The legendary golfer, Jack Nicklaus is often quoted as saying, "Complacency is a continuous struggle that we all have to fight." We have frequently argued on this blog and elsewhere that the decade of growth has blunted many of the tools that have delivered success and shareholder value in our industry over the last couple of decades. Rising tides lift all boats, and when growth is all-but-guaranteed, competitive capabilities atrophy.
We found ourselves pondering this issue after reviewing the research for our recent 20 for '20 white paper. Having spoken to 20 technology and operations senior executives about their priorities, and the outlook for the next few years, we grew concerned that Pricing and Revenue Management (PRM) may be falling victim to complacency.
One of the most salient findings among those detailed in the white paper is a strong reason to fear that almost all operators may have taken their eye off the ball. When speaking to heads of technology, every single one of them shared that they had not been close to PRM for years; and of the 20 executives that we interviewed, none had an obviously pre-conceived answer to the question "what's next in PRM."
We found a pervasive attitude of "we've checked the PRM box"; and that, in our view, is a problem, for a couple of reasons. First, PRM systems are complicated and require constant monitoring and regular reviews of, for example, system settings. Further, markets change, which means your PRM practices also have to. Multifamily communities - much like elite golfers - face changing competitive pressures. You're unlikely to keep winning if you never innovate your strategy and capabilities.
3 Things Multifamily Operators Should Be Doing Differently with PRM
While we are concerned about the risk of complacency, we recognize that the confidence that many operators display comes from the maturity of their PRM capabilities. We also think things are mostly going well! There are, however, several things all MFH operators should be doing - I've detailed the top three below.
- Perform an annual "health check-up" on your PRM system. We all go to doctors for a yearly health check-up (or at least we should). The same should be true for your PRM system. Do parameter settings still fit market conditions? Are conversations between PRM and operations still constructive? Do new communities or new competitors cause us to re-think anything?
- Perform an annual amenity audit. Does your unit amenity pricing still get the market response it should or have conditions changed?
- Push the frontiers of PRM. Current off-the-shelf solutions are great for same-store operations, but what can be done to push PRM for lease-ups? How can your own market-level data supplement your PRM system? What do you see as the weakest link in the PRM value chain and what can be done to mitigate that?
Getting back on a winning track
Recent client work has shown us that there are many ways that you can challenge the processes and technology that you already have in order to drive long-term improvements in your PRM results. The above just begins to scratch the surface.
PRM systems are complex and highly sensitive to the way that they are set up and managed. As we assess PRM platforms and increasingly serve as a "fractional PRM team" for several clients, we are shocked at how key settings can slip as market conditions change, and the downstream impacts these anomalies can have on revenue performance.
We have recently published articles on how unit type groupings and their configuration impact asset performance, yet surprisingly few companies take the time to understand and make the right decisions. Competitor sets and data, renewals strategies, amenity audits, and even basic training are all areas that yield low-hanging fruit for operators who may well have been running PRM solutions for years.
Jack Nicklaus managed to keep winning majors over a period of more than a quarter century. I don’t imagine he would ever have seen his game as “going fine”. Challenge yourself. And if you need help with that, give us a call - you’d be surprised at how much upside you may be able to reclaim from your PRM program!