The Demand Solutions Blog

Why Price Optimization Doesn't Happen Without Tension

Posted by Donald Davidoff on Sep 24, 2019 4:31:43 PM

Friction for Sales OptimizationDo your community and regional property managers have such a great relationship with their pricing and revenue managers that there is no sense of tension at all? They never escalate an issue because they always agree? If you answered “yes” to either or both questions, then you are likely leaving money on the table.

At first blush, that probably sounds provocative at best and just flat out wrong at worst. Admittedly, in most situations, leaders strive to remove tension in the relationships that exist between co-workers who collaborate to create business success. However, pricing and revenue management (PRM) is different.

Lately, we’ve been writing a lot about PRM capabilities as well as pricing strategy, but even if both are perfect, the nature of inter-departmental relations still has a heavy influence on performance.  In my thirty years of experience in PRM (20 of that in multi-family housing PRM), I have found that a lack of tension almost always indicates one of two situations. Both are bad for maximizing revenue:

  1. PRM has “gone native.” In other words, the PRM person has empathized so much with operations, or they are so worried about maintaining a good relationship with their operators, that they simply approve and implement anything the operators ask for. They’ve stopped advocating a position and pushing back, opting for the emotionally easier path of acquiescence.

  2. Operators have given up. In this scenario, operators feel unempowered and believe they just have to accept whatever the PRM person says. In this scenario, PRM is typically viewed as the “Department of No” so operators simply stop asking questions or sharing concerns. They haven’t actually stopped complaining…they’ve just stopped vocalizing those complaints in any constructive manner.

In both cases, we know we have a disengaged party who is no longer sharing their knowledge and expertise to help get to an optimal price.

Why we need a little tension

So, if disengagement is bad, does that mean tension (even conflict) is a good thing? The answer depends on what kind of tension or conflict exists.

Destructive tension is characterized by a lack of trust. It could be active, open and combative or it could take the form of disengagement and lack of communication. Either way, each side contributes to building a wall between the two functions and protecting turf. Neither appreciates what the other brings to the table. Each feels a sense of self-righteousness (even self-pity) in how “wrong” the other party is. The result is frustration and lower revenue performance.

Constructive tension, on the other hand, is exemplified by a mutual respect for what each other brings to the table. PRM recognizes that operators know things about the local market and possess valuable intuition while the operators appreciate the value of the dispassionate analytics PRM brings to the table. They don’t always agree, but they do get along. They discuss each other’s perspective. While they often come to a consensus, they occasionally escalate issues where, in good conscience, they disagree.

If we think about it, given the very different backgrounds and perspectives of operations and PRM, we should not be surprised by a certain level of tension. It’s so natural that we should be more surprised by the lack of any tension. The key, of course, is to ensure that the tension is of the constructive type.

Take a moment and think about the relationship between your operators and your PRM team. If it’s too smooth, that may feel good as one less thing to worry about—but you likely are leaving some money on the table. So, permit your teams to have some friction; after all, you can’t have movement without friction. Just make sure that it stays constructive!

Multifamily Revenue Management Maturity Scorecard

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Topics: Revenue Management