By Harley Rolfe
Note: The views expressed in this column are not intended to represent the opinions of Inside Self-Storage or members of its staff. We invite any comments and will present them in a subsequent issue, if appropriate.
Are there new facilities arriving in your area? If so, that's great for all the folks who benefit from development: architects, builders, suppliers, certain land owners, etc. And it's great for those who want to sell. It may not be the greatest for existing operators. So it's a good news/bad news story depending on who you are. More importantly, it's a typical story.
All industries go through this sequence as they mature. A new service is introduced and is well received. For a while the problem is creating enough supply to handle all comers. Initially, individual suppliers can offer a commodity; but that period passes and on comes the difficulties of price competition. It's the opening gun for interest in marketing. This story should be comforting. We are not dealing with rocket science. Many have gone before us. It's how marketers make a living.
Usual Competitive Response
If the management orientation has been one of offering a commodity, then it's a matter of getting prepared to give a rate-level response to new suppliers. To endure as a successful approach, we know that price competition should really be cost competition. So we need to look for areas of cost advantage. I have mentioned in previous columns that the level of marginal unit-operating cost for self-storage operations is quite low, so it's not possible to cut much there.
That leaves financing. While not literally an operating cost, debt service is regarded like one in this kind of situation. Here an existing facility is likely to have an advantage: They may have little or even no debt. That would ease cash-flow pressure and provide room for the rate-level contest. The new facility may not be so fortunate. Its new debt-level obligations could discourage aggressive pricing. So, they may not be too willing to move down as you push to maintain your market position. Without some kind of cost advantage, it is difficult to persevere for long using a rate-level response.
Time to Bail?
There's another reaction. A friend who was in the self-storage business in the Pacific Northwest took a look at the developing situation in his area and decided it was time to sell. He wanted no part of what he thought was going to be a dogfight. I tried to tell him that there were a number of things he could do to insulate himself, but his "day job" prevented him from devoting very much attention to his facility. With a resident manager, the facility had pretty much run on its own.
I've been asked about a norm for promotion expense as a percent of total sales. Operators are looking for guidelines as they pick their way along an unfamiliar route. Many have never spent serious money on marketing. Spending on Yellow Pages is about it. Anything more can seem like a lot.
Other industries do have such norms. They are used to a competitive market and have been responding for years. Both they and their industry have a track record. But most current self-storage operations function as a commodity; so the first move is to segue into a product-type operation. That is a transitional step. Next is the ongoing operation of the facility on the product basis. The norm we're after relates to the latter ongoing phase. Few have gone there, so the guideposts aren't established, yet. It will seem like you're flying blind for a while.
Time to Rock 'n Roll
It's no fun to face a competitive threat for the first time. The normal reaction is to retrench, get conservative to preserve resources. But that isn't the usual way to engage in a competitive contest. Normally, the more aggressive the opponent, the more active the home team gets. But just when it's time to rock 'n roll, the opposite may seem to be the best course. Also, direct price responses usually can only go on so long. More creative differentiation approaches need to be introduced. Still, persons not familiar with marketing options hesitate to expend resources under pressure circumstances. It's no time to try out unfamiliar fixes.
You Woulda Thought...
The additional puzzle: Where can existing owners turn for help? In other kinds of business, the industry association would be there to help members thrive. It's one of their most valued services. But in this industry, the Self-Storage Association (SSA) offers little marketing help for present owners being pressed by new competition. They may offer some assistance with Yellow Pages ad layout advice and point-of-purchase displays, but such responses are anemic in the face of serious market combat.
Yet, the SSA offers extensive assistance to developers, both in written material and trade shows aimed at newcomers attracted to those fine returns. They provide them with excellent knowledge--coaching, guidance and pitfalls to avoid--that many existing owners never got. Moreover, those lessons were born of the hard knocks present owners had to suffer on their own. The SSA must know that added capacity in the association has the potential to threaten those souls located in any area of expanding operations. It would seem that before offering aid and comfort to newcomers, they would move hard to make more room in the industry first.
A while back, I had a personal experience in that regard: I offered the SSA use of my book. They did not answer--I received no comment at all. Maybe the book is no good, but the association doesn't offer anyone's marketing material. It seems to have little interest in helping existing owners respond to the competition it fosters. The local state/regional associations focus on the welfare of existing operators. The national organization seems less inclined--at least on the marketing front. It is a source of pride to herald the "growth" of the self-storage industry. By growth they mean added capacity and more units. Continuous added capacity inevitably leads to destructive competition. As I've said before, competition is great for society, but hell on suppliers. I mention this only to lament the dearth of marketing resources available to operators who find themselves on the wrong end of the self-storage industry "growth" story.
Where to Turn
There are two facets of cost related to getting marketing help: 1) the personal time and raw cost of gaining information, and 2) the risk in lost effectiveness if the answers turn out not to work. A problem caused a need for information; the problem continues, and there is a penalty for not solving it. So choosing a poor solution not only wastes the direct cost of the action taken, but also exposes the operator to the continuing costs of not solving the problem.
Another part of the dilemma for the marketing novice is how to tell the straight stuff from the pretenders. If you don't know a whole lot about a new subject, how do you determine how good the information that you're getting? Under those circumstances and in a situation where you often need to know--quickly--how can you judge enough to bet your business?
Earlier I mentioned that price is the first weapon of choice in the face of new competition. Operators can persevere for a while using it. But who wants to just persevere? Owners want to prosper. Next month, I'll offer some suggestions on sources for marketing help.
Missed some previous issues? Check the web at www.hardnosed.com.
Harley Rolfe is a semi-retired marketing specialist whose career includes executive-level marketing positions with General Electric and AT&T. He also owned lodging and office facilities for more than 20 years. Mr. Rolfe holds a bachelor's degree in economics from Wabash College and a master's degree in business administration from the University of Indiana. He can be reached at his home in Nampa, Idaho, at (208) 463-9039. Further information can also be found in Mr. Harley's book, Hard-Nosed Marketing for Self-Storage.