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Differential Pricing: A Great Way to Increase Yield and Drive More Business
Posted 7/18/2019
 
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Differential pricing, also called value-based pricing, is a great way for self storage operators to gain higher yield from specific units that may have higher value to the customer. If you are not using differential pricing, you may be leaving money on the table or losing new customers to other stores.

What is it?

Differential pricing is a simple concept; different instances of the same product can have features that make one more valuable and attractive to the customer than the other and subsequentially they should be priced to reflect this contrast in value.

For example, a store may have 30 5x10 units, but ten of these units are on the ground floor and have significantly better access than the other 20 units. All the units are the same size and are otherwise identical. Should they all be the same price?

Some customers find higher value in accessibility while others are very price conscious. Creating a differential pricing approach to the 5x10 units in the case above means the operator is able to appeal to both. If the current price offered is $100 per month, this operator could drop the price on the less accessible units to $85 per month to appeal to the price-conscious tenant and raise the price of the higher-value units to $120 per month to appeal to tenants who value accessibility. This strategy broadens the pricing appeal and reduces the chances of losing a customer.

Does everyone use differential pricing?

No! In 2018 across the American self storage market, 58% of unit types had only one price advertised, even if there were slight variations in features such as accessibility. While 42% of unit types had two or more prices, the store types using differential pricing tended to be REITs and mid-size operators. It is worth noting that five years ago less than 30% of unit types had differential pricing. Operators seem to be catching on to the trend.

How do I use it?

There are a number of ways to create a differential price ‘spread’ for a unit type. Consider the key features of the set of units you have and see if there are specific accessibility, security or other features that enable you to create groups with the unit type. You are trying to identify a value component to a set of units which makes those units appeal more to customers and where you think tenants will pay a premium because of that feature. This should enable you to identify a ‘value’ offering where that premium feature is missing or restricted. A very simple process is to then spread the pricing to each side of your current price. For example increase the price for premium units by 10% and decrease the price for value units by 10%.

In the self storage market there are services available that analyze your competitive market and can determine how your competition is behaving, advising you how to reflect that in your pricing. At the top of the pricing food chain, data-driven rental rate optimization systems create spreads that take into account numerous criteria such as competitive pricing, occupancy trends and rates, demand curves and seasonal patterns.

Think of it like widening the net to catch more fish. Differential pricing is a simple way to broaden the appeal of your units using pricing.  Learn more about StorTrack pricing.

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