When is the best time to think about how to price your assets in a softening market? Before the market softens. Having a strategy in place before things go south is crucial so no one is tempted to make emotion-driven decisions when the heat is on. What you do in a soft market sets the bar for what you will do in a larger downturn. If drastic decreases or discounts show up at the first sign of nervousness, what will we do when we really are in a position of negative growth?
Here’s 3 big tips for pricing in a soft market:
1. Have a Plan in Place
As the market softens, vacancy will become an even greater focus. Do you currently have a strategy in place for handling longstanding vacant units? (Hint: Merely slapping discounts on these doesn’t count.) Take some time to consider your hold time strategy as well. While most companies have their standard company hold time policy, allowing for a bit of flexibility when the majority of exposure is vacant can help even out this availability.
Overall pricing strategy will likely need to shift as well. Donald recently gave a presentation at Optimize about the different pricing archetypes. Depending on the strategy, Pricers ranged from the aggressive “rent grower” to the more conservative “occupancy defender”. While the industry has been enjoying a period of rent growth opportunities, the more optimal strategy for a softening market may look more like an “occupancy defender.” It is crucial that Senior Management, Revenue Management and Operations are all on the same page of what the strategy is, especially if it has changed as the business cycle changed.
2. Think Outside the (Current) Competition
You may have your competitor set dialed in for today’s market, but how will it shift in a softening market? Asset classes could start to compress as rents shift downward, or it could result in a shift in demographics. Your prospect profile may change, as may some of your competitors. Review and adjust accordingly to view your pricing against the new competitive landscape. Does your price have enough room or too much room to move?
This shift in demographics may mean that previous sources of traffic have dried up. Look to marketing and sales for creative ways to help backfill that demand, by increasing outreach to corporate clients or preferred employers. Your sales team should not only be prepared in advance to do this extra marketing, but also to sell to a new prospect.
3. Protect What You Have
Renewals are going to be an even greater focus in a soft market, where the new rent growth may not outweigh the cost of turning a unit. In line with the “occupancy defender” approach, it likely makes sense to soften your renewal strategy in favor of higher retention. And if the market has dropped enough to where you are holding inverted leases, you most certainly want to hold onto these residents.
Incentivizing residents to renew early, giving out flat offers or even negotiating down to market rates can help hold the line. To prepare for this, consider if Revenue Management has provided sales teams with pricing parameters for negotiations, and are these teams skilled and comfortable with these conversations?
As the market softens and the media starts to report on it, the frequency of these negotiations will certainly increase. In addition to having clear pricing directives, making sure teams already have a disciplined renewal process in place helps the transition over to these tougher conversations.
Planning ahead and preparing teams for how their roles can change during a softening market will empower your associates to take on these additional challenges, rather than fear them.