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May 28
2009
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I am a manager who doesnt get it.
Posted by: Jennie McCluskey on May 28, 2009 01:00 Tagged in: Untagged
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Those of you reading this, I beg of some knowledge. As a manager of a larger community in the Chicago Metropolitan Suburban area, I am frequently confused with concessions. It seems to me that the most important selling point to the apartment and getting the prospect to apply, isnt just comfort and good service, but a good price. I understand GPR and meeting budgets and expectations of companies to get the most $$ for their apartments. But what is the big deal about concessions? If competitively priced, with a decent value to the prospective resident, in your market area, not overpriced or under priced, this should be more important than a concession. It seems to me that the price is higher in some cases than it should be, so that investors perhaps see a dollar figure and match to investment value. So the concession is a different line item and is shown somewhere else. So it looks like a community is getting $$$$ for the apartments, but are giving away $$$$$$ to get those leases. Am I making any sense? It just seems counter productive. You could potentially have less turnover and a steady flow of leases, happier current residents appreciative that they arent losing a deal that the new move in is getting, and our leasing doesn thave to try and explain all of these confusing "deals". Isnt it better to just have the right price? I guess I just dont get it?
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Comments (7)
Well, I think mostly because of human nature and economics is the reason for concessions. Nobody wants to run concessions, it should only come from economic necessity or marketing strategy. In today's economic climate, households that were once making $100K/year are now only making $50K or $30K/year and trying to get by.
In tough times, you can tell everyone how great a ribeye steak is, how they taste the best, how they're the most thick and juicy cut of meat out there, how they're so tender they almost melt in your mouth, etc. but if all a person can afford is chicken, then they have to go with chicken, no matter how great that ribeye is.
As for human nature, think of ourselves. If you go shopping at the mall and find this amazing top at one store that is $40 and you go down a few stores and find an equally amazing top that is normally $80 and is marked 50% off so it, too, is also $40, which one are you going to by?
When the economy recovers, then definitely concessions should go away, but until then we have to think strategically to help the American people get through this difficult time.
In tough times, you can tell everyone how great a ribeye steak is, how they taste the best, how they're the most thick and juicy cut of meat out there, how they're so tender they almost melt in your mouth, etc. but if all a person can afford is chicken, then they have to go with chicken, no matter how great that ribeye is.
As for human nature, think of ourselves. If you go shopping at the mall and find this amazing top at one store that is $40 and you go down a few stores and find an equally amazing top that is normally $80 and is marked 50% off so it, too, is also $40, which one are you going to by?
When the economy recovers, then definitely concessions should go away, but until then we have to think strategically to help the American people get through this difficult time.
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I agree with Anne Marie about human nature (greed) playing a large role but I also wonder how often people hit the 'math wall'. If percents, ratios and other financial calculations aren't party of someone's daily life how often do they just assume that something off is a better deal than full price at another property? If they don't know how to do those calculations easily in their head's you may lose the sale even though the total cost of living at your property will be lower.
There are many instances of people hitting the math wall, failing to do simple math that can help them save money. My favorite example with playing cards. Do you know the odds of pulling a diamond out of a deck?... A jack..... An eight of clubs? (25%, 7.7% and 1.9% respectively) Super easy math you can do in your head but how often do people not do the math even when they have money on the line?
Giovanni Isaksen
Ashworth Partners Ltd.
There are many instances of people hitting the math wall, failing to do simple math that can help them save money. My favorite example with playing cards. Do you know the odds of pulling a diamond out of a deck?... A jack..... An eight of clubs? (25%, 7.7% and 1.9% respectively) Super easy math you can do in your head but how often do people not do the math even when they have money on the line?
Giovanni Isaksen
Ashworth Partners Ltd.
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Jennie-
You do get it. Concessions don't work. Let's answer the question, "What is the intent of a concession?" The intent is to attempt to differentiate yourself from your competition by using price as a motivator to gain more market share. The reason concessions fail is because just as soon as you offer a concession, your competition will find out and either copy it or try to one up you. In the end, unless you find a unique way to differentiate your community/brand you'll still end up having the same market share that you would have had if everyone just left their prices alone.
So, now that I've made that point, it is irrelevant because companies believe that if they don't have 96% occupancy or more they are under-performing. So, they try to compete with concessions and we all have to play this ridiculous game all-the-while wondering why our concessions can't get us better occupancy. It's an exercise in futility.
There are multiple reasons why we do concessions all crazy, and all mainly are in an effort to protect the gross rent standard. So, whatever method you choose to competitively price your apartments (if you must), make it easy to explain and maximize your revenue. With your pricing, however, remember it is not as important as developing your brand, customer experience, and reputation in order to gain market share.
You do get it. Concessions don't work. Let's answer the question, "What is the intent of a concession?" The intent is to attempt to differentiate yourself from your competition by using price as a motivator to gain more market share. The reason concessions fail is because just as soon as you offer a concession, your competition will find out and either copy it or try to one up you. In the end, unless you find a unique way to differentiate your community/brand you'll still end up having the same market share that you would have had if everyone just left their prices alone.
