The Frat Hazing Guide To Resident Retention

(Before you get upset by the concept, please see the disclaimer at the end!)

Hazing in college is an interesting thing:  Not only does it weed out those who are not fully committed to the idea of the frat or sorority, it creates an unbelievable sense of loyalty after that initial period.  But why is that?  It sounds counterintuitive that the organization puts the person through hell, and yet the members are somehow more connected to the organization after the fact! 

The reality is that however horrible it might be, surviving hazing ends up being an accomplishment, earning the ability to gain seniority within the group.  They have “paid their dues”, and if they left the group, the significant cost of hazing would be lost.  In this sense, their experience in the group gets better over time, first after surviving hazing, and later by rising in seniority. 

But our service tends to take the exact opposite approach.  We give the best deals to our new residents, give them the “freshest” apartment, and end up spending much more time on them in the process.  So not only do we not provide extra benefits for them to stay many years, the system creates incentives for them to leave to the next concession! 

I believe it is time to reverse this process

But is it even possible to reverse the payout system?  I think it is not only possible, but I think an educated customer would find this to be a very compelling differentiator.  So let’s say that you have a reverse pricing system, where you charge a premium for the first year, but the price actually goes down every year (to a stable point), while benefits go up. 

A new prospect should understand this concept extremely well, as it is likely they are moving because their rent has gone up.  So this concept directly hits on a “pain point” they are experiencing at that very moment.  “This program understands that our long-term residents are our most valuable customers and we treat them that way.  Did your previous community have that same philosophy?”  NO! 

And even though your initial price is higher, you can still use the long-term price to sell on price.  People tend to use the number that they like best.  For example, if you tell someone that the price is between $50 and $70, they will assume it is $50 and budget accordingly, even if they choose the higher priced product later on.  So in this case, you are giving them the same type of range and they will likely target in on the lower of the range, even though it comes at a later date. 

In addition, not only do you hit their pain point, you end up qualifying your residents for those that plan on living at your community for a longer term.  Right now, we take any person that comes in the door, but if that person has planned their move out before they even move in, are they really the best type of resident to have?  The residents that like this concept and want to take advantage of it understand in the beginning that they have to stay at least two years to enjoy the benefits, so your resident retention is affected from day one!

Even more, many communities qualify prospects on the concession price, which means when that the price goes up after the first term, they can no longer fit it in their budget.  This not only drives up turnover, but it also often results in a lower caliber of renter because their income often doesn’t match the community quality level.  However, when qualifying on a premium price, you get a resident who easily qualifies for the average long-term rent.

Lastly, after a couple of years, the concessions at competing properties are no longer a true monetary incentive, so the price comparison becomes a nonfactor.  But while your competitors may have the same price as you with concessions, they have a much higher cost associated with turnover, which you would not have, thus creating a much higher profitability for the same rental amount.

Don’t get me wrong, this will not be an easy sell, and will likely result in a slightly longer initial vacancy.  But in the long term, that vacancy cost should be more than offset by the longer average customer life!

(Disclaimer:  Hazing is a horrible situation, causing at least one death per year.  I am only using it to explain the reverse payment concept!  And the "hazing" aspect is limited to only higher first year rental rates, nothing more - I am not advocating tying up new residents with duct tape and paddling them!)

(Also, thanks to Scott Schneider for inspiring this post.)