Pricing: Go Big or Go Small?

There are many strategies to pricing, but we will pick two divergent ones that are based on actual self-storage companies. We pick two companies’ website pricing activity for an entire year of 2018, which is not too far back, yet not too recent. Both companies have over 100 stores.

We will look at unit groups displayed on their websites for at least 300 days in the year, which means these unit groups were rarely sold out and rarely unavailable for rent. Let’s further focus on unit types between 25 and 300 square feet in size. A specific unit type may be, for example, 5’ x 10’ in size, 2nd floor with climate control. All the stores averaged six or more different unit types.

Pricing Tactics: The Data

Let’s look at the following aspects of pricing comparing the two companies, company A and B:

Data A B
For all price changes, what was the average change, in percent, up or down? 11% 4%
How many times, on average for all its unit types, did a company change its prices in the year? 79.8 17.8
What’s the maximum number of price changes made for any unit type in the year? 135 69
Percentage of all the price changes that were “mini”—3% or less? 22% 55%
Percentage of all the price changes that were “micro”—1% or less? 3% 18%

 

Big Moves versus Small Moves

Clearly, Company A was the bigger price mover. When A changed its price (up or down), it changes 11% on average. B’s average was just 4%.

Now, some might think if A made bigger, perhaps more consequential, price changes, it might do so less times. On the contrary, company A did so more times. Across all its unit types, A changed almost 80 times on average over the year. To give an idea, that means roughly 1 ½ times per week, assuming changes were distributed evenly throughout the year (which may not be the case).

Company B’s average number of changes across unit types was only 17.8 times. For a perspective only, that is roughly once every three weeks. (Again, this is assuming changes were done evenly throughout the year.)

Even company B’s highest number of price changes across all its unit types, 69, is lower than A’s average. A’s highest number at 135 is almost double that of B.

Ever More Mini Price Moves

Even more interesting, the few move that company B did make, it made it small. In fact, very small. Over half of all its price moves were less than 3%. Almost one-fifth of company B’s moves were micro moves, less than 1%. That means $1 or less for a $100/month rent! Company A, on the other hand, appears to have a completely opposite strategy. Only one-fifth or so of its price moves were mini at 3% or less.

Differing Pricing Tactics, Differing Reasons

We can only surmise the reasons for these tactical differences.

Company B’s pricing strategy looks almost like a surgical, precision-strike one. It makes proportionally more mini price adjustments. Possibly, B has the goal of pricing just under the competition. Or, the company may simply tend to change its prices by a little bit every time there is a move-in or out of a unit type.

Company A’s more aggressive strategy might be in response to a more competitive environment. Or A might be supporting a “low price leader” branding effort with a disciplined promotions strategy. It aggressively lowers its prices during “slow” days of the week, with equally aggressively increases during busy days of the week.

Whatever the pricing strategy, the important thing is to have the right strategy for you.

There are many factors that go into a pricing strategy and decision. Some may be competitor driven, some marketing/branding driven, while others may also be internally and operationally driven, such as from company philosophy to occupancy rates.

Whatever the reason, a good starting point is having good data, such as competitor data. Whatever the strategy, good data provides a foundation for conscious and pro-active decision making. We are also finding more companies are taking a comprehensive approach, with revenue management systems that incorporate both good data, methods, and processes.