5 simple steps to create your own personalized marketing strategy!
By Susan Saldibar
There’s a great opening number from the 1960s musical hit “The Music Man,” in which a group of salesmen on a train chugging along engage in “shop talk.” One of the wiser salesmen keeps interrupting them with the phrase “But you gotta know the territory,” and, of course, they ignore him.
But he’s right! And a huge part of “knowing the territory” is devising a pricing strategy that fits. This is especially challenging for today’s senior living communities, that must face a more sophisticated clientele and a more competitive marketplace. And, while owners may think they know the territory, in many cases they are barely scratching the surface.
We spoke with Sage Age Strategies’ Karen Nelson Crolius, Senior VP and Consultant, and Malissa Illiano, MBA, Senior Consultant and Director of Market Research. Sage Age, a Senior Housing Forum partner, has not only managed to untangle the complexities of pricing, they’ve turned it into a strategic tool. But to make it work, you need to dig in and do some work. Here are their five essentials for creating a pricing strategy that would make even those guys on the train stop and take notice.
1. Revisit Your Demographics: What’s Changed?
You need to know the physical and socio-economic makeup of your prospective residents, their families and your community as a whole. And you need to revisit your market often. “Demographics change more often than many realize,” says Karen. “Change can creep up on you if you don’t look at it regularly.”
Today’s clients are primarily Baby Boomers seeking solutions for their aging parents. These well-educated, savvy buyers will question everything from how you price to the cost per square foot. You may need to rethink some of the pricing tiers and levels you may have used in the past. Will a new generation of clients demand something more transparent?
2. Get to the ‘Real Price’ of Your Competitors.
To really understand your competition you will need to do a deep dive of your primary competitors, according to Karen and Malissa. And, that doesn’t mean shuffling through published price lists and brochures. You need to experience your competitors as a potential client would. That means going undercover or hiring a mystery shopper to do this for you. Here are some of the things you should look for:
- A breakdown of all fees — entrance fees, monthly fees, and cost per square foot. Getting a true cost per square foot will help you price your own units, according to Malissa. “Let’s face it, you are really selling real estate, beneath everything else,” she explains. “How large is the unit? How much per month? Consumers are going to do these calculations, so you need to as well.”
- What are their levels of care? What’s included and why? It is easy for communities to disguise this in an effort to throw off their competition.
- Special just-for-you incentives. They will often save these as sweeteners to gain a new client. They are not posted, so take good notes.
- How low will they really go? “They may in reality be selling units at $1k less per month than the published price,” says Malissa. “But you will never know unless you get inside the community.”
3. Test Your Price Elasticity and Demand.
How can you determine the best pricing and the level of demand at different price points? Don’t rely upon educated guesswork. Malissa explains, “Many community admins will tell us, ‘Okay our target is people who make $50k per year or more.’ But we always ask, ‘How did you get to that number?’ and ‘Does your demographic still support it?’”
Conducting a feasibility study will help you determine what the level of demand is at different price points. And, as those price points change, how it affects the elasticity. Not doing so could result in unwittingly pricing yourself out of the market.
And, according to Malissa, there are a lot of faulty assumptions out there. “We will be asked, ‘what’s my demand with seniors with $35k+ income?’ But if the goal is to fill 100 units at a $5k+ price point, it’s likely that the resident is going to need more than $35k per year in income, even taking into consideration a spend-down on their assets,” she says. “It’s all relative. That’s why you have to dig deeper.”
Karen points out, “You might find, for example, that there is a demand for 100 units at a price point of $35k, but at $50k that demand reduces dramatically. You can pinpoint and position the pricing to capture your desired market.”
4. Do a “Re-check” of Your Inventory: 1-Bedroom, 2-Bedroom or Studios?
Be prepared to adjust your inventory mix to fit your demand model. For new developers that means building out a workable model that is sustainable. They need to know, as an example, how many studios, 1-bedroom and 2-bedroom units they need. Sage Age helps developers test out their pro formas in the market to see how sustainable they are and if the elasticity supports their price points.
Existing communities have a different challenge. As Malissa points out, “Let’s say a community currently has a large quantity of 2-bedroom units. If their price point is higher than demand, they may want to split some of them into 1-bedroom units or even semi-private rooms to cater to demand. Or vice versa, depending on the gap between the price point and demand.”
5. Revisit Your Pricing Model: Is It Out of Touch with Reality?
Providing multiple levels of care and using a “point system” is becoming less popular, according to Karen’s research. “It’s nebulous. The amount a prospective client is charged is estimated upfront, based on a set of criteria which results in a number of points,” she explains. “The problem is that a full assessment can only be performed after the resident is moved in. Adjustments to points and subsequent fees after the fact are not well received by today’s more sophisticated consumers,” she adds.
Malissa agrees. She sees a clear trend towards simplifying the pricing models. All inclusive fees are gaining in popularity, she notes. “Having six to seven levels of care can be confusing and turn off the families of prospective resident,” she says.
Now Stay Open, Flexible and Nimble.
There are still, according to Karen, senior care providers who cling to old pricing models. “They will tell us, ‘We have 5 levels of care and 4 levels of medication management and that’s it. That’s how we do it. Period,’” she says. “What they may not realize is that their growing competition is getting smart about pricing and simplifying their models,” she adds.
“Do a deep dive into your demographics and your competition. Do the math. And, above all, be flexible about pricing options and keep an open mind,” she urges. “Those communities who are responsive to their markets will be the ones that thrive in the long term.”