The Demand Solutions Blog

Multifamily Pricing: The Danger of “Doing Fine”

Posted by Dom Beveridge on Jun 25, 2019 3:57:01 PM

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image1A couple of weeks ago, we published a post about the risk to multifamily operators of complacency in their approach to pricing and revenue management (PRM).  Frequent readers of this blog will be familiar with this theme, which was a major finding of our 20 for '20 white paper.  To summarize, PRM seems to have slipped from the senior management agenda, resulting in a pervasive view that "PRM is doing fine."

PRM has been doing fine in multifamily for a number of years - in fact, it's been doing exceptionally well, delivering outsized returns for operators and investors alike.  Looking forward, however, our concern is not so much with the current business practice, but its future evolution. With reduced senior management attention and technical innovation delegated to a highly consolidated vendor community, several of the drivers for big change appear to be missing.  To put it another way, the source of the next big thing in PRM is far from clear.

There's always a "next big thing"

Through my personal experience of PRM in multiple industries, I try to keep an eye on what's going on in other sectors that have achieved success with PRM.  Airlines were the first adopters almost 40 years ago, with hotels beginning adoption from the 1980s. Multifamily operators got into the game a mere 18 years ago, and the technology has been in mass-adoption in this industry for much of the last decade.

If PRM is "doing fine" in the eyes of multifamily leaders, we might hardly expect it to register with senior management in the industries that have been doing it for even longer.  But that is not the case. I noticed an excellent example a few weeks ago when my friend Sean O'Neill, a leading travel tech journalist at online travel news site Skift, published an article about PRM that caught my eye.  The article announced the introduction of a brand new PRM strategy by hotel industry giant, IHG.  

IHG is a vast, global public company that includes brands like Holiday Inn and Intercontinental Hotels.  At such a scale IHG competes not only with other hotel firms but with online travel agencies (OTAs) like Expedia and Booking.com.  OTAs are analogous to ILSs in the multifamily industry, and the imperative of getting customers to book directly rather than through an intermediary provides the backdrop to PRM activities in the hotel industry.  The same should be true of multifamily, but that's a subject for another blog.

For its latest PRM game-changer, IHG has developed "attribute-based booking," an approach that will enable its properties to hone pricing strategies further, and get more guests to book directly.  This development is compelling in and of itself, but the takeaway for multifamily leaders is this: there is always a "next big thing" in PRM. Customer tastes, competitive dynamics and products change - often radically - and so should PRM strategy, tactics and ultimately technology.

The never-ending journey

Even in a hotel company that has been investing many millions of dollars in PRM capabilities every year for decades, executive leadership continues to sponsor, deliver and announce major PRM innovations to its shareholders and the market.  Today, innovative and likely expensive developments to IHG's PRM platform remain on the executive radar in a way that they currently aren’t in most multifamily organizations.    

For seasoned PRM practitioners, the journey of PRM is never over.  While we at D2 are not prescribing IHG-scale change for multifamily operators, an increased focus and appetite for improvement would be welcome in an industry that has seen a decade of unprecedented growth.  As we explained recently, there are steps that leadership can take to refocus PRM and identify additional upside. We just need to take a leaf out of IHG's book and challenge our teams to find them.

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Photo by Niklas Hamann on Unsplash

 

Topics: Pricing, Revenue Management, pricing and revenue management