Editor's note: This is the first of a five-part series that will show how to apply classical marketing practices to the self-storage industry. It should be interesting to facilities confronted with changing and challenging market conditions. After publication in Inside Self-Storage, each article will appear on the Internet at www.hard-nosed.com.
For all the talk about increased competition and a changing self-storage market, little is discussed about whether or how self-storage facilities could adjust by using traditional marketing approaches. But, first we must agree on what that style of marketing should be. We think you will see that it can be done. The question is ... should it be? These articles will comment and describe how the most competitive and aggressive of industries do it and how that relates to self-storage.
The most basic question to be answered by any facility relates to how tenants/prospects identify to the offerings. Prospects may feel that your offerings are commodities. The only way a facility offering a commodity can control and improve its pricing is when there are a "correct" number of units being offered to the market. If not, then it is very possible that a facility will suffer price degradation. If a facility cannot control the area unit supply, then use of marketing practices can make a difference. Most industries started with commodity offerings and then had to respond to competitive pressures using what we have come to call "marketing." I will describe how similar businesses have evolved a marketing plan and are of a similar business vein as self-storage.
En Garde, Sellers!
When a supplier controls the supply of a desirable product, riches result. Take Rockefeller, Gates or a myriad of others. In its simplest form, marketing tries to place the supplier in a position of controlling its market position. (Dare I say monopoly?) Business laws and buyers do not want to see the seller in that position. Society's goal is to have enough competition around to control sellers.
Marketing has evolved as the economy has shifted from an agricultural one to an industrial base. Consider the following:
- Our country found that "free markets" were the most effective in producing goods and services and, also, were the most compatible with personal liberties.
- Suppliers found that it is far easier to produce stuff than to sell it. The efficacy of standardization and mass production caused this. Also, rewards were perplexing. When production levels had to drop because of low demand, heads rolled.
- This placed great pressure on suppliers to maintain production levels, and it was far easier to do so if they could control markets. Centralization of production created that opportunity, and the monopoly concept. The social downside of centralized mass-production was predatory behavior by suppliers.
- Business laws developed to ensure that business practices couldn't disadvantage the buyer. These laws mostly used competition as the tool to get the job done. The other approach was regulation.
These factors set up the ground-rules that control business behavior today. There are at least two potential price levels for any good or service--including self-storage. The utility price is the amount that a buyer will pay for the good, simply based on its value. It presumes one supplier. (The most lucid example is the supplier who holds a patent.) In this situation, the choice for the prospect is to buy from the one supplier or go without. The market price is the one the buyer can pay when there are multiple sellers. The market price is usually a lot less than the utility price. The buyer would be willing to pay more, but needn't, because a comparable product is available for less down the street. Thus, society is protected from price gouging without resorting to regulation. That's fine for the buyer, but how about the seller--us? Marketing practices make it possible for the seller to approach those utility price levels and this sets the stage for our work.
What's With Marketing?
Use of marketing techniques can be a costly process and should be done for very specific and measurable reasons. Over the next couple of articles, we'll check out the most common kinds of progress we get, including the following:
- Response to competition.
- Improvement in occupancy.
- Moving the user base to longer-term tenancies.
- Improving the value of facility offerings, enabling pricing at utility levels.
- Increasing overall facility valuation.
The first item is often the trigger--fear of lost income is often an instant motivator. Unfortunately, it is negative or defensive. The rest contain risk in that you must incur cost without any guarantee that the reward will materialize. But, as you discover that you can improve your income and shape your tenant base, those others become the enduring reasons to continue to market.
It is troubling to see what many think marketing is: advertising, calling on customers, a Yellow Pages ad. It's all of these things, but by themselves, none of them. Marketing is a discipline consisting of an integrated process of sequential steps or activities, which, when done well, produces great control for a seller in a given marketplace. Done poorly, it can produce very little for considerable cost. Good ideas can fail through bad execution. Poor execution should pillory poor execution, not the practice of marketing. My aim here is to lay out what great marketing is for self-storage.
