One of the innovations the self storage industry has come up with recently is “Demand Pricing.”
This is unit street pricing that adjusts daily or weekly depending on the availability and occupancy in a submarket.
For example, a facility could usually rent a 10 x 10 for $90 per month. If there is only one left to lease and the submarket is at 95% occupancy for 10 x 10’s, the price could adjust that day or week to $120.
Much like an airline ticket or a hotel rate.
Here in Louisville during Derby week hotel rates are off the charts.
Disney World caught a lot of flack when they started implementing “Demand Pricing.”
In theory, I get it.
But in my humble opinion, there is a big difference between a reoccurring monthly rental charge for a self storage unit and a one time purchase of an airline ticket.
But I have learned to never say never. When I owned a RE/MAX franchise the practice of charging a “transaction fee” to the agents became standard as a way to make owning a franchise more profitable.
I said our company will never charge that fee.
But as our breakeven point started getting higher and higher, and I couldn’t raise my monthly desk fees because I was already at the top of the market, “transaction fees” started looking pretty good.
I suspect that in the next few years the ability to raise unit prices may be much flatter than in the previous few years. Perhaps this pricing model will become the norm.
But for now, we are actually using it as a differentiator between us and the larger players in our submarkets.
We have blitzed markets where we have space to lease with videos that explain that some of our customers are people who rented from the competition because of their move in specials. After they received their third or fourth price increase in four months or so, they moved into our facility.
Don’t confuse “Demand Pricing” with “Value Pricing” which we discussed last week.
The “Value Pricing” model allows customers to self select an upgrade to more expensive units for the convenience they offer.
In “Demand Pricing”, the customer gets no choice. The unit price is determined by the supply and demand on any given day.
All too often, the other customers who came into a facility at a different price point are also raised.
That is where we really try to capitalize on their frustration and convert them to our facilities.
But the real question is will Demand Pricing work for you.
With the data analytics software available through companies like Veritec Solutions, you have the ability to easily deploy the demand pricing model.
Will you do it?
For now, our company is a NO.
In fact, in certain facilities, we will even lock in a customer’s current rate for up to six months if that will persuade them to sign a lease today.
We are using it as a way to separate us from the competition.
But as I have learned in the past, that is for now.
I do find it hard to see a day when a recurring monthly charge with changing demand pricing will work well without a lot of customer dissatisfaction.
But who knows. I have been wrong before.
It is important for you to decide for yourself. Don’t design your pricing model by default. As this industry evolves take advantage of what is available that can maximize your returns.
Do it in a way that is in harmony with your or your company’s values and mission.
For us, the customer’s experience and customer satisfaction play a key role in our culture. We have determined Demand Pricing does not fit in that culture. So we are not employing it and using that fact to our best advantage.
But that is just our company, and perhaps we are leaving money on the table.
What will your company do? That’s the important question of this episode.
Share your ideas and thoughts. I would love to hear what your thoughts are about Demand Pricing.
I look forward to a continued conversation on this topic.
