there are risks as we integrate technology into our businesses
Technology is the hottest thing in senior living this year. Employing technology is now a necessity, not a luxury, for all companies striving to get ahead. Technology helps senior living companies, leaders, and even line staff make better decisions; increase revenue and profit; provide better services, and reduce workloads.
However, there are risks as we integrate technology into our businesses as it often becomes an end in itself rather than a means to an end.
Pricing Technology and the Human Factor
Prorize, one of the Senior Housing Forum Partners, provides a cloud-based solution that uses a data-driven approach to set the optimum rent for your senior communities.
Their product can be used to set rates for all units. Followed blindly, it should provide you the highest possible income, that is, in theory . . . .
Every software device should be used as a tool to help you make better decisions. Dr. Ahmet Kuyumcu, the founder of Prorize, says that there is no “silver bullet.” He gives several examples where you should be cognizant of pricing tool capabilities and dependencies to assure that maximum benefits are realized.
- Pricing must be aligned with corporate strategy – Pricing is a structured process, which is directly influenced by value creation, branding, marketing, customer acquisition, sales execution, and operations. You cannot shortchange any process and expect benefits from a pricing tool:
- Pricing technology is first and foremost a tool that captures the value you already created and optimizes financial goals based on historical data. A pricing tool cannot position your product, market your product, bring customers to your door, or keep them happy with outstanding customer service. If you reduce the quality or quantity of any of the above, a pricing tool may minimize your loss but may not be able to increase revenue as expected.
- As previously indicated, pricing relates to many functional areas within a firm including finance, sales, marketing, and products. Each functional area might have competing objectives that do not fully line up with a corporate strategy. For example, finance needs a higher average selling price to meet its budgeted targets but sales wants higher volume because of volume incentives. This conflict often manifests itself in pricing decisions. The performance of a pricing tool as well as all other functional areas should be aligned around one corporate strategy (e.g., increase revenue or profit, which is a function of both price and volume).
- Understand how a pricing tool is making decisions – While you do not have to understand the exact details of how it works, you do need to know what questions the tool is built to answer. For example, if the tool is never designed to price lease up properties, it should not be used for those properties. If the tool is never provided with the data for the brand new competitor next door, it could not respond to any pricing actions taken by that competitor community.
- Re-pricing frequency – Pricing once a quarter is never a good approach as many variables might change, including that market conditions might shift significantly, occupancy might have a totally different picture, and competitors might have different offerings. On the other hand, it is technologically possible for a senior community to re-price their units on a daily basis; however, this is a very bad strategy from multiple perspectives. For example, it would drive marketing directors, sales people and even executive directors crazy while likely confusing the team on the ground. While this disorientation is not a tangible measurement in the traditional sense, it could do real damage to your overall marketing effort. So, finding the right frequency that fits your business model and objectives is an important consideration.
- My neighbor’s prices – A possible risk in dynamic pricing for senior living communities exists when current tenants find out that they are paying much more than rates that new tenants are being offered. In talking with Will Nowell at ServiceTrac, a Senior Housing Forum Partner, he indicated that this is a frequent gripe he sees on satisfaction surveys. This variability needs strong consideration in the rate setting process and would likely lead to framing some practical limits or creating alternative approaches to minimize this kind of dissatisfaction.
While Prorize is experienced in addressing these points with deployed pricing software, the principal broadly applies to the use of all advanced technology. Just because it’s “high tech” does not mean that its output is always right. The difficulty is how do you ensure that your technology is serving your business strategy rather than being a cruel master.