The Value of Convenience

by Alden Chang

In a previous blog, we discussed the importance of convenience and how it often drives our everyday decisions. Of course, what constitutes convenience varies significantly for different self-storage customers. And it can often be difficult to guess what convenience means for any particular customer without understanding the reasons driving their purchase.

For the self-storage customer, convenience is frequently achieved through variations in unit size, accessibility, and environmental factors (climate control and door type are common aspects, but there may be other elements as well).

Value Pricing: Valuing convenience.

In practice, Value Pricing in self-storage typically means, for the same sized unit and climate control status, offering a tiered pricing structure based on convenience. Through the leadership of our own Dr. Warren Lieberman, there is a growing recognition of this concept in the industry. Value Pricing is also known as “convenience pricing” and “differential pricing”.

In our experience, and supported by our patent-pending feature in our self-storage revenue management software VRMS, we advise our self-storage clients to segment the same sized units (same unit types) into three tiers—Good (“Standard”), Better (“Best Value”), and Best (“Premium”). According to Warren, “we should never lose sight of the customer, and this approach balances choice and value in a manner that appeals to customers.”

The basic steps are:

  1. Define your unit types.
  2. For each unit type, quantify accessibility. Factors to consider may include:
    • Distance from entry or access points (e.g., elevator or stairs) of building to unit;
    • Ease of getting to the unit – a straight path is more convenient than multiple turns (tables and couches don’t bend easily);
    • Ease of parking a car or truck next to the unit;
    • Distance from front of facility to unit;
    • Type of door.
  3. Rank order the units in each unit group based on convenience and comfort.

In the traditional static Value Pricing approach, your lowest priced and advertised units would be the Good units. Then you level up for Better, and further level up for Best units. How much you level up depends on your situation, which includes factoring in your competition and current occupancy rates. In practice, most self-storage operators find it works best to do this for only some of their unit groups and to also limit the division to Best and Standard unit definitions. Units are specifically assigned to the price tiers.

Relativity in Real-Time.

Veritec’s Dynamic Value Pricing approach is quite a bit different, and results in a much higher level of incremental revenue from the Better and Best units.

There are four very important concepts to Veritec’s Dynamic Value Pricing:

  1. Units are not statically assigned to Good, Better, or Best Prices.
  2. Rather, each day, whether a unit is assigned to a Good, Better, or Best price depends on which other units are vacant and available for rent. This reflects that the convenience of any specific unit is relative to what other choices are available. A unit that is one hallway turn from the elevator might have Best pricing if all the other available units are two or more turns from the elevator; but it might have Good pricing if all the other available units are closer to the elevator. This dynamic reassignment process of unit to price tier offers significant opportunity for increased revenues (but it is very difficult, and typically not practical, to implement this approach without automated capabilities).
  3. This redistribution is done on a daily basis by the system without requiring time from staff. So long as 3 or more units are available, there can always be a Good, Better, and Best unit. Veritec’s pricing and revenue management software system makes this process automated and seamless.
  4. As an option to the operator, the convenience ranking of units can also be used to influence rent increases. More convenient units might merit a slightly more aggressive rent increase than the lesser convenient units in each unit type. A number of self-storage operators have found this to be an excellent way to eke out additional revenues and profits.

For a wide variety of store configurations, over one out of three customers will choose to pay more for a more convenient unit when the store manager provides such options to a customer.

Currently, the upgrade process typically happens at the store (although website companies have begun to offer innovative and creative ways to introduce Value Pricing to the on-line rental process). In some cases the customer arrives at the store with a previously made reservation and has a specific price in mind. In other cases, customers simply come to a facility with limited knowledge about rental rates. Although the ensuing discussion between the store manager and the customer in these two situations may proceed along different lines, the store manager’s perspective must be an educational one, especially for first-time renters.

There should never be any pressure selling, as the decision on whether to rent the lowest priced unit (albeit with less convenience) or to spend a bit more to obtain a more convenient unit, should be entirely up to the customer. The store manager, however, can help the customer understand the options and make the decision that’s right for that customer.

