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OK...What's That Question?Should 'take-no-prisoners' marketing have wide application within the self-storageindustry?

January 1, 1999

13 Min Read
OK...What's That Question?Should 'take-no-prisoners' marketing have wide application within the self-storageindustry?

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OK...What's That Question?

Should 'take-no-prisoners' marketing have wide application within the self-storageindustry?

Editor'snote: This is the first of a five-part series that will show how to apply classicalmarketing practices to the self-storage industry. It should be interesting to facilitiesconfronted with changing and challenging market conditions. After publication in InsideSelf-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, littleis discussed about whether or how self-storage facilities could adjust by usingtraditional marketing approaches. But, first we must agree on what that style of marketingshould 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 ofindustries do it and how that relates to self-storage.

The most basic question to be answered by any facility relates to how tenants/prospectsidentify to the offerings. Prospects may feel that your offerings are commodities. Theonly way a facility offering a commodity can control and improve its pricing is when thereare a "correct" number of units being offered to the market. If not, then it isvery possible that a facility will suffer price degradation. If a facility cannot controlthe area unit supply, then use of marketing practices can make a difference. Mostindustries started with commodity offerings and then had to respond to competitivepressures using what we have come to call "marketing." I will describe howsimilar businesses have evolved a marketing plan and are of a similar business vein asself-storage.

En Garde, Sellers!

When a supplier controls the supply of a desirable product, riches result. TakeRockefeller, Gates or a myriad of others. In its simplest form, marketing tries to placethe 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 isto have enough competition around to control sellers.

Some Background

Marketing has evolved as the economy has shifted from an agricultural one to anindustrial base. Consider the following:

  1. Our country found that "free markets" were the most effective in producing goods and services and, also, were the most compatible with personal liberties.

  2. 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.

  3. 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.

  4. 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 areat least two potential price levels for any good or service--including self-storage. Theutility 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.) Inthis 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 marketprice is usually a lot less than the utility price. The buyer would be willing to paymore, 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 finefor the buyer, but how about the seller--us? Marketing practices make it possible for theseller 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 veryspecific and measurable reasons. Over the next couple of articles, we'll check out themost common kinds of progress we get, including the following:

  1. Response to competition.

  2. Improvement in occupancy.

  3. Moving the user base to longer-term tenancies.

  4. Improving the value of facility offerings, enabling pricing at utility levels.

  5. 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 incurcost without any guarantee that the reward will materialize. But, as you discover that youcan improve your income and shape your tenant base, those others become the enduringreasons 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 isa 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 badexecution. Poor execution should pillory poor execution, not the practice of marketing. Myaim here is to lay out what great marketing is for self-storage.

Caution

There are some adverse conditions at work, especially in the face of an expectedcompetitive threat. When a sense of impending loss looms, the natural reaction is tohunker down and conserve resources. At such times, one's sense for the use of resourcesmay suffer marketing by comparisons with previous expenditures on promotion. Normalexpenditures by other industries may seem outrageous. That reaction is aggravated when thesuggestions at hand call for commitments of time and resources against a background oflittle 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 sois weak.

Time Out

How can freely available advice be useful? Examine the game of football. First, we mustlearn the rules, how many players, field dimensions, strategy, how to condition--thatstuff you can learn in a class or from a book. But the game-plan itself--how you are goingto attack a particular opponent in a given game on a particular afternoon--those thingsthe team's coaches must compose. You are trying to own or control exclusive benefits thatyour prospects will love. Doing that permits you to control a market. How can you obtainan exclusive approach from a source--like this article--that is commonly available toeveryone? 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 schoolsare about. That's what publications are about. Our purpose is to prepare self-storage"coaches" with the "why" and the various options available. With thatyou 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 commoditymarket exists when identical or very similar offerings (as seen by the prospect) areoffered for sale. That creates an auction market and the bidding of buyer and sellerdetermines the price. Suppliers of commodities don't have control of the price of theiroutput. The classic example is the agricultural products market. Corn is corn and wheat iswheat 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 expression6-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 or10-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 apublic invitation for the prospect to shop. We have created language in self-storage thatmakes it inevitable that prospects regard our offerings as commodities. Here's anothernasty: The commodity price is the lowest price that an offering will command. Marketersaim to escape that fate. For a commodity-style market to operate, the buyer must believethat all the options available to him are virtually identical. Then, the only variableleft is price--and he simply chooses the cheapest (what you would probably do). This isn'tso much dry theory. Watch some of the big boys trying their hand at controlling supply intheir market.

