Rent one month, get one free! Move in for $1! Half off the first month!
These are very common specials offered by self-storage facilities. Perhaps you’ve even used one yourself. Operators have long relied on discounts like these to lure new customers. They work because everyone wants a good deal.
While more customers should mean more money, that isn’t always the case. Offering discounts too deeply or too often could harm your business in the long term. Yes, slashing prices can give your operation a temporary boost and fill vacant units, but using this tactic as your go-to sales strategy could damage your profit margin. By instead creating discounts that fit within an overall revenue-management program, you can avoid the feast-or-famine cycle.
“It’s critical to a successful revenue-management program to incorporate discounts. However, prudent management of those discounts is required,” says Kevin Bowman, managing director of revenue management for StorageMart, which operates more than 200 self-storage facilities across Canada, the United Kingdom and the United States. “Seldom do we find situations where a one-size-fits-all approach is successful. In a perfect world, operations, marketing and revenue management work together to find the right solution for every store.”
Choose Your Timing
One of the most important aspects to offering specials is timing. For example, a facility in lease-up can greatly benefit from concessions because it creates buzz around the brand-new business. These discounts are often promoted during a grand-opening event or offered to new tenants until the facility hits a comfortable occupancy.
This strategy has been successful for West Coast Self-Storage Group, which owns and manages nearly 60 facilities in California, Oregon and Washington. “We want to get people in the door and are willing to offer an incentive to do that,” says Derek Hines, an Internet marketing specialist for the company.
While it’s a great marketing ploy for new sites, caution is still necessary. If a new operator finds there’s a price war in his market, he should be cognizant of the operating shortfall supply, says Todd Allen, managing principal of Reliant Real Estate Management LLC, which operates 61 facilities in seven states. “For example, the site no longer needs to hit 50 percent physical occupancy to break even; but due to the discounts in the market and their impact on revenue relative to what was projected, the site now needs to reach 65 percent physical occupancy, which, in most cases, will take longer than first anticipated by the pro forma.”
For existing operators, simple supply and demand is frequently a driver for rental specials. A facility with too many vacant units in a particular size might present exclusive pricing for a short time to fill them.
“The pros are that you can still offer your highly occupied units at higher rates, while still filling your other units with discounts. Most discounts last one to three months, while the average length of stay is much higher,” says Melissa Stiles, director of marketing for Storage Asset Management Inc., a property-management and consulting firm that oversees 200-plus facilities along the East Coast.
Reliant also bases its discounts on the supply-and-demand ratio of each unit type. “Discounts are provided on unit types that are under 80 percent physically occupied,” Allen says.
Concessions at StorageMart facilities are driven either by physical occupancy or an individual unit group. “We also override these discount defaults for special situations where no discount is needed. A good example would be a hot student market with a short lifespan,” Bowman says. “We have the ability to change the default levels quickly and simply. These defaults are adjusted multiple times during the year.”
Operators in a market that’s saturated—or even drowning—in discounts are usually left with no choice but to follow along, at least to some degree. “An operator should offer discounts in most competitive markets. Again, this can allow the operator to keep starting rates higher when applied correctly,” says Bowman, adding that they need to find a balance between securing new rentals and maintaining profit margins.
Choose Your Special
Deciding what specials to offer is equally important. When introducing a promotion, you first need to determine your objective. Is your site in lease-up? Are you looking to attract renters to a certain unit size or entice a specific demographic? The purpose of the concession can help you shape the offer.
“Some discounts, such as first month free, 50 percent off first month or $1 first month, are designed to target customers that think they’ll be short-term renters,” Hines says, noting that many of these tenants will stay beyond the first month.
Another strategy is to allow customers to lock in a low rate for a longer period. For example, offer a discount to customers who pre-pay for six months or more. “There’s also the type of promotion discounting the second month of a customer’s stay to encourage [him] to rent for a longer term,” Hines says.
The key to a good promotional strategy is knowing the average lifetime value of your customer. “You can evaluate a customer’s total value by a simple formula of what the customer spent during [his] stay divided by [the length of his] stay,” Stiles says. “You can compare if the length of stay is longer for certain discounts to see which ones are best to offer.”
A successful special is also simple for everyone to understand. If your customer has trouble following what’s in it for him, he’ll move on to another facility. “This also saves time for our store management and sales team by not needing to further explain the promotion to the customer and risk losing [him],” Hines says.
Finally, every special should have an expiration date. “Almost all of our discounts burn off after the first month. This allows us to keep starting rates at a higher level and use discounts to drive traffic to our stores,” Bowman says.
Tell Your Customers
Many operators, particularly the large regional brands and real estate investment trusts, promote their specials at the facility level through signage and online via websites and social media. Other avenues include paid-search advertising, e-mail campaigns and even grassroots marketing.
While all these channels will get the word out, you need to be clear about your intentions. If there are restrictions or limitations, they should be noted. Customers should clearly understand how the special works and when the discounted pricing ends.
“Companies handle answering questions about when rates will go up differently. Some are vague with the customer, telling them rates fluctuate and they’re unsure about when the rate will go up,” Hines says. “We prefer to be upfront with the customer regarding this question to avoid confusion down the road.”
Watch Your Market
While discounting rates can fill units, it can also have a dark side. It might seem like an easy ploy to gain more rentals, but offering them too much and too often will take its toll.
“Discounting can definitely have a negative effect on the store and the local market, and to a larger extent, the industry as a whole,” Hines says. “At the local level, discounting can drive prices down in the local market as competitors try to keep pace with the low rates being promoted. This ‘race to the bottom’ hurts everyone in the market. On a national level, the use of promotions is becoming ubiquitous, where customers are now expecting a discount or some type of promotion, which ends up devaluing the use of discounts as a differentiating tool.”
To prevent this, pay attention to what’s occurring within your specific market and react accordingly. “If a store has a certain size of unit in short supply, there’s no need to discount that. Also, having a store manager who understands the local market and knows when and when not to discount is important,” Hines says.
If you find yourself using specials as a crutch to fill units, try scaling back on your promotions. For example, instead of offering a 40 percent discount off the first month, try 20 percent. Another method is to shorten the terms. Rather than offering the special for six months, reduce it to three, Allen suggests.
While many customers can be price-conscious, they’re also seeking value when shopping for self-storage. In reality, the sticker price is just one factor of their decision-making process. They’ll also consider your facility’s location, hours of operation and the level of customer service they receive.
“Discounts are not your only competitive advantage,” Stiles notes. “Use discounts wisely, but also have the mindset that your product has a value with the amenities of your facility.”
When faced with a customer walking out the door, too many operators automatically reach for the discount card. A change in mindset about the service is in order. “Storage is a need-based business, but there are options,” Stiles says. “Someone is coming because they have need for storage, so make sure to offer discounts smartly.”