The current COVID-19 pandemic has dramatically changed the way self-storage operators conduct business. A myriad of differing state pricing regulations has made it difficult for multi-state operators to manage prices and rent increases. All the while, business expenses continue unabated.
Broadly speaking, self storage operators have adopted one of four pricing strategies during COVID-19.
Pricing Strategy #1: Corporate Social Responsibility (CSR)
With good cause, many operators have adopted a “light touch” approach to their pricing. Do not change starting rates or increase rents from where they were prior to the shelter-in-place orders. Wait until the state-of-emergency is lifted. Operators may even grant temporary decreases to help with customer hardships.
Communities are having to deal with enough hardship. Such operators are not raising prices, even if justified during normal times. It is worth noting that CSR is especially important to individual operators as well as the overall industry.
Pricing Strategy #2: Do Not Change that Rate!
The effect of this strategy is often like CSR, but the motivation is different in that it’s about minimizing legal risk. Increase rates only in very limited situations, and perhaps not at all. Rely on move-in promotions to build occupancy rather than a lower monthly rate to stimulate demand. Such a concession may result in even lower short-term revenues. It’s a conservative approach for sure, but perhaps too much so: Starting rate and rent increases are often far less than what are legally allowed and what are acceptable to current and potential customers.
This strategy can significantly increase the financial risk of operating sustainably. Operators forego potential higher revenues from new customers who are willing to pay more for low vacancy unit groups. Many operators have adopted this less desirable strategy by necessity, as they lack readily available price boundary information by unit group and are hesitant to raise rates without clear guidance and knowledge on what they can do that is consistent with pricing restrictions that vary by state.
Pricing Strategy #3: Aggressive Starting Rates
Some operators are more active: They lower rates for new customers where unit groups have high vacancies. By doing so, operators build occupancy where needed, without providing more of a concession than necessary.
This strategy is frequently employed during economic downturns. However, state-of-emergency restrictions can make it much more difficult to subsequently increase prices as vacancies decrease (even when shelter-in-place restrictions are eased), because it is not easy to track the extent to which prices may be increased while conforming to state-based pricing restrictions.
Unless the self storage operator maintains easily accessible price increase limit information under the state-of-emergency, they will likely increase prices to a much lower extent than necessary.
Relative to Strategy #2, this approach tends to better manage cash flow risk and is likely to lead to greater financial success. However, operators can do better.
Pricing Strategy #4: Balanced Risk Approach
Some operators have been able to actively manage their rates for new customers. These operators increase and decrease rates where and when appropriate. To ensure state regulatory compliance, they may not be increasing rates on high-demand unit groups as much as the market might support. But they do not shy away from rate increases where and when possible. To support CSR, such operators may lower prices for select or proportionate high-vacancy units.
These operators have found active price management to be a critical factor in sustaining themselves through the pandemic. Even if revenues and profits are down, they are not nearly as depressed as they might otherwise be. And some geographic areas revenues and profits may even be up.
If Strategy #4 is the path towards greatest financial resiliency, why don’t more (or all) operators adopt this strategy?
In our experience and via discussions with many operators, it comes down to a very practical reason: Operators often lack the necessary information and pricing analytics to determine which units to actively price-manage, and especially by the extent to which prices may be legally increased. While operators who have such capabilities — for example, those who use revenue management and pricing analytics technologies — are far more likely to adopt this strategy.
Furthermore, widely publicized pricing mistakes may also create a hesitancy when operators are not completely informed. For example, it was only in October 2017 when California experienced one of its costliest and deadliest wildfires, the Northern California firestorm. Two years later in the fire’s aftermath, a large self-storage operator was fined for violating price gouging restrictions.
What You Can Do?
For those operators without pricing and revenue management capabilities, you can start developing them today:
- The self storage industry has many useful resources, such as those from the SSA. Take stock of such resources. Identify resources relevant to you and state-specific pricing boundary information applicable to you.
- People grow during crises. So do organizations. Identify pricing roles, responsibilities, and business processes that have changed since the pandemic. Identify those that will likely change forever. Perhaps you have found an ever-increasing role for a pricing analyst. Crystallize what that role means to your organization today and into the future. Across many industries, and self-storage is no exception, successful pricing analysts enable their companies to generate incremental revenues that far exceed the cost of having such a staff position.
- Scenario plan. What have you learned during the current crisis? What would you do differently? Begin the process to acquire improved pricing analytics via internal development or using third-party tools.
- Document your resources, pricing roles, responsibilities, processes, and learnings. This document is essentially a pricing standard operating procedure (SOP) during a crisis. Make that document readily available to every relevant part of your organization. With cloud technologies and offerings, such a document can be stored and accessed with relative ease.
- Assign an owner — likely the person with the pricing analyst role or “hat” — of the Pricing SOP. On a regular basis, review the document with key staff, and dry run the emergency pricing roles and processes. Dry run what active pricing measures you are going to take and how you are going to apply pricing limits to increases, even if it is on a limited basis.
By doing the above, you are laying the foundation not only for future emergencies, but also for a more active and financially beneficial pricing strategy.