Here is a mid-June '98 headline story about the plight of Idaho's largest employer asthey 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-megabitdynamic random access chip--sold for $1.50 this week. This same chip went for $7 a yearago ($37 about 3 years ago), when industry analysts believed prices couldn't fall muchlower.

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 largestchipmaker in the world by acquiring Texas Industries' memory business. Commentary by chipindustry analyst--"In a commodity business, share is everything. It allows you to setthe 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 chunkof 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 addcontrol to their role in their market. That is, they are trying to monopolize the marketrather than continue to be subject to commodity market pressures. Usually, Uncle Samdoesn't like monopolies. So, will it work? Their major rivals are all Asian. And thebuyers ... who all this is supposed to benefit? I haven't heard any complaints about $1.50vs. $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 thesupply, he may also be flirting with an unwelcome partner ... the Federal TradeCommission. Trying to buy out the other facilities in your area is an option, but thatopens you up for anonymous informants to the FTC. Further, one of the temptations forthose new to competitive market pressures is to get with rivals and agree not to be tooeager in the marketplace. Don't. That's conspiracy and you'll get dinners of bread andwater for doing so. Despite the Micron situation, the Feds are hell-bent on seeing thatyou compete head-to-head. Our role is to show how thousands of businesses prosper thisside 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 allencounter. Notice the variety of ways those suppliers present themselves. My suggestion isthat you should make a conscious decision about how you want to be seen. The non-commodityor "product" approach is quite different. Here the suppliers strive to havetheir product be distinctive in ways that are significant to the user--so much so that thebuyers don't lump all of them all together. The prospect believes that the uniqueproperties of a product warrant his attention apart from all the others. He will size themup and be willing to assign premiums for certain of them. He expresses this either inpaying more outright for them or in choosing his preferences over other offerings atcomparable prices. The presumption of these remarks is that you are now in theself-storage business and aren't now doing a whole lot of marketing. That is, you arepretty much presenting your facility to the public as a commodity. Marketers abhor theconsequences of commodity offerings, and marketing work is about changing perceptions theprospect has. When marketers encounter the signs of a commodity offering, they immediatelyknow what to do. Change it. Marketers deal with products. Is it any wonder that Proctorand Gamble was the father of modern marketing? If ever there was a commodity on a bigscale, it's soap.

Who Can Help Us?

We tend to feel that our industry is singular and that few are like us. Thus, ourproblems are unique to self-storage and we must find our way alone. Not so. There are onlythree or four basic business types. There are many industries within each of those. Allindustries 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 givenkind of business, you can anonymize the financial statements of a number of differentindustries 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 fixedcapital asset of the supplier. The airline user takes control of a seat, the telephoneuser takes possession of lines and switches, the power customer uses a few spins of agenerator, the hotel guest uses a room for a night, etc. Each provides its service andgains its income in an identical manner to self-storage. Most of these have recentlychanged the way they approach the market, or will shortly.

Originally, airlines, telephone and power were controlled by government regulation, notcompetition. 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 marketpractices. Just because it happened in these is no reason, by itself, that self-storageshould follow suit. However, it is interesting that businesses similar to ours have madethe 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 thefactory 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 fromwhich we can learn.

Another characteristic of our business-type is the difficulty of changing the physicalcharacteristics of the product during the life of the business. Once the bricks andconcrete are in place--that's pretty much it for 30-40 years, as opposed to a goodsbusiness 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 transmissionline, or an apartment complex--the name of the game is the same. Perhaps we can learn fromthem since many of them have been through it before. The basic dynamic that separates ourbusiness from a goods type of business is the presence or absence of the chance to managecapital turnover. This is capital in the form of inventory goods. For the same pricelevel, a goods business--from manufacturers to retailers--can improve its return bycontriving to turn its inventory faster. Marketing programs for these are often aimed atturnover improvement, not price level enhancement. In self-storage, we have no inventoryto turn. Our marketing programs must be tuned to this kind of business. We can learn fromthe airlines and the hotels and any others who place their fixed capital directly in thehands 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 themexclusive use of our capital asset (a unit) in exchange for interest (the rental payment).

Harley Rolfe is a retired marketing specialist whose career includedexecutive-level marketing positions with General Electric and AT&T. He owned lodgingand office facilities for more than 20 years and now works as a part-time office assistantfor a self-storage facility in Nampa, Idaho. Mr. Rolfe holds a bachelor's degree ineconomics from Wabash College and a master's of business administration from theUniversity of Indiana.

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