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, its important to regularly survey your competitors to see how their rates compare to yours.
When setting unit pricing, its important to understand the mindset of the buyer and the forces that influence buying behavior. Two common influencers are:
- Buyers 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, were fortunate that we have the ability to increase prices with a written notice. It may be your companys policy to honor a discounted price for a consumer, but consider giving it only for a limited time. If youre going to give deep discounts, its important to limit the length of time it's available and be sure its clearly stated on the customers 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 whos 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 competitors pricing. Its important not only to call or visit them, but to check their websites to see if theyre offering special pricing, giveaways or free rent. While your goal is to lead the market in rental rates, its may not always be possible, particularly for properties in oversaturated markets and in these turbulent economic times.
Rather than discounting rental rates, more storage properties are offering some type of rental incentive or sales promotion to entice new customers. Likewise, customers are asking for or responding to advertised specials. Promotions change the accepted price-value relationship by increasing the value or lowering the price of the offering. Examples of consumer-sales tools include contests, branded giveaway merchandise, bonus-size packaging supplies, limited-time discounts and coupons.
Sales promotions are a competitive weapon that provide an extra incentive for the target audience to purchase or support one brand over another. They usually operate on a short timeline, use a more rational appeal, return a tangible or real value, foster an immediate sale, and contribute highly to profitability. Promotions can benefit your company and differentiate your storage property in a meaningful way from your competitors.
Economic Impact of Concessions
There are many consequences of offering rental concessions. Some will be advantageous to your facility, such as increased occupancy, while others may actually hinder your self-storage operations success in the long term. You should consider each of these concession types carefully before introducing them in your market.
Free rent. Offering a one-time concession doesnt lower the value of the storage property. And, it doesn't affect the customers buying psychology. Also, youll find current tenants may compare rental rates and then want a lower price if you advertise the discount.
Discounted rent. Discounts can erode the standard price youre asking for your storage space. It will also adversely affect the value of the property. Most storage properties offer some kind of long-term rental discount; however, discounts of an unspecified length make raising rents much more difficult.
If your store is in distress, you may want to consider a variety of discounts and concessions to new customers. Be careful not to discount or devalue the sizes that are in demand and have a high occupancymore than 90 percent. Commonly, storage properties offer a free month on any size space. This is not a good practice if you only have one space available. Also, you may want to implement rental incentives that do not directly affect the customers rental rate. This can include free use of the facilitys move-in truck or free supplies with each new rental.
Rent variances. These are the silent killers of a self-storage propertys income! Rent exceptions and variances dramatically affect property value. If you have $1,500 worth of monthly rent exceptions, your facility has a loss in value of $180,000 at a 10 percent capitalization rate. Its important to watch the variances monthly and work at decreasing the number of customers who have any type of discount.
Selling Storage Space
One of the things Ive learned about managing storage properties and maximizing a stores profitability is employees are critical to the propertys success. Its important to make the prospective customer your priority and have employees who make a true effort to sell the space.
Even if most of your customers come from the Internet, your staff still needs to be excellent at selling on the phone and in person. Make time to tell and sell each customer on the benefits of renting from your property. The more well-trained managers you have working for you, the less you will need to discount your storage spaces.
Carol Krendl, an industry expert and owner of SkilCheck Services, has been involved with the self-storage industry since 1984. Shes written many articles on a variety of industry topics, including a quarterly newsletter on self-storage sales and customer service. Lodi, Calif.-based SkilCheck provides customized training seminars, educational products and mystery shopping. For more information, call 800.374.7545; visit www.skilcheck.com .