Like you, I have been living through the changes brought upon us by COVID-19. While my team and I are not health experts, we can appreciate the analytics behind the decisions for such social separation practices and policies. Together, we need to “flatten the curve” of infection rates.
You can check out the latest information from the World Health Organization and the United States Centers for Disease Control and Prevention (CDC).
Our hearts and thoughts go out to all that have been affected by the virus, from loved ones directly impacted, to families, to health care workers, and to communities at large.
Rest assured that Veritec Solutions continues to serve our clients as we always have. Our Client Managers continue their focus on meeting and exceeding client expectations. We have always embraced remote technologies and virtual meetings as part of our regular business practices. Now we may have to do that more, in place of face-to-face meetings that we so value. But, together, we shall get through these trying times.
Our Self Storage revenue management system VRMS continues to deliver services to clients worldwide, from Asia all the way to Africa. While our lives may be disrupted, we expect little impact to the VRMS cloud-based delivery model. VRMS will continue to offer its array of services from price signaling to value pricing, while generating thousands upon thousands of pricing guidances daily.
We would also like to take a moment to reflect and to express our appreciation to our clients, our partners, our employees, and our community. We wish you the best through these trying times. Support your communities where you can and stay safe.
The impact of COVID-19 can and will continue to evolve. We remain committed to providing you the services and the solutions you expect.
At Veritec Solutions, we routinely collect web-based pricing data from over 1,500 self-storage companies in the United States. The number of stores in these companies range from one to over 2,000. So, what are some of the insights that these data provide?
Let’s look at ten of the larger operators. We’ll focus on their pricing activity for unit groups displayed on their websites for at least 300 days in 2018. That is, these unit groups were rarely sold out and rarely unavailable for rent.
Furthermore, we’ll restrict our analysis to unit types between 25 and 300 square feet in size. For example, a unit type might be the 10’ x 10’, ground floor, climate-controlled units at a given store. The average number of unit types per store ranged from six to over 30. For each of the ten companies, prices were obtained from more than 100 stores.
So how many times did Operators change their prices?
The figure below shows both the average number of times each company changed the prices of its unit types and the maximum number of price changes made for any unit type. The data from these 10 companies suggest that large self-storage operators implement a wide range of pricing strategies.
For example, Company E changed the price of a unit type an average of 18.1 times in 2018; the most price changes that E made for any of its unit types was 33. Companies A, B and C rarely changed prices, while I and J typically changed the prices of their unit types about every week or even more. For some unit types, Company J changed its move-in price as frequently as four to five times per week. For some unit types, prices were changed more than 210 times during the year!
How big were the price changes?
When we look at the typical size of the price changes made by these companies, we also see significant and rather interesting differences. The figure below shows the average percentage price change for each company.
The average price change ranged from four to 11 percent across the 10 companies. Companies D and G changed their prices by the smallest amounts, whereas F and I changed by the largest.
Based on the average price changes these companies made, their strategies and tactics may not seem too different. After all, the average price change for a $100/month rental ranged from about $4 to $11; Certainly different, but perhaps not dramatically so. As might be expected, price change percentages tended to be higher for lower priced unit types, but the difference was still relatively small.
Upon closer inspection, however, their strategy differences become more apparent, particularly in the companies’ pricing tactics. The next figure highlights how often each company makes a “micro” price change of less than 1% as well as a “mini” change of less than 3%. Yes, that means a “mini” price change is $3 or less for a $100/month rental, and “micro” for $1 or less!
Companies D, G, and J made many small price changes. When G changed the move-in price on a unit type, the price was a mini change (3% or less) about 60% of the time. 21% of the price changes made by G were micro (1% or less) ones. Conversely, when Company I changed the price of a unit type, mini price changes were made only 22% of the time and only 3% of the changes were micro ones.
No one strategy, by itself, is right or wrong, better or worse. Rather, it’s what is most appropriate for your situation.
There may be no single “silver bullet” pricing strategy that is right for all companies and all their stores. You may be faced with competitors that implement very different pricing strategies and tactics. Therefore, it is important that you at least understand your competitors’ tactics, such as knowing how frequently they change their prices and by how much.
In our work with a variety of self-storage companies, we are finding that more and more operators are becoming more systematic with incorporating competitor prices into their own pricing tactics to help ensure their competitiveness.
For more information, see Dr. Warren Lieberman’s article “Pricing and Revenue Management: Recent Trends in Self Storage” published in the Florida SSA INPRINT magazine.
A while back, we talked about convenience and the Internet. Co-founder of Twitter Evan Williams all but said that the Internet is not about doing new things. Rather, it’s about people doing what they already are doing, but with (much) more convenience.
Indeed, online move-in orders have increased dramatically over the last few years. While some self-storage providers are more online focused than others (does your company take on-line reservations yet?), the trend is clear. In the “Value Pricing on the Internet” panel at the 2019 SSA Fall Conference and Trade Show, where our own Dr. Warren Lieberman was a panelist, a number of data points were cited:
- Bargain Storage Move-in Rate from Online Rentals: 97%;
- STORExpress Online Reservation Conversion: 75% in 2019 (to August), 62% in 2018;
- Five Star Storage Percentage of Move-ins from Online Reservations: 22% in2019 (to August), 19% in 2018.
In our last blog we discussed Dynamic Value (or Convenience or Differential) Pricing in self-storage. This is where the same unit type (same size and features) may be value priced differently because some are more convenient than others, mainly due to accessibility. The customer, usually at the store, gets to first understand, and then choose the price and convenience level they’d like.
The question then becomes, is the self-storage industry ready to offer value pricing choices on the Internet?
Let’s first look at other industries that are currently incorporating value pricing capabilities into their websites. For many, airlines first come to mind. When you book your flight online, you will likely receive multiple options to upgrade your ticket. Translation: Opportunities to increase your convenience during your flight. These options range from being able to check-in luggage to upgrading your seat to pre-ordering a particular meal.
Two other industries that also come to mind: Hotels and rental cars. When you book an online hotel reservation, you are given the option to upgrade to a larger room with more accoutrements. The same can be said for rental cars, as you are given larger car and insurance (peace of mind) options, for example.
The online Value Pricing success factor.
What’s the common element in all those industries? According to Warren, customers of these industries receive prior knowledge of opportunity to enhance the product or service they purchase (that is, prior to the actual use). When their customer books online, he or she is introduced to the upgrade options and given a chance to think about them. Remember Evan Williams, co-founder of twitter: People use the Internet not necessarily to do new things, but rather to do existing things more conveniently.
For the self-storage industry, the customer base tends to be less informed than in these other industries. Although Value Pricing works very well even though it is generally not currently incorporated into the on-line rental process (roughly one-third of customers currently choose to upgrade), our strong expectation is that doing so will enable Value Pricing to yield even greater incremental revenues. Once Value Pricing programs include an online education component that describes the upgrade options and their convenience benefits, we would not be surprised to see upgrade rates of 40% – 50% at mature stores.
The first foray into online value pricing is The Storage Group’s 3-D Value Pricing Map™, which provides a real-time, 3-dimensional and interactive view of a storage facility layout and pricing options. (Think of how online stadium and theatre seating is done.) Veritec Solutions has integrated its self-storage revenue management system VRMS with the 3-D Value Pricing Map™. As such, we continue to look forward to the self-storage industry’s advancement of value pricing online and are very excited about what the future offers.