By Carol Krendl
The discounting of rental rates has become a surefire way for self-storage operators to gain market share. However, there are some concession practices that can hurt a self-storage operation in the long run. Here are some things operators should consider before offering discounts to customers.
There are a variety of factors to knowing if and when you need to discount your self-storage spaces. The first issue to consider is the occupancy of each unit size at your property. When it comes to pricing, each unit size should be considered a unique product and analyzed separately. Also, it’s important to regularly survey your competitors to see how their rates compare to yours.
When setting unit pricing, it’s important to understand the mindset of the buyer and the forces that influence buying behavior. Two common influencers are:
- Buyer’s remorse: The feeling of regret a consumer gets when a product he desires is no longer on sale.
- History of discounting: The knowledge a consumer has that a product he wants to buy was previously discounted. If he knows he can get a product for less money, he may try to bargain with you or refuse to buy from you.
Below are several examples of discounting, plus strategies operators can use when applying them.
Large Move-In Discount
If a product has once been heavily discounted (more than 30 percent) but is later priced at 25 percent off, a customer is less likely to buy because he will want to avoid the feeling of regret for not taking advantage of the original sale. For example, let's say you advertise a 10-by-25 unit in January, discounted from $200 to $140 (30 percent). In February, you change the special to only 5 percent off, or $190. Any consumer who knows about the lower sale price will want that price, regardless of when he rents.
In the storage business, we’re fortunate that we have the ability to increase prices with a written notice. It may be your company’s policy to honor a discounted price for a consumer, but consider giving it only for a limited time. If you’re going to give deep discounts, it’s important to limit the length of time it's available and be sure it’s clearly stated on the customer’s rental agreement.
Minimal Move-In Discount
If specific unit sizes are discounted at 10 percent or less and then the price is increased, this will not discourage the customer from renting because the level of regret is low. For example, if you offered a 10 percent discount on 5-by-10 spaces in January (to $90), and the price jumps back to $100 in February, the consumer will probably still rent from you. In this case, the discount is insignificant in the context of the overall price. Smaller discounts over a longer period of time may be more favorable to the customer.
Competition Rate Surveys
If two units of the same size are discounted equally by different storage properties, the buyer will typically rent from the manager who’s the friendliest and gives the best sales presentation. It's important that each of your employees be well-trained and able to emphasize some of the unique aspects your products to create a difference from your competitors.
Before setting, discounting or changing your prices, do a complete survey of your competitor’s pricing. It’s important not only to call or visit them, but to check their websites to see if they’re offering special pricing, giveaways or free rent. While your goal is to lead the market in rental rates, it’s may not always be possible, particularly for properties in oversaturated markets and in these turbulent economic times.