Promotional pricing is a very common practice in the senior living industry. It can take many forms. For example, discounts off up-front fees, reduced monthly fees for a specified time period and elimination of moving costs; the options are endless.
The goal of promotional pricing is to create a sense of urgency that entices potential prospects to make the decision to sign a contract, write a deposit check and subsequently move in. The question is, does it work? The ultimate question is, does it maximize revenue?
I turned to Dr. Ahmet Kuyumcu, the founder of Prorize, a Senior Housing Forum partner and a company focused on helping senior living communities create the optimal pricing strategy. I asked him what his experience and thoughts were concerning the use of discounts and promotional pricing.
Here is his response:
- The benefit of senior promotional pricing is that it can change a prospect’s behavior; that is, it can influence a prospect to make a move-in decision when he/she otherwise would not. On the surface, this appears to be a good thing for the community owners.
- The downside of this “promotional behavior” is that people who move-in just because there was a large upfront discount might move-out when the promotion period is over. This is expensive for community owners and can mean added maintenance costs, additional sales commissions and referral fees. In addition, it would increase the residential turnover rate and this can create a less stable and secure living environment for residents.
- If everyone else is offering promotional pricing, it may be necessary to follow the market and advertise discounts just to compete. (Think jewelry stores, they are always having their annual “blow-out sales” year-round.) However, this has to be managed with a wider pricing strategy.
- As such, the right thing to do is to make the promotional offer to prospects after factoring in the offer’s pricing and data-driven assessments of its overall impact on occupancy and revenue.
- Ultimately, promotions can drive improved revenue outcomes if implemented while maintaining the integrity of the business process and the consumer behavior. Data-driven analytics provide the opportunity to do just that.
- Prorize has the expertise to work with companies that rely heavily on promotion strategies or companies that essentially never give promotions and focus solely on net effective price. Regardless of the approach, Prorize’s ultimate goal is to help senior living communities optimize their net effective rent and maximize long-term profit.
A More Disciplined Approach
Prorize’s approach is to work with senior living companies and communities to develop a comprehensive pricing strategy. To do this, Prorize takes a hard look at internal community pricing history on a unit-by-unit basis, historical trends, move-in behavior and then adds market competition to the mix, if available. This yields potential outcomes such as:
- Promotional pricing increases could, in the long-term, reduce your net effective rent if it is just used to drive occupancy for the short term.
- Promotions must be targeted where and when they are needed most and must be complemented by marketing and lead generation strategies.
- Special events and holiday periods could be associated with promotions. For example, move-ins during Thanksgiving might be slow and special promotions could be given for that period to stimulate demand.
- Each promotion could be associated with restrictions (e.g., a minimum length of stay, signed contract by certain date, etc.) and its strength and reach must be continuously monitored.
- Refusing to engage in promotional pricing even though everyone else is doing it, might send a strong message to the consumer that the quality of your product is high enough that you do not need to discount.
- Perhaps one of the biggest reasons to be cautious about promotional pricing is the impact discounting has on the existing resident population. If residents find out (and they will) that their neighbors are getting hundreds or even thousands of dollars of concessions they didn’t receive, it can create serious anxiety and agitation.
- Whatever the strategy and tactics are with regard to promotions, it is most important to definitively assess the impact on resident and prospect behavior and account for it in the final pricing offer decisions.
Your residents and their families are your most precious asset and without a doubt, the best single referral source you have. They are built in, they are inexpensive, they are in your prospect base and if they are speaking poorly about your product, they become your worst nightmare. A single dissatisfied resident can do serious damage to the best discounting strategy.
What do you do?
Do you discount? Do you give large upfront promotions?
How do you intelligently manage promotional demand? How do you ultimately get and keep residents?