Dynamic Value Pricing really is all about the customer, while simultaneously enabling the self storage operator to earn greater profits!

There are many benefits to the dynamic approach to Value Pricing. Customers have a better buying experience because they get to choose the options that best meet their needs. Some customers are perfectly happy with a Good unit because they don’t plan on accessing their unit with any frequency. Other customers may think differently, valuing the ability to easily and frequently access what they are storing in their units.

For the operator, the real-time relative pricing of available units coupled with the chance to upsell means significantly increased revenues, often ranging from four to nine percent. As noted above, at many facilities approximately 35% of customers will choose to upgrade. At lease-up stores, we often see upgrade rates approaching, or even exceeding, 50%.

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Same Storage Units, Different Values

by Alden Chang

Evan Williams, a co-founder of Twitter, once famously implied that convenience decides everything. This is in reference to, understandably, the Internet. He said, “The internet makes human desires more easily attainable. In other words, it offers convenience.” He further adds, “…Convenience on the internet is basically achieved by two things: speed, and cognitive ease.”

Williams sees the Internet not as something new per se. Rather, it is another way for people to do what they already do, but more conveniently. For example, when you shop you can compare many products and prices easily, have relevant product suggestions at your fingertips, and have the product delivered to you the next day.

Last year, in Forbes’ corporate Reputational Quotient Survey, Amazon came out on top. (Amazon came in at #2 in 2019.) According to Forbe’s, “Amazon continues to lead because convenience is not only an ideal, it is, as The Wharton School’s Katja Seim points out, their ‘core product.'”

Defining convenience.

Let’s go to the actual definition(s) of “convenience”:

  • Oxford: “The state of being able to proceed with something without difficulty.”
  • Merriam-Webster: “Something (such as an appliance, device, or service) conducive to comfort or ease.”
  • Dictionary.com: “Anything that saves or simplifies work, adds to one’s ease or comfort, etc., as an appliance, utensil, or the like.”

It’s interesting that both Merriam-Webster and Dictionary.com includes “comfort” as part of “convenience”. In the physical world, comfort indeed becomes more relevant.

For the self-storage provider, the service provided is fundamentally one of convenience. Self-storage providers offer customers the space to store their possessions, so they can be free of clutter in their homes and have (significantly) less to carry if they are in transition. And, in the case of commercial businesses, it enables goods to be stored and accessed more conveniently than would otherwise be possible.

But even within a self-storage facility, there are differing levels of convenience.

While convenience “on the internet is basically achieved by two things: speed, and cognitive ease,” convenience in the self-storage facility is essentially determined by unit size and configuration; accessibility; and environmental factors (think climate control).

Self-storage facilities typically offer varying sized units, such as 5’ x 10’, 10’ x 10’, and so on. But, even for the same sized unit, there are differing levels of convenience due to differences of accessibility (e.g., number of hallway turns from an elevator or access point) and climate control.

So indeed, the same physical unit may in fact be viewed differently based on the factors we discussed, and thereby be valued differently. A customer might even be willing to spend more to use a smaller unit that is very easily accessible than a larger unit that is less so. For many, the idea that a 100 square foot unit could be rented for more than a 150 square foot unit may come as a surprise, but in our experience, this is actually the case more often than you might imagine. And with that in mind, we will discuss what different levels of convenience means to pricing in a future blog.

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Why “Good, Better, Best Pricing” is Transforming The Self Storage Industry

by Alden Chang

The self storage industry is becoming increasingly competitive with each passing year. Whether you’re a small facility owner or REIT, competing in today’s market is challenging for everyone. There are many ways to combat the competition, however, and staying up to date with competitive pricing is one of them. In the economic downturn of 2008, many smaller facility owners struggled to maintain high occupancy levels. In hindsight, REITs such as Life Storage, Public Storage, and Extra Space were not only maintaining occupancy, but they were thriving.

