Are You Waiting for Rivals to Strike?
By Harley Rolfe
There is good reason why it takes the jolt of competition for most business owners--particularly in this industry--to develop a serious interest in marketing. Implementing a sound marketing program requires a change in attitudes and methods. Change is never easy.
What I often hear from self-storage operators is they are ticked they now have to "waste" time and money on marketing. They're not so sure the thing we call the free-enterprise system is all it's cracked up to be. It doesn't help to say competition is a way of life for many businesses and the foundation of our economic system. They feel self-storage was doing just fine without it, thank you very much. They had satisfied customers before, and they have 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 for gain. Of the two, loss is much more insistent. Why? In the case of loss, you already possess something. You know exactly what the stakes are. Losing it is painful, even devastating. However, gain is speculative. It may pan out, it may not. That's why dips in the stock market are so much more precipitous than increases. Your ownership of a self-storage facility is similar. Competition presents you with the potential loss of revenue you presently enjoy. This is very real. The other benefits of marketing are opportunistic and not nearly so compelling.
There are good reasons to engage in marketing activity, but the trigger is usually curiosity about how to cope with the potential revenue loss occasioned by 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? It doesn't have to be. Marketing activities can provide management tools you can't get any other way. In my last column, I talked about how marketing helps us unravel and analyze the income half of our profit-and-loss statement. I have generally been employed by or operated competitive businesses in the course of my career. I can't imagine operating without the mechanisms afforded by marketing--after all, I want to know as much as possible about the source of my bread and butter. Here are some ways marketing can improve your business:
1. Use marketing to direct your facility toward the best type of tenant.
Take tenancies, for example. Aren't long ones the best? No owner has ever told me how he has identified and sought out long-term uses/users; but owners could feasibly sift through their tenant base, look for long-term renters, figure out why they use storage, and then compose programs to attract more of the same. The sleuthing part is what we mean when we refer to "market research." Many feel such a high-powered term couldn't possibly apply to their 500-unit self-storage facility. But it does.
The leading characteristic of any marketing program is the subdivision of the tenant population into meaningful segments. Knowing your market means knowing what the segments are and how to reach and influence each one. Generally, the owner takes what comes his way and hopes for as many long-term renters as possible. 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 business involves two factors: the net profit and the capitalization rate. Take the net profit (before debt service) and divide it by the cap-rate percentage. The result is the dollar value of your business. Most businesses place a lot of weight on net profits and pay little attention to the cap rate, but they are equally important.
More precisely, the cap rate recognizes the predictability of income as business risk. If income is unpredictable and uneven, business risk is higher. That is recognized by a higher interest rate. Anything you do to stabilize income helps lower the cap rate, so extending average tenancy duration should reduce the cap rate and increase the resulting facility value. I admit the appraiser may not instantly respond to your entreaties about reducing cap rate in recognition of better income control. But he will understand and be able to grant preferential language in his report when he finds a departure from the usual pattern.
Presenting a potential facility buyer with a longer-than-average tenancy pattern buttressed with a methodology that produces it will discourage the inclination of the buyer to counter. He knows he will inherit high income stability. He knows you can show him how to maintain it. Your price is justifiable.
3. Marketing can improving the value of your offerings.
Far from being a needless expense, promotions make a product or service preferable. Something unfamiliar makes us hesitant. A person venturing into unknown territory (i.e., someone who has never used storage before) will do so with trepidation. A first-time renter is totally dependent on what he can see and what he is told. He has no experience to guide him. This is the perfect opportunity 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's wariness and creates preference. Preference either makes you a buyer's first choice, or allows you to receive a price premium. Maybe both. It is difficult for a commodity offering to receive a price premium, but being consistently full in the face of competitive market conditions is not bad. If you want the premium, add useful features or services that warrant it.
The overall mission is to deliver higher occupancy. When you consistently have high occupancy, it is time to consider increasing rates. The goal is to be able to raise rents in the face of active competition.
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 officefacilities 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. Rolfe's book, Hard-Nosed Marketing for Self-Storage.