The Demand Solutions Blog

3 Reasons Multifamily Pricing Needs an Ownership Mentality

by Donald Davidoff | July 16, 2019

PRM in MultifamilyIt’s been more than 18 years since the first property went live on the first automated pricing and revenue management (PRM) system in multifamily housing. What started as a niche product and function (only about a half dozen companies were using PRM software in early 2006 (six years into the “PRM revolution”) is now embraced by owner/operators and fee managers alike. Virtually all of the NMHC top 50 use automated solutions, and we estimate close to 50% of all professionally managed multifamily housing companies use a revenue management system.

In my time watching PRM mature from an early start-up stage to widespread acceptance, I’ve seen many models of PRM support evolve. Broadly, I put them into two camps: those whose pricing managers behave as if they own the communities and those who serve in a more subordinate role to owners or operators.

In the case of the former, PRM and property management are co-equals and collaborate as such in executing a strategy. Of course, being co-equal has its challenges, the most obvious of which is coming to a decision when both parties authentically disagree; if they’re co-equal, then who casts the metaphorical deciding vote?

The latter puts PRM squarely into a support role. The pricing manager can conduct analysis and provide recommendations, but ownership or operations ultimately calls the shots. PRM success in this model often depends on their ability to influence their masters with nudges and their persuasive skills.

Why the “Ownership” Mentality Wins

Based on my experience, I reside squarely in the “PRM should manage their properties as if they own them” camp. I think there are three key reasons this works better:

  1. Pricing managers who feel a sense of ownership are more engaged than those who are merely in a support role. It’s not that the latter abdicate any responsibility. Rather, it’s the simple fact that humans by nature put more energy and commitment into something they own while those who are merely involved are more willing to keep quiet or give up their position when they perceive their “boss” doesn’t want to hear it. If you have any doubt about the difference between involvement and commitment, think of the aphorism about farm animals and breakfast: The chicken is involved, but the pig is committed. If I’m running a portfolio, I want my pricing managers to be the metaphorical pig rather than the chicken.
  2. An ownership mentality attracts a better quality pricing manager. The smarter and more assertive pricing manager usually prefers an environment where she has more influence on results. It takes a somewhat more passive mentality to be comfortable with a subordinate role in pricing. Again, I want people who are more willing (even driven) to assert their opinion.
  3. An ownership mentality encourages a broader scope of responsibility. Pricing success is more than just managing the PRM software—it’s about the entire demand management platform. This includes policies like hold time and longstanding vacant protocols, sales pipeline tools like CRM and screening software, and other demand drivers like lead generation and sales training systems. Pricing managers with an ownership mentality are much more likely to investigate and address these other critical functions more naturally, while those who are merely in a support role are likely to do so only when directed from above.

How to Manage the PRM - Operations Relationship

As for the challenge of managing a co-equal relationship, I have been very successful in the past, relying on two things:

Ensure that there is a constant state of constructive tension between pricing and property management. Show me a situation with no tension, and I’ll show you a situation where either pricing has either “gone native” (i.e., is now following along rather than adding value), or property management feels that pricing is pushed down their throat and they’ve abandoned giving their own opinions. Maintaining tension is easy; keeping it constructive is where leadership and team emotional intelligence become critical.

Create a safe environment for escalation. The notion that either the pricing manager or the property manager must own the deciding vote is a false choice. If they authentically don’t agree, they can choose to escalate up to the next level in the organization. After an escalation or two, the decision will end up with an executive who is responsible for balancing the two needs, and both parties can easily live with her decision. If many decisions are being escalated, we have an issue. However, my experience is that there are rarely more than one or two a quarter. Knowing that escalation is OK saves us from the challenge that one side ends up dominating the other.

So take a moment and ask yourself two questions: 1) Do I want my pricing managers to behave like they own their properties and 2) if so, are they acting that way? If you don’t like the answer, do something about it!

Photo by Lu on Unsplash

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