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Negative Amenity Pricing: It's Time to Embrace the Practice, Don't You Think?

It appears that our industry has, at long last, *almost* fully embraced menu based pricing in all markets.  Even without revenue management software such as Yieldstar and LRO, we're finally managing to realize that 'one price does not fit all' and have seen increased revenue as a result. (Note here: When I worked for industry legend Joel Altman approximately 20 years ago, he had us using menu based pricing even then). And that's a good thing. But we still need to make one more adjustment and I find that many property management types kick and scream when I suggest this to them. I really don't understand why.

We all have that ‘list' that we use for pricing: $10 for a better view, $15 for a preferred floor, and so on and so forth. But it seems that we use the WORST apartment in the entire building/property as our starting point. And I think that's wrong.

Our starting rent for a floor plan type should be a ‘basic apartment'. One with an average location, an average view, an average square footage (we all know about those units that have the quirks to them, like smaller closets, square footage, etc. Those are NOT our average.) The base price should be set from our most standard types. Then, when we should look at our inventory and find the ones with detrimental items, such as horrible views, smaller spaces, undesirable locations, etc., and accordingly, we should subtract rent from those unit types.

Let's face it - those particular apartments always have the highest turnover because they are the worst of the lot. So let's finally - as an industry - price them fairly. I think you'll be surprised at how much easier they will be to rent and have residents stay longer term.

Every time I have done this in my 20+ year career, those particular  apartments have leased immediately and have stayed occupied. Every single time.

Try it. You have nothing to lose and everything to gain. Or do you have an opposing viewpoint? I'd love to hear BOTH sides of this issue.

BTW, if you like my blog posts here, please feel free to vist my blog, www.ApartmentMarketingBlog.com where I post regularly as well.

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This comment was minimized by the moderator on the site

Now you just have to apply it fairly to the dark apartments, the 'below ground' apartments, the smaller-than-they-should-be ones, etc. and you'll have it covered!

  Lisa Trosien
This comment was minimized by the moderator on the site

Hi Lisa,
If folks are using a Revenue Management system, does that already take this issue you have raised into account?

  Eric Brown
This comment was minimized by the moderator on the site

E,

Speaking from my experience at Equity - I seem to recall that we predicated everything on the dog unit, meaning everything was a up charge. Now that was three years ago so the philosophy may have change in their application of it. It's a good point.

  Mike Brewer
This comment was minimized by the moderator on the site

Eric, I'm hoping that someone from LRO or Yieldstar can weigh in on that for you.

Mike, I'm not surprised that EQR would get it right. They are using LRO at most, if not all of their sites right now as far as I know.

LT

  Lisa Trosien
This comment was minimized by the moderator on the site

I'm new to the industry, so these types of posts really explain it! Two months ago I was involved in a discussion regarding negative amenity pricing. I think it makes perfect sense.

Consumers/residents are weighing their options more carefully, especially now. If they understand why pricing is different, they are more willing to either accept the negatives without complaint or pay for the positives.

  Charity Zierten
This comment was minimized by the moderator on the site

Great post and here's a question for you: How do property managers train their leasing consultants to explain differences in price, especially when it comes to negative amenity pricing? I'm guessing that using the "my magical computerizer gives us the price" won't quite work. So when a prospect wonders why X apartment is cheaper, and honestly explaining the industrial waste smell in the morning isn't a viable option, what could they say when asked?

  Brent Williams
This comment was minimized by the moderator on the site

I generally never had to explain away lower prices; people were always so happy to get a bargain they didn't question. I think I'd try to focus on why other apartments are higher rather than why mine are lower. I'd be more positively focused than negatively focused. I'm a 'glass half full' kind of gal, you know?

  Lisa Trosien
This comment was minimized by the moderator on the site

Lisa,

Bullseye on your post. You certainly don't need a fancy software program to use common sense in pricing your apartments. I agree that your best apartment should have the top price and lesser units should reflect a deduct from the top.

  Bob Landis
This comment was minimized by the moderator on the site

Hey Bob!
Great to hear from you! I appreciate your response. I've just always really believed that the subground, parking lot view apartment should be priced below our 'base' units, but boy is it hard to convince some folks of that!

LT

  Lisa Trosien
This comment was minimized by the moderator on the site

It has long been time for our industry to get real about pricing starting with implementing "net" pricing (even if manually derived vs. using a revenue management program) and doing away with the concession circus. A wise person in our industry once said: "concessions are simply a symptom that the manager has not figured out their problem yet."

  Bob Landis
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