After spending months carefully monitoring rental rates throughout the pandemic to stay compliant with predatory pricing laws, how excited would you be if demand drove up the rate for a prime unit in your $4,000 self-storage facility and a customer chooses to sign rent it out? While the dynamics (pun intended) aren’t exactly the same, this scenario played out in the entertainment industry recently when a pricing algorithm jacked up the cost of premium seats for a Bruce Springsteen concert at $4,000.
Concert organizers are now reaping the rewards from music lovers who had no options for live, in-person entertainment at the height of the pandemic. The travel industry also benefits from vacation-starved consumers who have been stuck at home making real estate plans for months. These differ from recent fluctuations in gasoline, grocery and other prices more closely tied to supply issues and inflationary factors, as they are driven by price acceptance.
The main reason an algorithm suggests a price hike or dynamically increases a rate is because the demand drivers it factors add up to a figure that the algorithm thinks someone will pay. Of course, that didn’t stop a slew of backlash from stockpiling when consumers learned that dynamic pricing was to blame for the exorbitant cost of the Springsteen ticket.
At first glance, $4,000 for a concert ticket seems like a a little high, especially when the average ticket price for the same show was around $200. It turns out that 56% of tickets sold were under $200. Those $4,000 seats were part of a “Platinum” block that included 12% of available tickets and was part of a limited pool subject to dynamic pricing, according to “USA Today.”
While the story and fan reaction is somewhat amusing, I bring it to your attention because, while airlines and hotels have had free rein on dynamic pricing for many years, these are the types of incidents that attract the attention of watchdog groups, litigants and government regulators – people with axes and the means to grind them. Even before that, there were rumors from people who thought about ethical issues and proposed regulations on dynamic pricing principles.
Applying or toughening regulation in a free market – especially one based on formulas determining the prices people are likely to pay – is certainly a slippery slope and probably won’t happen anytime soon, but crazier things have happened. produced. If incidents like these happen more frequently and consumers yell enough to form a persuasive argument, those in power will raise an eyebrow and pay more attention to it.
If nothing else, that may be reason enough to review your pricing and price-raising strategies. High inflation increases price sensitivity, even at a time when demand for self-storage is skyrocketing.
Although the largest publicly traded self-storage real estate investment trusts (REITs) have long used dynamic pricing strategies, these tools have only recently been widely adopted by smaller operators. If you don’t have formal policies and strategies created around list prices versus actual prices, tiered pricing structures based on unit types and other criteria, or if you haven’t considered Considering the benefits that dynamic pricing can bring to your revenue management program, now is the perfect time to leverage these tools to impact your bottom line.
Price management has become so important that we have two price-related video streaming options in the ISS Store starting with the Inside Self-Storage 2022 Global Expo:
A scaled value approach is effective for many reasons, as it allows you to place a premium on units based on criteria other than size. Not all 10x10s are created equal, especially when you may have spaces near an elevator, adjacent to a loading/unloading area, a short drive from the entrance, etc.
Also keep in mind that tiered pricing is not necessarily dynamic. You can easily assign tiered factor pricing in a manual setup. In most applications, dynamic pricing is essentially a complete solution or partially automated rate adjustment based on demand drivers. Check your management software to see what controls you have. In many cases, your system may suggest rate increases without automatically setting them.
Whatever you decide to implement, remember to keep an eye on it and make any necessary adjustments. If you have a unit in the perfect location that comes with its own sommelier, lottery number predictor, and space-time portal, maybe that $4,000 monthly rental figure might not be so out of reach.