Give Your Renewing Residents Your Current Concessions

Great post -

We recently swallowed this bitter pill at one of our student communities in Illinois. Unlike the loss of jobs driving this current economy - we were struck by oversupply and declining enrollments. The market took on 2500 new beds all the while the local university was experiencing a five year sequential decline in enrollment.

In lieu of using and offering concessions we cut our top line rate and offered the discount to the existing residents. We become an instant hero in the eyes of many.

I believe, strongly, that with the advent of the Internet, peoples innate need to be social and the proliferation of social networks - I think the risks of not offering the same deal far outweigh the temptations to stick to your guns. Putting the math aside - it just makes sense.

Mike- the pill won't taste nearly as bitter when you're the only guy with good occupancy in town, I promise you that!

Besides which, offering the current concession to a renewing resident makes them feel like you still care about them. That's the part that always cuts to the bone for me. Why should I stay somewhere, pay more than a new move in, not get treated the same, and be taken for granted? If I had a boyfriend like that, I'd chuck his PS3 out the window.

Awesome Post, Lisa!

Quick! Someone who didn't fail every form of math, give me some #'s to prove the efficacy of this concept! I'll need the stats to sell it!

You are EXACTLY right. Don't fail to mention that you do not know the outcome of the new resident; whether they are going to be disruptive, pay their rent timely or destroy the property. Creating a positive environment with your current residents is the key, the absolute key to a successful and stable community. Combine this with a few programs for the kids a couple of days per week and you will see the numbers rise in occupancy and the turnover numbers go down, down and further down...why on earth would anyone compete directly with the property down the road. Come on folks, we are unique, let's all think that way!

Well, you're damned if you do, and you're damned if you don't. There are so many variables on this one. Just like offering concessions in the first place this option is a shortcut for a much bigger problem. If your property is already playing the concession game then this is a great strategy. Keep your current customers happy with a price.

While we do this, however, we should be thinking about how to prevent being in this situation the next time around. Last time I walked into a Mac store, they didn't have 1 sign up that said "Sale" or "Specials". Sales of Apple products are not price driven. When you own an Apple product you do for the experience. Our communities are more than a box with a price. In an apartment dream world there should be a resident referral waiting to move into the apartment of the person that is moving for a price. Maybe I'm living in a dream world, but it's pretty fun here.

Lisa - you make me laugh.

Wouldn't it be better, if possible, to switch to yield management software? The expenditure would be more efficient because either way you're going to "spend" something. It also provides a reply as to why you never offer specials.

On the other hand, my philosophy is that residents who really like a community can stand being told, "The specials are just for new residents" and then offered an alternative, like carpet cleaning. If the staff projects an exceptional, bright energy and the community is clean and well-kept, I believe you can survive concessionary times.

OK, I cant resist jumping in. You all make great points. But ever the contrarian, let me offer a couple of different perspectives. First, I think we are using the wrong definition of a concession. It is not a discount. It is a marketing utility. You offer it to make your product sound more attractive. This means that if offering a concession is what you want to do then go for it. But you do not necessarily need to lower your effective rent. Raise your asking rent to compensate. One thing that revenue management teaches us is that we must be "priced" at the correct perceived value in order to win the business. Price is effective rent (the amount they write checks for) not market rent. So you can have your (effective) rent and eat your concessions too

More important point - Roper's school of renewals: Renewing residents are, in fact, less price sensitive than new residents for all the obvious reasons. Renewing residents like the property and the management, have kids in schools, and dont want to hassle with u-hauls, utilities and address changes. This doesnt mean we get to gouge them but it does mean they are not inclined to leave. Now here is where we run into some statistics. I divide existing residents into 3 categories: leavers, stayers and undecided. Leavers generally constitute about 40% to 45% and are not renewing, no matter what because they have other plans. Stayers generally constitute another 40% to 45%. They are happy, comfortable and really dont want to move so they plan on renewing provided the offer is reasonable (not necessarily equal or lower than new lease pricing, just fair). This leaves us with the undecideds. Maybe they have had marginal neighbors or a bad maintenance experience or something. And maybe if we offer a discount they will change their minds. But the problem is we dont know exactly who they are. So in order to hopefully attract a few of the undecideds (we will never get all of them) with price we end up offering the same discount to everybody, including the stayers! This can add up to a lot of lost revenue chasing a few unknown opportunities.

So I caution about focusing too heavily on price as your retention tool. It is quality of life and customer service that are the two biggest drivers for renewals. If you stay continually focused on these you have more opportunity to improve your renewal conversion rate than trying to compensate after the fact with deep discounts.

Hi Lisa - This is Jeffrey Roper. I am the one that posted the comments (so, yea, I went to the Roper school). Sorry about the "guest" thing. I was logged in so I thought it should have signed it correctly. But I am not very technical, you know.

With regard to using concessions as an add on, that is how YieldStar does it. So it determines what the right effective rent is and then bolts the concessions on top. The main thing here is that it should be done across the board for consistency but thats about it. The nice thing is you can offer 1-month free to both new and renewing residents and still have different pricing for each.

Thanks for letting me participate. I will try to figure out the guest issue.

Jeffrey

Lisa,
I actually agree with you on the 1 month vs. carpet cleaning. If I saw that banner and was offered carpet cleaning, I myself would sarcastically say, "Whoop-de-doo." I forgot an additional piece--we don't use advertising wording that spells out the specials or use banners that say 1 month free. People only know when they phone or tour, and per Fair Housing, every customer is offered the same deal. If the special is plastered around out there, you can't use this advantage.

