Pricing and Revenue Management (PRM) in multifamily turned 18 years old this year. For those interested, the first-ever deployment of a PRM system took place in February 2001 at the Hunters Run apartment complex in Austin, TX. When we sat down recently with 20 multifamily executives to discuss the industry outlook towards 2020 and beyond, we invited them to provide their perspectives on the current state of PRM.
We discuss the results of our research in greater detail in our 20 for '20 white paper. Below we have summarized the feedback that we received on possible future PRM advancements and areas of opportunity. We found that PRM system-specific feedback fell into two broad categories: how to improve the current models; and more radical improvements and future direction.
How to improve the existing PRM models
All 20 of the companies interviewed were experienced PRM practitioners, with at least one PRM system implemented in their portfolios. These were the suggestions for how those systems and processes can be improved:
- The systems still lack sufficient lease-up modeling capabilities; even advanced PRM system-users reported that their companies manage lease-up pricing manually
- The renewal process is not as sophisticated as it could be. Discussion included improved workflow and integration with PMS and better modeling to bring predictive analytics into the renewal process rather than merely the execution of user-defined strategy
- Applications lack a reliable, systematic way to characterize local market conditions. The data currently available is either too highly aggregated or inaccurate
- Systems could provide more analytical support for rentable items and unit amenity pricing
- Operators continue to struggle with assessing the true return on renovations and the obvious implications on both pricing and capital allocation
- Systems could provide more insight into units that are difficult to rent
- It remains surprising that there are still owners who have not yet been motivated to do PRM, given the maturity and proven benefits
Where next for PRM?
From the responses above we can see that there is no shortage of opportunity for incremental improvement. Some of the conversations led to more radical suggestions of where PRM can go in the future - we have summarized them below:
- Deeper integration into various demand management levers will allow greater use of demand generation levers other than pricing – including credit screening, lead generation, sales execution, etc.
- The technology has become so commonplace and even commoditized, that outsourcing of the service now appears to be a more viable delivery model
- The increasing use of automated (AI-driven) leasing agents has the potential to vastly improve input (i.e., guest card) data for PRM systems
- The analytical application of AI has the potential to provide insight into some factors that are currently not considered by PRM algorithms, for example, external neighborhood demand-drivers, broader econometric data and behavioral economics
Some of the more interesting, speculative discussion of PRM centered on AI. The two points above featured in discussions about the problems that have bedeviled PRM since its inception. Small data samples make it hard to model the impact of amenities, for example on a property-by-property basis. The almost infinite analytical power of AI, on the other hand, could conceivably identify causality in much larger (e.g., city-wide, portfolio-wide) data sets.
Watch out for complacency
Overall we found some interesting suggestions and insights about the direction of this mission-critical area of property management. But overall we were struck by two highly consistent over-arching observations from the 20 interviews.
- Technology leads generally responded with some version of “It’s been years since I was involved in PRM”
- Heads of operation struggled to come up with any top-of-mind examples of desired PRM improvements, (the responses above came in response to prompting from the interviewer)
On the one hand, we can argue that these observations indicate maturity not only in the technologies but also the organizational structures and capabilities that support them. On the other hand, we should be wary of the risk of complacency. In industries that have led the way in PRM (e.g., hospitality and travel) PRM strategies, processes and initiatives constantly evolve and tend to have high senior management visibility. No executive there would believe they “have it covered” when talking about pricing and revenue management.
The finding from 20 for '20 that PRM appears to have fallen off the senior management agenda, coupled with other industry forces (for example, supplier consolidation in the PRM systems environment) leaves a legitimate concern for industry innovation. The industry needs to rediscover its appetite for excellence in PRM, a subject to which we will return in the coming weeks.
For more on this research download “20 for ‘20” - our white paper that summarizes our interviews with 20 senior multifamily executives about the outlook to 2020 and beyond.