There are some adverse conditions at work, especially in the face of an expected competitive threat. When a sense of impending loss looms, the natural reaction is to hunker down and conserve resources. At such times, one's sense for the use of resources may suffer marketing by comparisons with previous expenditures on promotion. Normal expenditures by other industries may seem outrageous. That reaction is aggravated when the suggestions at hand call for commitments of time and resources against a background of little experience (read, confidence) in the techniques that others say would be helpful. So at the exact time that the need for marketing action spikes, the inclination to do so is weak.
How can freely available advice be useful? Examine the game of football. First, we must learn the rules, how many players, field dimensions, strategy, how to condition--that stuff you can learn in a class or from a book. But the game-plan itself--how you are going to attack a particular opponent in a given game on a particular afternoon--those things the team's coaches must compose. You are trying to own or control exclusive benefits that your prospects will love. Doing that permits you to control a market. How can you obtain an exclusive approach from a source--like this article--that is commonly available to everyone? You can't. That is why this article is not a "how-to" cookbook. But, you can benefit from a review of the principles of marketing. That's what business schools are about. That's what publications are about. Our purpose is to prepare self-storage "coaches" with the "why" and the various options available. With that you can create strategies, formations and plays.
Commodities or Products...What Are We Selling?
We need to make a careful distinction between commodities and products. A commodity market exists when identical or very similar offerings (as seen by the prospect) are offered for sale. That creates an auction market and the bidding of buyer and seller determines the price. Suppliers of commodities don't have control of the price of their output. The classic example is the agricultural products market. Corn is corn and wheat is wheat and the bidding interplay of buyers and sellers determines the price for everybody.
So what are we offering? Look at the way we designate our units. How is the expression 6-by-12, 10-by-20 or 12-by-24 different than No. 3 fall winter wheat or July '98 cotton? If you get calls from prospective tenants asking what your rate is for a 6-by-12 or 10-by-10, etc. ... then you know what kind of offering your prospects think you have. Another indication--a list posted on the office wall showing sizes and prices. That's a public invitation for the prospect to shop. We have created language in self-storage that makes it inevitable that prospects regard our offerings as commodities. Here's another nasty: The commodity price is the lowest price that an offering will command. Marketers aim to escape that fate. For a commodity-style market to operate, the buyer must believe that all the options available to him are virtually identical. Then, the only variable left is price--and he simply chooses the cheapest (what you would probably do). This isn't so much dry theory. Watch some of the big boys trying their hand at controlling supply in their market.
Here is a mid-June '98 headline story about the plight of Idaho's largest employer as they try to cope with their commodity market.
Micron Technology's Stock Sinks
Price hits 52-week low as investor's bolt. Micron's main product--the 16-megabit dynamic random access chip--sold for $1.50 this week. This same chip went for $7 a year ago ($37 about 3 years ago), when industry analysts believed prices couldn't fall much lower.
Two days later...
Micron Technology Buys Big Slice Of Chip Market
With the stroke of a pen, Micron Technology Inc. is on its way to becoming the largest chipmaker in the world by acquiring Texas Industries' memory business. Commentary by chip industry analyst--"In a commodity business, share is everything. It allows you to set the pace."
Then, Sunday's paper...
TI Purchase Could Boost Micron--But No One Knows When
Before Micron Technology Inc. can capitalize on its biggest gamble ever, buying a chunk of Texas Instrument's, one of these things has to happen:
- Memory chip prices stop their free fall.
- The demand for memory chips grows faster than supply.
- One of Micron's major competitors gets out of the business or goes broke.