So, now that I've made that point, it is irrelevant because companies believe that if they don't have 96% occupancy or more they are under-performing. So, they try to compete with concessions and we all have to play this ridiculous game all-the-while wondering why our concessions can't get us better occupancy. It's an exercise in futility.
There are multiple reasons why we do concessions all crazy, and all mainly are in an effort to protect the gross rent standard. So, whatever method you choose to competitively price your apartments (if you must), make it easy to explain and maximize your revenue. With your pricing, however, remember it is not as important as developing your brand, customer experience, and reputation in order to gain market share.
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Mark - Here's a situation for your take... we have a local competitor with a HORRIBLE reputation for maintenance,. mgmt, etc. and as a result, they earned the worst types of residents. However in the last year they were installed with a new owner/mgmt. THey have greatly improved the physical appearance and curb appeal of the property, they are quickly weeding out their problem residents and as a result, have achieved 98% occupancy while their comp's (us) have not. Their customer exerience is great and their reputation improves. THeir method - to attract attention and property traffic, they have slashed prices on their most common floorplan - their reasoning is that if they lease it at 50% of their normal rate this year and fill the books, they are stll collecting $. Then next year, they will have earned the respect and trust of their residents and will be better able to raise the rents to market rates.
So what's your take?
So what's your take?
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Tara-
Not a fan of this strategy. I would assume they are getting rid of the "problem residents" as a result of stricter credit guidelines. There's no way curb appeal and customer service coupled with reduced rates would accomplish that in my opinion.
Anywho, I'd like to hear about the increases they are going for next year. We saw this happen with a new lease-up for a student property we compete with in Bloomington, IN. They made so many people angry with their rent increases that any loyalty they tried to create during the year was completely wiped away. Your price and the way your present it is also a component of your brand and reputation.
Bottom line is that the property is not 98% occupied, but 49% occupied (economically). My guess is that they will have turnover in the 75%+ range. That is, if they ask for a 100% increase in rent next year I believe the majority of people will leave. Then they will find themselves in a situation where they have to decide to get a smaller increase or plan to just turnover a bunch of apartments and hope their new reputation (that is now tainted by huge rent increases) helps them lease the whole property up again.
I don't envy the position they are in and believe volume (sale) pricing only works for products that have (essentially) unlimited volume, like a commodity. Thanks for sharing.
Mj
Not a fan of this strategy. I would assume they are getting rid of the "problem residents" as a result of stricter credit guidelines. There's no way curb appeal and customer service coupled with reduced rates would accomplish that in my opinion.
Anywho, I'd like to hear about the increases they are going for next year. We saw this happen with a new lease-up for a student property we compete with in Bloomington, IN. They made so many people angry with their rent increases that any loyalty they tried to create during the year was completely wiped away. Your price and the way your present it is also a component of your brand and reputation.
Bottom line is that the property is not 98% occupied, but 49% occupied (economically). My guess is that they will have turnover in the 75%+ range. That is, if they ask for a 100% increase in rent next year I believe the majority of people will leave. Then they will find themselves in a situation where they have to decide to get a smaller increase or plan to just turnover a bunch of apartments and hope their new reputation (that is now tainted by huge rent increases) helps them lease the whole property up again.
I don't envy the position they are in and believe volume (sale) pricing only works for products that have (essentially) unlimited volume, like a commodity. Thanks for sharing.
Mj
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I have never been a fan of 'gimmicks' and that is how I see concessions. As a prospective resident, what I look for is simple; Extremely high standards of customer service. Give me good old fashioned customer service over a gimmick any day...
Let me illustrate: I visit property A that meets my needs, but the service I receive is less than I desire. Then I visit property B that ALSO meets my needs, but I am treated like royalty and the property shows like the work orders are addressed rather quickly. Assuming the rents, floorplans, and amenities are rather close to being equal.
Now, let's say that property A is offering an incentive to move in, while property B is not. I am going to go for property B because of how I was treated.
I also think that concessions are used when at least 1 of 2 situations exist: either a) you have a significant NUMBER of vacants, or b) you have vacants that have been vacant for a significant period of time. If either situation exists, look at the reasons WHY they do and fix that before you offer a gimmick.
Let me illustrate: I visit property A that meets my needs, but the service I receive is less than I desire. Then I visit property B that ALSO meets my needs, but I am treated like royalty and the property shows like the work orders are addressed rather quickly. Assuming the rents, floorplans, and amenities are rather close to being equal.
Now, let's say that property A is offering an incentive to move in, while property B is not. I am going to go for property B because of how I was treated.
I also think that concessions are used when at least 1 of 2 situations exist: either a) you have a significant NUMBER of vacants, or b) you have vacants that have been vacant for a significant period of time. If either situation exists, look at the reasons WHY they do and fix that before you offer a gimmick.
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What Do You Think?
Give me a fairly priced (fair determined by appropriate market lines and the value of the unit itself) apartment to sell with Zero Concessions anyday before you give me a community of concessions that reeks like a blue-light special two days older than the sell-by date.