Operations: Questioning assumptions (marketing, pricing, everything else)

I started on Twitter in November 2008 and each day find a few new topics for thought and discussion.

Sometimes the posts themselves are provocative, and sometimes they lead to a provocative post. [For those who don't click through, Mark Juleen of JC Hart announces that 1Q traffic was the same or higher year on year despite dropping all print ads; Lisa Trosien asks why we don't use more negative amenity pricing.]

Mark’s experience with non-print advertising echoes the experiences summarized earlier. I won’t rehash the post, merely to recommend that with costs under such scrutiny and a change in outreach methods underway, these types of experiences should be studied and tried.

Lisa’s post about negative amenity pricing prods us to think more thoroughly about product and pricing.

Our starting rent for a floor plan type should be a ‘basic apartment’. [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., we should subtract rent from those unit types.

An added benefit seems to me that it moves you away from a ‘bait and switch’ perception. If you base your pricing off the least attractive unit, you are almost compelling a prospect to spend more to get what they actually want and generating a certain amount of resentment for your trouble. Pricing in the middle (and entering at a higher base rate) allows the prospect to make the choice of purchasing as much apartment as they actually want. This also gives us a chance to listen more closely to the prospect and help match the prospect with the appropriate unit.

Although this is well-trod ground, pricing transparency links cost to benefits by creating a more quantitative ‘value proposition’. Per HBS’s Working Knowledge series:

Some companies view price bundling as a necessary tool to promote initial sales: If they eliminate price bundling, they could eliminate the sale. However, organizations could psychologically unbundle those offerings to promote consumption. One way of doing this would be to highlight the prices of individual items in the bundle after the payment has been made.

Using this unbundling as a guideline, you might want to create your own value propositions. Lower the price for distance from parking, older appliances, or lower ceilings. In this market, everything has a price (to owners and residents) and you might be surprised to learn what you don’t have to spend.

As an example from the archives, on one of my properties, the leasing agents complained about the difficulty of renting ‘basement apartments’ which were typically on the back of the building and darker than others because there were only windows on one facade. The basement apartments could more accurately be called ‘ground floor’ apartments, ideal for pet owners or shift workers who want a quieter unit. In addition to repositioning the units, we also reconfigured the landscaping, providing for more shade and using river rocks to create a constricted area for our four-legged residents. For those renters, no discount on these ‘undesirable units’ was required. Not only did we make more on those units by targeting a certain renter profile, we also improved the psychology of the leasing agents by highlighting the benefits of every floor plan. Please note that pet owners and shift workers are not a protected class for Fair Housing purposes.

[Additional info on pricing psychology from NYT and of course, Wikipedia.]