Disciplined and consistent use of a pricing methodology are keys to successful pricing and weathering economic uncertainty. Regardless of industry and business, you are likely following, or are considering, a comprehensive pricing methodology. We illustrate here a time-tested, Self Storage Pricing Life-Cycle model that centers around attracting, closing, and retaining the self-storage customer.
Phase 1: Attracting the Customer
This first phase reflects a variety of factors, typically including the competition’s advertised pricing. It is fairly common that potential customers evaluate multiple price/value alternatives as they shop. (There are, of course, customer segments (think “walk-ins”) and geographic locations where competitor pricing may have relatively little impact.)
This means you need to be price competitive, but not that you are necessarily priced lower than the competition. Equally important, competitor pricing will often be a natural indicator of the market economy as it applies to your business. A growing economy inspires confidence in higher advertised pricing, and a slowing economy drives more competitive pricing.
When you consistently price with an eye towards the competition (as applicable), you naturally respond to market conditions, be it up or down.
Phase 2: Closing
This phase provides an opportunity to up-sell the customer by offering additional, upgraded storage options. Although it may seem counter-intuitive, both a slowing economy and a growing economy provide many opportunities to up-sell.
The opportunities may simply be different: This is a key mindset for you to have. Take stock of the products segments you have. Some may perform better in a growing economy; others in a slowing economy.
For example, in a slowing economy, customers may be downsizing their living arrangements so self-storage becomes a increasingly important factor for them. Have a segmented product (or services) strategy with products of varying value. That way, you strengthen your ability to sell into multiple customer segments. You maximize your up-selling options in varying economic conditions.
Phase 3: Retaining the Customer
There are additional opportunities to increase prices over time. This, of course, applies more to longer-term rental situations than one-time transactions.
Remember that customers do not all react the same to rent increases. Understanding which customers are more price sensitive than others allows for a differentiated rent increase strategy. This can then lead to several percentage points of additional revenue over time.
We use a “signaling” mechanism to determine price sensitivity. This mechanism can also factor in economic conditions so that you price accordingly. We will discuss this mechanism, and the other attributes of a supporting information system, in later blog(s).