Great point Chuck. I agree that in your marketing you should never advertise your specials. Any discounts or specials should be used as incentives to close not just as incentives to come in. You're left with no closing ammo if you give it to them all up front. Also, by putting specials in your marketing you are teaching prospects to focus on price. That should never be a goal of a property.

Wow. Great discussion, Lisa!!! Everyone - I love the different perspectives.

First, we feel the cost of a move-out is now up to $4,500 due to most markets now offering two months free and vacancy loss days increasing. That said, it's never been more critical than ever to minimize turnover.

Interesting stats earlier. The SatisFacts Index shows 44% of residents being "very likely" to rewew, 28% "somewhat likely", 11% "don't know" and 16% "not likely" (and the "not likely figure has dropped 4 points for our clients since last year!). Our stats on why residents leave consistently shows controllable turnover accounts for over 60% of the reasons residents who do not respond "very likely" respond that way.

The drivers? Service. Service. Oh, did I mention service. And perceived value. Not fluff, not parties, not St. Patty's Day door hangers, not birthday cards. Problems in the following areas are those that have the greatest negative impact on the renewal decision: #1 is how promptly calls/emails are responded to; #2 is following up on "completed" work orders ("completed" only means entered as completed - but not that the resident is satisfied - and outstanding maintenance issues have an incredibly powerful relationship with satisfaction/retention); #3 is office staff responsiveness/dependability; #4 is office staff being courteous and professional; #5 is the appearance and condition of the home. Office staff, office staff, office staff, office staff - issues related to the top four areas that impact renewal likelihood comes back to the office. The next items on the list, which is in rank order, all relate to service requests. The areas with the lowest impact relate to the community, appearance, facilities and amenities.

Residents do not move because of the dollars. They enter the market because they do not see the value at that critical moment when they receive their renewal letter. If they are not feeling the love from the staff, they will shop. If their home is showing wear and tear, they will shop. If the staff is not at least attempting to take care of outstanding issues, they will shop. If they do not see the value in the rent they pay, they will shop. As Lisa pointed out, they know what is going on, likely driving by renovated properties with "$99 moves you into a new home" banners on the way home.

And now the economy is pushing all of this to the next level. If I do not love my home, am not feeling the support from the staff, do not see the value and am watching my expenses...and then get my renewal letter...absolultely I will shop. "Mr. Miller, why are you leaving?" "Oh, I found a better deal." No - the real issue is "I am not getting my money's worth here and I'm taking my money elsewhere."

I am not a fan of concessions for residents (although I understand we are in a different world right now) - but am a huge fan of doing those things that revitalize their perceived value. If they move out, your turn costs are enormous. So why not put some money into their home so they can be in love with it again? If I don't love my home and the support, why would I renew when there are so many options!!!

Our clients average a 9.5 point lower turnover rate than reported in the NAA annual income and expense category. Renewal likelihood is holding firm and even growing for those firms who focus on service and delivering value. It's not by chance - they are simply focusing on the things we know matter most. And that starts with "a culture of responsiveness and communication."

This is a fun discussion...tag, you guys are next!!!

Doug - great points. We obviously agree on the key drivers. My "stats" were just to be illustrative. It does vary widely by market and more importantly by asset. The asset level variance within the same submarket is definitely attributable to quality of life and service because we see very little correlation between price and retention rate. Again, reinforcing the position that renewals are largely inelastic (price insensitive).

Also, I think I should clarify my "bolt on concessions" point. I am not saying that by doing this you necessarily avoid lowering rents. I am saying that if you need to lower rents to compete then that is what you have to do. Whether that be a direct reduction in effective rent or a concession that discounts, it is still the same. So the decision to offer a concession is not about setting effective rent. It is about deciding if that will be an effective marketing tactic. If you think of it in that context then you are free to offer all sorts of incentive programs to both new and renewing residents. Just dont arbitrarily reduce real effective rent because you think it is the only available tool. (To the man with a hammer all the world looks like a nail)

Doug-

I'm surprised that "neighbor issues" is not in the top 5 reasons for people moving. Is that a choice in your surveys? While it's not something any of us like to admit in multifamily, the walls can talk. Sometimes the dog next door can be the main reason someone decides to move, but they might not admit that to our staff. I'd be interested to hear if you have any data on that. Thanks.

Mj

Great point/question.

When one looks at the reasons why a resident who did not answer "very likely" to renew answered that way, "neighbors" ranks #7.

The stats I referred to ealier was an analysis of all of the core questions we ask vs. renewal likelihood - this analysis then ranks what questions have the greatest impact on renewal likelihood.

MJ,
I thought about neighbor issues too but I think maybe that falls under Doug's customer service points. That plus some "extras" in flexibility can also act as a buffer against people (including renewers) always demanding money off. For instance, flexible lease terms--offering leases in a range of months. Plus, easy transfers--allow a resident to transfer at any time with 30 days' notice. This can solve the neighbor-problem issue when management can't. But a caveat: your turn cost must be very low to do that.

Going back to Lisa's original subject, though, offering renewers the same offer as new people truly is GREAT customer service and seems logical if you are already promoting your special everywhere. I'm bugged when I get junk mail that shows newcomers to my DSL service can get it at half of what I'm paying now (yep, I talked to the company but they said no to giving me the nice price--and luckily for them I hate to mess with a really great connection). But see, it works: I get great service and I'm willing to pay.

The deeper discussion coming out of this is that we all dislike concessions. Plus, right now the media is telling everyone it's a buyer's market in every direction (though it isn't in every field). Many leasing people I know are seeing more customers than ever asking for a "deal" on the monthly rent! Some customers don't even care if it is a Fair Housing violation, they just want to wheel and deal.