How You Can Compete More Effectively with the REIT’s

For years now, big-box REITs have been using analytics to drive their competitive pricing strategy. With “Value Pricing“, your facility can compete much more effectively against the REIT’s as well as your other competitors, because Value Pricing provides you with critical demand and pricing data to help your facility better price and fill units. And, the recent integration of Veritec Solutions into The Storage Group’s (TSG) 3-D Value Pricing Map™ allows facility owners to do just that even better than before.

Technology That Helps Facilities

The new 3-D Value Pricing Map™ operates with TSG’s premium online rental tool ClickandStor® 3.0, which you can learn more about here. This new feature is very similar to the online ticket purchasing process available with live stadium events, such as concerts and professional sports games. Veritec Solutions’ Value Pricing approach gives facility owners dynamic pricing rates that reflect the relative convenience of available units. This sets Veritec Solutions apart from the competition by giving facilities the ability to market units to the customer with value pricing markers (good, better, best unit profile) to drive business more effectively online and increase revenue. Veritec Solutions, in coordination with The Storage Group, recently announced a new 3-D Value Pricing Map™.

This new technology creates a 3-D rendering of a facility layout, and units are assigned their level of desirability, (i.e., good, better, best). With Veritec Solution’s suggested pricing and daily reports, facility owners can adjust their pricing to compete in their local market and provide their customers with options that best fit their rental needs. For facilities using Value Pricing, this new integration provides a more advanced and user-friendly way of integrating both pricing and facility maps into the enhanced rental experience. In a time where the customer experience is more important than ever before, and competition is at an all-time high, adopting a 3-D Value Pricing Map™ can help your facility upsell units.

How To Increase ROI with an End-User Focused Experience

With the integration of Veritec Solutions’ expert data into the 3-D Value Pricing Map™, facility owners can now implement pricing strategies that are customized to their facility and their market, increasing profitability. This cutting edge technology is the first of its kind in the self-storage industry. This integration was developed with the idea that facility owners can streamline the customer rental process while creating additional ROI.

The Storage Group’s 3-D Value Pricing Map™ is end-user focused, designed to help customers feel like they’re in control by selecting a unit that meets both their needs and budget. With a visual experience, facility websites can help engage potential customers by showing them where security and convenience are best. For example, facilities can charge customers more for a unit that is near the leasing office or fewer turns from an elevator, an upcharge that many customers will pay because they value the ease of access or close proximity to the front of the facility.

Why Refining The Customer Process Is Vital

Without a great customer experience, facilities can flail and struggle to stay profitable. In the digital age, one of the best things you can do for potential customers is to have a rental process that is clear and easy to navigate. Bad experiences mean that people are more likely to leave negative customer reviews on Google or Yelp, creating a cycle that can be difficult to break.

For customers that don’t want to blindly rent a unit based on size and cost alone, having an interactive facility map puts the power back in their hands. Having that superior customer experience can really help a facility shine, increasing positive customer reviews, which can help potential customers choose you over the competition. We’ve all had a bad customer experience, but your facility shouldn’t be one of them.

When your facility works on refining the customer process, consider the things customers value in their rental experience. By prioritizing the customer experience, you can help your facility thrive and compete with even the most popular facilities in your area.

The Result of The “Good, Better, Best” Model

Typically, when a facility adopts Value Pricing, it can expect to see overall revenue from move-ins increase 4 – 9 percent. For facilities trying to maximize revenue and occupancy, this can yield a huge increase in profitability! At many facilities across the United States and in other countries, customer upgrade rates of 30 – 35% are common.

Many facilities see an increase of more than $2,000/month in incremental revenue from Value Pricing. Coming in at over $24,000 annually in increased revenue, this can help pay for site maintenance, upgrades, or just create more money in your pocket!

Value Pricing works because it provides options – gone are the days of thinking that there is “one” perfect price for a unit. In a time where digital marketing has made it possible for self storage companies with smaller portfolios to compete at the same level as REITs and companies with larger portfolios, it’s vital that units are appropriately priced. With Veritec Solution’s Value Pricing and The Storage Group’s 3-D Value Pricing Map™, there’s never been a better time to start optimizing your rentals and improving your customer experience.

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