7 Common Common Pricing Trends - How to Optimize Performance

I’ve written a lot about sales and the sales process over the past few months, but it dawned on me that I haven’t talked much about pricing for a while. So let’s rectify that this month and review some of the key things that D2 Demand Solutions tends to find when we’re engaging clients in pricing platform assessments or LRO^® Health Check ups™. Here are the 7 most common findings from our previous client work.

1. LRO Parameter Settings

We have yet to have an engagement that didn’t result in at least some recommended changes to parameter settings. Our team is the only one with the personal experience of using the system through two full economic cycles. As such, we have developed our own set of preferred parameters for various business scenarios that are candidly a bit different than the “factory” settings. We also find examples of parameters that were changed for a particular strategic objective or business environment that were never changed back when conditions changed, as well as changes made in the past for which no current associate knows the rationale.

2. Renewal Caps

We frequently see renewal caps well below 8%, even as low as 0-8%. Almost universally, the stated reason is “to protect the back door” as a measure to defend occupancy. Defending occupancy can be a very legitimate strategy; however, this tactic doesn’t accomplish that objective. It only reduces rent growth. We have been involved in at least four well-defined studies that have proven (four for four) that caps below 10% do NOT change the rate of renewal. To be clear, that doesn’t mean you can arbitrarily raise everyone’s rent 8-10%. It does mean that, when the gap between expiring and market rent justifies an increase this high, residents will renew at the same rate they always do. They’ll take longer to renew and complain along the way, but they will renew. Beyond 10%, we do see a degradation in renewal rates as the increases force some residents to find lower priced housing despite the cost and hassles of moving.

3. Unit Amenity Opportunities

We’ve yet to analyze unit amenities and not find at least $1000 in opportunity for any community (usually at least $1000 a month and often as much as $10,000 a month or more). These opportunities come in two use-cases:

1. Missing amenities, e.g. a unit with no view amenity but the unit above it and below it both have a view
2. Mis-priced amenities. By comparing average days on market of a set of leases with a specific amenity vs a set without, we use a statistical process to calculate the likelihood that the difference is random or significant. If significant, then the amenity is either over- or under-priced and needs adjustment

Note that these findings tend to be strongest on high-rise communities, but we find plenty of opportunity in the garden community segment as well.

4. Hold Times

Typically, it makes sense to only hold a unit for 7 days (i.e. for vacant units, require move-in within 7 days of application and for on-notice units, require move-in within 7 days of make ready date. This is so we don’t put a unit on hold for three or four weeks only to miss out on a future prospect who would move in sooner. However, when the percentage of vacant available homes gets large, there is no risk of this kind of displacement. So extending hold times 10 days, 14 days, even as long as 30 days may be appropriate. See our whitepaper on this for more details.

5. Longstanding Vacant (LSV) Issues

We regularly see LSVs with either no action taken or where the action is to lower the price on that unit. The former abdicates responsibility to act; the latter is simply the wrong action to take (apartments do not rot like produce nor go out of fashion like clothes). Establish an appropriate protocol for LSVs. See our whitepaper on this for more details.

6. Leadership Opportunities

Sometimes we see a community stuck in mediocrity…hovering around 93% occupancy (or worse). There’s always a reason, but sometimes the site team has gone blind to it. Just like a fish doesn’t know it’s in water and there’s something called land, the team is so used to this performance that they don’t push for better results. This is a leadership deficiency that needs immediate (and sometimes bold) attention.

7. LeadGen and/or Sales Execution Opportunities

One of the biggest challenges we often see are communities where the price lever is being used to compensate for lead generation (marketing) issues or sales execution issues. This is usually because it’s easy to hit the pricing lever, and there’s usually an immediate impact. However, that creates a scenario where the operational team gets hooked on the metaphorical crack of price reductions. It may be a short term pain, but it’s necessary to fix the sales and marketing challenges if you’re ever to get out of this addiction.

As we enter the last couple of months of the high season, I hope you find these 7 common findings useful in optimizing your performance.