activities.
Say It Isn't So
The reality of the situation is more and more facilities are sprouting in the various markets, which reduces or eliminates the role of location in isolating and protecting your facility from straight competition--usually price competition. Your rivals do benefit from your loss. How can a friendly relationship survive a situation where your loss is reason for celebration on behalf of your "friends"?
A competitive market is defined by prospects. They become aware of having multiple options and shift into shopping mode. No longer do they appreciate good service at a fair price. They become preoccupied with getting the best deal. Does that make them bad people? No, it makes them normal. And your rivals? Are they bad people for responding to the behavior of prospects by lowering their prices and taking tenants that could have been yours? Of course not. They have families to feed, partners to appease and mortgages to pay. So what are your choices? The same as those of your rivals. You're in the same boat and must resort to the same tactics to garner tenants.
You and your rivals are subject to one other factor. You must give the prospect a basis on which to decide. If you are competing on price, you cannot stop at meeting the price of your competition, because your tenant would still have no basis on which to choose. You must lower your price still further, setting in motion the downward price (death) spiral. This is not a prescription for a friendly relationship with self-storage comrades.
Am I Overdoing It?
Do I exaggerate the effect of competition on members of the industry? In sports, members of opposing teams are often friends. It's only when on the field that there is aggression. But with business competition, the game never ends. Every day you are planning or executing a plan to keep your facility profitable. That includes doing what you can to keep it occupied.
Because self-storage markets are relatively small, you can regularly encounter your rivals on the street, at the grocery store or anywhere. Each time it happens, it's hard to avoid wishing the rival would just go away. Competition is the culprit in causing animus among otherwise fine people. While it may be good for society, it can be painful and destructive for any one supplier, whether an individual person or a business.
Your prospects and the government want you at swords' points with your rivals. Emotions run high. Straight price competition is often destructive to suppliers of commodity products. The only way to avoid it is to plan your business so you are not seen as the equivalent of the others; that is, you need to differentiate your offerings. That way you aren't directly competing with anyone. You have your niche and your would-be rivals have theirs.
Harley Rolfe is a semi-retired marketing specialist whose career includes executive-level marketing positions with General Electric and AT&T. He also owned lodging and office facilities for more than 20 years. Mr. Rolfe holds a bachelor's degree in economics from Wabash College and a master's degree in business administration from the University of Indiana. He can be reached at his home in Nampa, Idaho, at 208.463.9039. Further information can also be found in Mr. Rolfe's book, Hard-Nosed Marketing for Self-Storage.