Are You Waiting for Rivals to Strike?

By Harley Rolfe

Thereis good reason why it takes the jolt of competition for most businessowners--particularly in this industry--to develop a serious interest inmarketing. Implementing a sound marketing program requires a change in attitudesand methods. Change is never easy.

What I often hear from self-storage operators is they are ticked they nowhave to "waste" time and money on marketing. They're not so sure thething we call the free-enterprise system is all it's cracked up to be. Itdoesn't help to say competition is a way of life for many businesses and thefoundation of our economic system. They feel self-storage was doing just finewithout it, thank you very much. They had satisfied customers before, and theyhave satisfied customers now. Only business is more hectic these days.Realistically, operators know they need marketing, but they're reluctant.

Economic attitudes vacillate between the fear of loss and the opportunity forgain. Of the two, loss is much more insistent. Why? In the case of loss, youalready possess something. You know exactly what the stakes are. Losing it ispainful, even devastating. However, gain is speculative. It may pan out, it maynot. That's why dips in the stock market are so much more precipitous thanincreases. Your ownership of a self-storage facility is similar. Competitionpresents you with the potential loss of revenue you presently enjoy. This isvery real. The other benefits of marketing are opportunistic and not nearly socompelling.

There are good reasons to engage in marketing activity, but the trigger isusually curiosity about how to cope with the potential revenue loss occasionedby competition. Those other benefits represent potential gains and are,therefore, less urgent.

Is Marketing Dead Weight?

Is marketing just so much extra expense to a self-storage operation? Itdoesn't have to be. Marketing activities can provide management tools you can'tget any other way. In my last column, I talked about how marketing helps usunravel and analyze the income half of our profit-and-loss statement. I havegenerally been employed by or operated competitive businesses in the course ofmy career. I can't imagine operating without the mechanisms afforded bymarketing--after all, I want to know as much as possible about the source of mybread and butter. Here are some ways marketing can improve your business:

1. Use marketing to direct your facility toward the best type oftenant.

Take tenancies, for example. Aren't long ones the best? No owner has evertold me how he has identified and sought out long-term uses/users; but ownerscould feasibly sift through their tenant base, look for long-term renters,figure out why they use storage, and then compose programs to attract more ofthe same. The sleuthing part is what we mean when we refer to "marketresearch." Many feel such a high-powered term couldn't possibly apply totheir 500-unit self-storage facility. But it does.

The leading characteristic of any marketing program is the subdivision of thetenant population into meaningful segments. Knowing your market means knowingwhat the segments are and how to reach and influence each one. Generally, theowner takes what comes his way and hopes for as many long-term renters aspossible. I'm suggesting you can do this more deliberately.

2. Marketing can improve the value of your facility.

You know the formula for the determination of the value of a businessinvolves two factors: the net profit and the capitalization rate. Take the netprofit (before debt service) and divide it by the cap-rate percentage. Theresult is the dollar value of your business. Most businesses place a lot ofweight on net profits and pay little attention to the cap rate, but they areequally important.

More precisely, the cap rate recognizes the predictability of income asbusiness risk. If income is unpredictable and uneven, business risk is higher.That is recognized by a higher interest rate. Anything you do to stabilizeincome helps lower the cap rate, so extending average tenancy duration shouldreduce the cap rate and increase the resulting facility value. I admit theappraiser may not instantly respond to your entreaties about reducing cap ratein recognition of better income control. But he will understand and be able togrant preferential language in his report when he finds a departure from theusual pattern.

Presenting a potential facility buyer with a longer-than-average tenancypattern buttressed with a methodology that produces it will discourage theinclination of the buyer to counter. He knows he will inherit high incomestability. He knows you can show him how to maintain it. Your price isjustifiable.

3. Marketing can improving the value of your offerings.

Far from being a needless expense, promotions make a product or servicepreferable. Something unfamiliar makes us hesitant. A person venturing intounknown territory (i.e., someone who has never used storage before) will do sowith trepidation. A first-time renter is totally dependent on what he can seeand what he is told. He has no experience to guide him. This is the perfectopportunity to demonstrate the value of promotion.

Promotional activity will offer him reassurance. Use of brand names,publicity or media produces familiarity, which removes some of the customer'swariness and creates preference. Preference either makes you a buyer's firstchoice, or allows you to receive a price premium. Maybe both. It is difficultfor a commodity offering to receive a price premium, but being consistently fullin the face of competitive market conditions is not bad. If you want thepremium, add useful features or services that warrant it.

The overall mission is to deliver higher occupancy. When you consistentlyhave high occupancy, it is time to consider increasing rates. The goal is to beable to raise rents in the face of active competition.

Harley Rolfe is a semi-retired marketing specialist whose career includesexecutive-level marketing positions with General Electric and AT&T. He alsoowned lodging and officefacilities for more than 20 years. Mr. Rolfe holds abachelor's degree in economics from Wabash College and a master's degree inbusiness administration from the University of Indiana. He can be reached at hishome in Nampa, Idaho, at 208.463.9039. Further information can also be found inMr. Rolfe's book, Hard-Nosed Marketing for Self-Storage.