Figuring out how to price products and services can be a real challenge. Considering that the real value of a property is the price someone is willing to pay, self-storage operators must fight against consumer reliance on price as a starting point when discussing unit rentals. Industry experts have railed against discounting as a pricing model for years, and for good reason. Discounting tends to drive market profitability down and doesn’t enable operators to sell based on the value of their business services and property amenities.
But even if you’ve managed to break free of selling unit space as a commodity, you’re left with trying to figure out what price is optimal based on local competition, demographics, unit size, customer length of stay and other factors. Should you present different prices online than you offer in person? Should you display any prices online at all? How do you position your price in your selling strategy, and how often and by how much should you increase rents?
Just like there are scientific and psychological factors at play in menu design, there are biological and strategic forces self-storage operators can use to their advantage when it comes to establishing prices for unit rentals, retail merchandise and other add-on products and services. While many folks bristle at the thought of using analytics to figure out their pricing, it’s probably the smartest option. It may be inevitable.
After all, we’ve become a data-driven culture right down to fantasy football and baseball sabermetrics. Let’s face it, if we put as much effort into strategic pricing as we do in crushing our friends in fantasy sports games, some of us would likely be real estate tycoons. Short of having a self-storage version of Flo’s Progressive pricing gun, it makes sense to take a strategic approach to pricing that goes beyond an affinity for 9s, rounded dollars or something else.
At the last two Inside Self-Storage World Expo events, we were fortunate to have Warren Lieberman, president of Veritec Solutions, speak on pricing strategies. If you don’t know Lieberman’s story, he began applying revenue-management techniques in self-storage more than 15 years ago and has worked with several operators including ezStorage, Shurgard, StorageMart, StorageUSA and Uncle Bob’s Self Storage.
Two years ago, Lieberman delivered our opening session on “The Power of Systematic and Dynamic Self-Storage Pricing.” Last year, he expanded that session into a full-blown, 3.5-hour workshop on how to take greater control over self-storage facility start rates, move-in promotions and rate modifications by taking a more comprehensive, analytical approach to pricing. We recently released the Pricing Workshop on DVD in the ISS Store.
During the workshop, Lieberman reviews the financial impact of alternative pricing strategies and demonstrates how analytics can be leveraged to boost profit. Topics include:
- How small changes in price impact profit
- How data-driven pricing can enhance and improve intuition and experience
- Where conventional pricing wisdom has been wrong
- When to consider competitor pricing
- Ways to implement pricing programs
Some of it is pretty heady, but much of it is quite fascinating. There are concrete reasons to vary pricing and structure how it’s presented to customers. One of my favorite bits is why Gucci priced a bag at $32,500 fully expecting it not to sell. A lot of what Lieberman discusses is the importance of pricing in relationship to other factors, whether it’s the order of presentation on a Web page, the physical location of a unit, product variation and other measures.
The whole point is to boost profit incrementally. While setting prices may seem rudimentary on the surface, a thoughtful, strategic approach can help generate substantial increases in profit across an organization. How do you set rental rates at your self-storage facility? Please provide your thoughts on pricing and any strategies you’re willing to share in the comments section below.