You don't have to be a farmer to be in a commodity market. Micron's approach is to add control to their role in their market. That is, they are trying to monopolize the market rather than continue to be subject to commodity market pressures. Usually, Uncle Sam doesn't like monopolies. So, will it work? Their major rivals are all Asian. And the buyers ... who all this is supposed to benefit? I haven't heard any complaints about $1.50 vs. $27, have you? They seem to have gotten lost in the shuffle. We'll see. Generally, when a supplier tries to respond to competitive market pressures by seeking to control the supply, he may also be flirting with an unwelcome partner ... the Federal Trade Commission. Trying to buy out the other facilities in your area is an option, but that opens you up for anonymous informants to the FTC. Further, one of the temptations for those new to competitive market pressures is to get with rivals and agree not to be too eager in the marketplace. Don't. That's conspiracy and you'll get dinners of bread and water for doing so. Despite the Micron situation, the Feds are hell-bent on seeing that you compete head-to-head. Our role is to show how thousands of businesses prosper this side of FTC difficulty. We are far from being alone in offering a commodity. Gasoline, construction products and most groceries easily come to mind as everyday products we all encounter. Notice the variety of ways those suppliers present themselves. My suggestion is that you should make a conscious decision about how you want to be seen. The non-commodity or "product" approach is quite different. Here the suppliers strive to have their product be distinctive in ways that are significant to the user--so much so that the buyers don't lump all of them all together. The prospect believes that the unique properties of a product warrant his attention apart from all the others. He will size them up and be willing to assign premiums for certain of them. He expresses this either in paying more outright for them or in choosing his preferences over other offerings at comparable prices. The presumption of these remarks is that you are now in the self-storage business and aren't now doing a whole lot of marketing. That is, you are pretty much presenting your facility to the public as a commodity. Marketers abhor the consequences of commodity offerings, and marketing work is about changing perceptions the prospect has. When marketers encounter the signs of a commodity offering, they immediately know what to do. Change it. Marketers deal with products. Is it any wonder that Proctor and Gamble was the father of modern marketing? If ever there was a commodity on a big scale, it's soap.
Who Can Help Us?
We tend to feel that our industry is singular and that few are like us. Thus, our problems are unique to self-storage and we must find our way alone. Not so. There are only three or four basic business types. There are many industries within each of those. All industries within any one kind of basic business type will operate in a similar fashion. Why? The economic forces that generate income, expense, etc., are the same. Within a given kind of business, you can anonymize the financial statements of a number of different industries within one business type, and you wouldn't be able to tell one from another. They are all pushed by--and must solve--the same kinds of problems.
How about us? We're looking for industries that make their living the same way we do. That is, the service is provided by providing temporary possession by the user of a fixed capital asset of the supplier. The airline user takes control of a seat, the telephone user takes possession of lines and switches, the power customer uses a few spins of a generator, the hotel guest uses a room for a night, etc. Each provides its service and gains its income in an identical manner to self-storage. Most of these have recently changed the way they approach the market, or will shortly.
Originally, airlines, telephone and power were controlled by government regulation, not competition. They were protected from the messiness of wide-open market competition. (Another industry, lodging, is similar, though not involved with government regulation.) In all of these cases, their market changed and required adoption of competitive market practices. Just because it happened in these is no reason, by itself, that self-storage should follow suit. However, it is interesting that businesses similar to ours have made the adjustment when their market conditions warranted. A goods business doesn't do that; it uses its physical investment or capital to build a factory or build a store. Then the factory store produces or sells a good, which, when placed in the hands of the user, produces value. These are important distinctions as we cast about to find others from which we can learn.
Another characteristic of our business-type is the difficulty of changing the physical characteristics of the product during the life of the business. Once the bricks and concrete are in place--that's pretty much it for 30-40 years, as opposed to a goods business that can change--and hopefully, improve--its product at regular intervals.
Whether it's a self-storage unit, a hotel room, a power generator and transmission line, or an apartment complex--the name of the game is the same. Perhaps we can learn from them since many of them have been through it before. The basic dynamic that separates our business from a goods type of business is the presence or absence of the chance to manage capital turnover. This is capital in the form of inventory goods. For the same price level, a goods business--from manufacturers to retailers--can improve its return by contriving to turn its inventory faster. Marketing programs for these are often aimed at turnover improvement, not price level enhancement. In self-storage, we have no inventory to turn. Our marketing programs must be tuned to this kind of business. We can learn from the airlines and the hotels and any others who place their fixed capital directly in the hands of the user, but should not look to the turnover types of business for help. Essentially, our type of business extends loans to users in the form of giving them exclusive use of our capital asset (a unit) in exchange for interest (the rental payment).
Harley Rolfe is a retired marketing specialist whose career included executive-level marketing positions with General Electric and AT&T. He owned lodging and office facilities for more than 20 years and now works as a part-time office assistant for a self-storage facility in Nampa, Idaho. Mr. Rolfe holds a bachelor's degree in economics from Wabash College and a master's of business administration from the University of Indiana.