Managing the Perils of Pandemic Pricing
In a previous blog, we highlighted a few of the vastly differing, and often confusing, state regulations restricting price increases during a state of emergency. So, how should self-storage operators proceed with an active pricing strategy in such an unprecedented business environment?
Before addressing that question, we would like to pause to recognize that the COVID-19 pandemic has caused undue strain and hardship for many individuals and businesses. It has also forced many businesses to adopt new methods and processes. On a positive note, these very methods and processes can be beneficial for the future.
It is also worth noting that many self-storage operators voluntarily elected to reschedule and postpone rent increases. While concerns about the business environment may certainly have been a consideration when making this decision, our discussions with many operators revealed that many were genuinely concerned about the health and economic pressures faced by their customers and thought it best to do their part to help, even while some of their own expenses continued to increase. We are proud and honored to play as significant a role as we do in the self-storage industry. Simply put, there are a lot of good people in the industry and we are delighted to work with them.
Now, back to the question at hand. We see several best practices emerging when it comes to managing the various states’ pricing regulations. They can be summarized as follows:
For each state, determine the acceptable boundaries for price changes.
To help make this determination, the self-storage industry is fortunate to have two premier professional organizations. They are the Self Storage Association (SSA) and Inside Self Storage (ISS). These associations provide a wealth of useful resources and guidance for operators to manage their businesses through the current pandemic.
For example, the SSA held a “Legal Power Hour” online conference in the early days of the pandemic to discuss these very pricing issues, as well as offer pricing information resources. Self-storage operators also have the benefit of state-specific associations to help them focus on more local issues. These associations are a good place to start in finding the right resources. In the end, however, it is important to get a qualified and knowledgeable legal opinion on a specific state’s regulations.
Of course, self-storage operators in multiple states have their work cut out for them. In a way, these operators already have the organizational DNA to work across diverse environments. For example, they have already faced different building and zoning codes for each city in which they operate, let alone differences by state.
Incorporate the pricing boundary information for each storage unit along with the price changing procedure.
Any time an operator changes a storage unit’s price, it can be very helpful to have relevant boundary information readily accessible and included as part of the pricing procedure.
Boundary information can take many forms. During a state of emergency, it may be the maximum allowable price for a unit group. At other times, boundary information may simply be threshold levels on the price per square foot that a unit group is expected to sell between. Or, it could be a measure of how close the price is to the budgeted rate. Regardless of the metric, when a change to a unit’s price is being evaluated, an operator may want to cross-reference the boundary or threshold data as they finalize their pricing decision. As a best pricing practice, the recent pandemic is leading more operators to ask for and consider such information.
Operators using a revenue management or pricing system are more likely to have this information easily available than those that do not. For example, Veritec’s self-storage revenue management system, VRMS, facilitates the operator’s ability to estimate and track the maximum allowable rates for each unit group. This allows the operator to compare these rates to VRMS-generated pricing recommendations and potential operator overrides.
Some state restrictions allow for a degree of flexibility in interpretation. For example, what exactly does Florida mean when it says there may not be a gross disparity between the price of a rental and the average pre-State of Emergency price? Or Iowa’s regulation that prohibits excessive prices? By comparison, California’s restriction that prices may not be more than 10 percent greater than those charged immediately prior to the declaration of emergency allows for less “wiggle room.” Consequently, the VRMS feature allows operators some flexibility when interpreting each state’s regulations. In short, VRMS facilitates the operator’s ability to actively manage their prices in an appropriate and legal manner.
Codify the price boundary procedure as part of an overall operational process and best practice.
Price boundary discipline may have been an implied one in the past. COVID-19 has made such boundaries explicit.
When this pandemic passes, many more self-storage operators will have greater experience with incorporating price boundary data into their pricing process. We believe this will be a good development. Implied boundaries may mean vague or even undisciplined boundaries, leading to sometimes unintended pricing decisions. Explicit definitions require more advanced planning and thought, organizational buy-in, and clear-cut execution.
Technologies such as advanced property and revenue management systems enable a more seamless incorporation of boundary checks into the pricing procedure. In effect, it becomes a visible option, a check, on the pricing interface. We expect to see more and more of this as a best practice in self-storage pricing.